The National Pharmaceutical Pricing Authority’s decision to cap the price of 108 anti-diabetes and cardiovascular formulations has the drug industry up in arms. The principal reason is that these formulations do not fall under Schedule-I or the National List of Essential Medicines (NLEM), making it the first time that the drug price regulator has imposed pricing restrictions on so-called non-scheduled formulations. For the 108 formulations, drug-makers will not be permitted to fix maximum retail prices that exceed 125 per cent of the simple average price of various brands in a similar category. The industry has reacted by saying that the NPPA’s action can potentially bring every drug under price control, thereby making the NLEM redundant. But the Centre has a legal handle to effect this order — Para 19 of the Drug Prices Control Order 2013 empowers it to fix the ceiling price of any drug “in (the) public interest”.
The NPPA’s move, on the face of it, may seem regressive and at odds with the idea of a free pricing regime. But a more nuanced view may be in order since drugs, unlike most other products, are bought by consumers based on the doctor’s prescriptions. Also, those under treatment usually have no knowledge about low-cost equivalents of the expensive brands recommended by their doctors. Take, for instance, Telmisartan, used to treat hypertension. The MRP for a pack of 10 tablets (40 mg) of this drug varies from a low of ₹25 to as high as ₹385. Or Glimeperide, an anti-diabetic, sold by the market leader at ₹133 for a pack of 10 tablets, despite other brands being available at below ₹40. It is clear that the sales of both drugs – now brought under price control — are influenced mainly by the medical fraternity and the distribution channel. A free market, where consumers exercise informed choices, simply doesn’t exist in these cases.
Such arbitrary and wide variation in pricing for the same product — even after accounting for quality differences, unlikely or insignificant at best — is a result of ‘market failure’. State intervention is warranted whenever there are information asymmetries or non-competitive markets, leading to situations where consumers cannot use their discretion in product selection. While price controls aren’t the best of solutions, the industry should reflect on the anti-competitive pricing and marketing practices resorted to by some of its members. Instead of merely attacking the NPPA’s order, it must explain the logic for such irrational pricing in drugs even after they have become generics, when the underlying molecule in the various branded formulations is the same. If the market cannot correct this anomaly, state intervention is, indeed, necessary in the public interest.