PMEAC comes up with 3 pricing models to fix retail prices of 328 drugs

The Prime Minister’s Economic Advisory Council has suggested a complex combination of three pricing models to fix retail prices of 348 essential drugs to balance industry’s concerns and public health. The proposal, however, has drawn the ire of drug makers who say it is a watered down version of the health ministry’s proposals.

The council has proposed that for medicines facing “insufficient competition” or a monopoly-like situation, the retail price should be fixed on the basis of cost of production with a top up to cover marketing costs and profits for companies.

It has defined insufficient competition as a situation where a drug with an annual turnover of over Rs. 4 crore has 40% market share or where a medicine with annual sales of less than Rs 1 crore has 90% share of the market.

A drug will fall under this category also if there are less than 10 companies marketing the formulation. According to a senior drug regulatory expert, who has reviewed the 57-page note, the cap of Rs 4 crore is absurd as this was fixed in 1994 when the size of the industry was one-ninth of the current market size of Rs 60,000 crore.

If a drug is widely procured through the government’s bulk procurement process, more than 5% of the overall market, then the cap should be linked to the tender price, the council has suggested. For the rest, it has suggested the cap at either 1.25 times the median of the segment’s price, or “the price which 80% of the consumers are paying”, whichever is less.

For medicines facing a monopoly-like situation, the retail price should be fixed on the basis of cost of production with a top up to cover marketing costs and profits for companies.

Experts say these proposals will bring about two-thirds of the medicines under costbased policy, which will stifle the industry.

The industry executive said these proposals will bring about two-thirds of the medicines under cost-based policy, which will stifle the industry. “At present only 47 of the 74 drugs under price control are marketed by companies,” he said. “The same situation will repeat if this proposal is accepted.”

A government official said the council’s views are flawed as its models are based on a wrong assumption that consumers and market forces drive the industry. “It is doctors’ prescriptions that determine sales and patients have no say which brand to buy,” he said.

In October, the Department of Pharmaceuticals floated the National Pharmaceutical Pricing Authority, which seeks to regulate prices of 348 essential drugs and its combinations sold in the country at the average price of three bestselling brands. More than two dozen stakeholders suggested varied pricing models.