In a developing country like India, the prices of medicines, in most cases, are higher than what they should be. But the determination of affordable prices of essential medicines is not very easy. This is because the producers of medicines argue that it involves a huge cost in R&D to produce vital new drugs. The patentees’ demand of high prices is considered by them to be “necessary incentives for innovation”. The World Health Organisation (WHO) holds that “affordable and fair price is one that can reasonably be funded by patients and health budgets and simultaneously sustains research and development, production and distribution within a country”. It is known that in many countries, the governments try to provide a lot of essential medicines to the people at reasonable prices. Here the governments have to maintain a balance between price control and encouragement in R&D in medicine.
Price control in India
The National Pharmaceutical Pricing Authority (NPPA) under the Department of Pharmaceuticals is responsible for fixing the prices of medicines in India. It was set up in 1977 and has been tasked with fixation or revision of prices of pharma products, enforcement of provisions of DPCO, and monitoring of prices of controlled and decontrolled drugs. It is reported that India has among the lowest prices in the world for most the medicines. Around 25% of the industry’s production is already within the purview of various price controls via the National List of Essential Medicines (NLEM). The annual cap on price increases. A huge number of units of the industry is reported to be covered today, directly or indirectly It is expected that this will go up 2-3 times once the government’s proposed policy comes into being.
It is also reported that on 14 formulations, the NPPA decided that if it could not get market data on costs then the prices paid by institutional buyers like hospitals would be the ceiling prices for the retail market as well. In another case, orders were passed to reduce prices of 75 formulations that were not even under the original price control schedule. A recent report released to the media pointed out that the NPPA’s job is also to look at the availability of medicines. If profit margins are squeezed beyond a point, the industry’s ability to increase R&D-spend gets compromised. A large part of the industry already has a large foreign turnover. For example, just 16% of Dr. Reddy’s revenues come from India, 26% for Sun Pharma and 38% for Cipla. It is thought that very strict price controls may ensure their paying less attention to the local market in the future.
Prices of the patented medicines
In India, most of the medicines are in the list of essential medicines. Sharmila Mary Joseph and James J. Nedumpara have shown (‘Prices of patented medicine in India’, The Economic and Political Weekly, June 2, 2018) that upto 2005 the situation was different. At present, the TRIPS agreement is firmly in place in India and hence, the innovators are largely entering into voluntary licence agreements with generic manufacturers. As a result, the generic companies sell the product within the country as well as export to low income countries. In many cases, drug producers tend to abuse the patent system tweaking old molecules to extend monopolies so that prices remain high in many cases. Even the Supreme Court has observed the malpractices and given landmark verdicts (Novartis AG vs. Union of India and others, 2013).
It is known that for a product to be patented some conditions are to be present as, for instance, that the product is really an innovation, it must be affordable and it should be available in the market. In many cases, even the life saving medicines are not available and affordable. In that case, the government has to think of giving a licence to other producers. A lot of anti- tuberculosis medicines, for example, are not available in the market. It is estimated that India is burdened with one fourth of global tuberculosis patients.