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CHAPTER 7 Pricing and Drugs

CHAPTER 7 Pricing and Drugs

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Chapter 7 of the LOCOST book "(The Revised) A Lay Person's Guide to Medicines,", LOCOST, Baroda, India, 2006.
Chapter 7 of the LOCOST book "(The Revised) A Lay Person's Guide to Medicines,", LOCOST, Baroda, India, 2006.

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Published by: S.Srinivasan ('Chinu'); Renu Khanna on May 20, 2010
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10/15/2012

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People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public or some contrivance to raise prices. - 
Adam Smith
 We have discussed in the earlier chapters on the availability of irrational, hazardous and useless drugs, thepoor record of regulatory authorities in India and the drug policies that are at variance with the real health
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needs of the people of India. In this chapter we discuss a little more on the issue of pricing of drugs in India.Even though India has a booming drug industry and has contributed to making generics at low prices worldwide, medicines within India are overpriced and unaffordable. The margins are extremely high as weshow below. More "players" have not resulted in lower prices of drugs or for that matter lower cost of healthservices. Demand is supplier induced. The health market creates and promotes wants. Doctors also setthemselves as gatekeepers, with societal sanction, to certify various physical states of being including starvation, birth and death.
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Chapter 7
Pricing andAvailability of Drugs
The public health system in India is in a state of high disrepair. Privatising public goods and services has only made matters worse. Public hospitals and public health programmes, except in a few states, are underfunded andpoorly managed. The budgetary allocation for drug purchase is even less adequately funded, with the result thatdrugs are regularly "out-of-stock". Poor people are therefore forced to purchase them from the market.Eventually, a significant proportion of them drift to private practitioners on whose rationality there is littlecontrol: a vicious circle of poverty, ill health, poor planning and poorer regulation thus sets in. The process of economic globalisation, which has resulted in further marginalisation of the poor, loss of livelihoods and increasing food, health and economic insecurity, has also further increased the disease burden. The effect on the poor and those who otherwise cannot afford to spend can well be imagined. After dowry,
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medical care is the second major cause of rural indebtedness in India.
 
Drug prices have been unaffordable even before the onset of TRIPS from 2005. With the prevalent climate of deregulation and price decontrol, the unaffordability levels of medicines have increased. Drug costs form more
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than half the treatment costs. India's drug situation in effect is one of poverty amidst adequacy and plenty:people do not have access to affordable health services and medicines even as the share prices of drug companiesare booming and Indian drug companies are praised abroad. As we argue below, there is no free market in drugs inIndia and competition does not work in favour of the consumer most of the time. This makes some form of priceregulation of medicines in India necessary. (See box below.)
1. Need for Price Control
PricingandAvailabilityofDrugs
 
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Drugs are overpriced and unaffordable.
l
Drugs constitute 50 to 80 percent of health care costs in India.
l
Health care is the second-most leading cause of rural indebtedness, after dowry.
l
 There is no consumer choice of product, price and quality in medicines; only in whether you take the prescribeddrug or not, a decision always made in distress, mostly at the threat of death.
l
 There is no universal health insurance in India; even if there were, regulation of prices would result in considerablesavings.
ALayPerson'sGuide
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 Why We Need Price Control on Drugs?
 Administrative pricing systems for drugs were initiated in 1962, in the wake of the Chinese aggression andthe declaration of emergency in 1962. The Defence of India Act was invoked to curb the spiraling prices of medicines. The Drugs (Display of Prices) Order 1962 and the Drugs (Control of Prices) Order 1963 were
st
promulgated. These orders had the effect of freezing prices of drugs as of 1 April 1963. Further attemptsto regulate prices were made through the Drugs Prices (Display & Control) Order 1966; the Drugs (PricesControl) Order 1970 promulgated under the Essential Commodities Act 1955 (ECA); the Drug (PricesControl) Order 1979 based on the Drug Policy 1978; the latter policy was an outcome of the landmark HathiCommittee Report of 1975. The thrust of its 224 recommendations was to re-emphasise the leading role forthe public sector, the setting up of a National Drug Authority (never set up afterwards), preference to IndianSector over the foreign sector, indigenous production of raw materials, selective price control on prices of drugs etc. However it is probably the Patents Act 1970 that has had the greatest effect on lowering drug pricesand making India's Pharma industry largely a force to reckon with. (See chapter on Patents for furtherdiscussion.)Price controls, after DPCO 1979, have been systematically reduced over the years (see Table 1 "ComparativeChart Summarizing Price Control Scheme under Various Drug Price Control Orders"). Industry did not,and does not, like controls and indeed a major part of the problem was the way price controls wereadministered. Also since the nineties, there has been a significant paradigm change among policy makers intheir view of business and industry. Economic reforms have meant the welcome removal of the licence-
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quota-permit Raj. There was hope that the attendant corruption would go. With liberalisation, there hasbeen a gradual dilution of the role of the Government even in sectors like health and education, with the
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naïve hope that the market would take care of the situation. Price control has remained, albeit in a dilutedform, and it was the stated aim of the Pharmaceutical Policy of 2002 (henceforth PP 2002) to reduce the"rigors of price control". It was widely expected by industry that about 30 to 34 drugs alone would remain
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under price control. Total decontrol, or even a semblance of it, as desired by free marketers, is going to the other extreme and hashad, and will have, deleterious effects on not only the poor, but on even the middle class of India. Even theso-called free market countries of the EU and UK have some form of controls price controls, volumecontrols and cost-effectiveness controls. Twelve out of 16 West European countries control prices of drugsdirectly (see Annexure 1). On the contrary, it appears, Indian policy makers are intent on throwing out thebaby with the drug price control basket.
1.1 Drug Pricing Policy Over the Years
 
PricingandAvailabilityofDrugs
 Table 1: Comparative Chart Summarizing Price Control Scheme under Various Drug Price Control Orders
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1 No of drugs under PriceControl2No. of categories under whichthe abovedrugs were categorized3MAPE % allowed onnormative/ National exfactory costs to meet Post-manufacturing expenses and toprovide for margin to the mfrs.Category ICategory IICategory III(Single ingredient Leaderproducts)4Total Domestic pharma salescovered under Price Control(Approx)347340%55%100 %90 %
DPCO1979
142275%100%N.A.70 %
DPCO1987
761100%N.A.N.A.50%
DPCO1995
741100% – 
Present July 2006
 N.A. = Not Applicable 
In fact, the
Report of 
 
Drug Price Control Review Committee 
of the Government of India
 
had
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noted:
…in most other countries, the regulation of the drug prices is considered necessary to contain publicexpenditure due to government's role in funding socialhealth and insurance schemes that cover hospital andout-patient drugs. The price regulations are used as aninstrument to keep their health budgets withinreasonable limits. In these countries, a substantialproportion of the population is covered throughhealth insurance and public health schemes. As aresult, the consumers are not affected directly by thehigh prices of drugs or high costs of medical services,but are made to pay for the increased prices/costthrough high insurance premium. As opposed to this,a substantial proportion of the population in India ismarket dependent and have to meet all their expensesout of their own pocket on this account, making priceregulation of pharmaceutical products in the marketunavoidable.
I would prescribea syrup for your cough!!!
Global Watch Report 2005-2006
   E  x  p   l  o   i   t  a   t   i  o  n   P  o  v  e  r   t  y   I  n   j  u  s   t   i  c  e   C  a  s   t  e
   L  a  c   k  o   f   F  a  c   i   l   i   t   i  e  s
   M  y   t   h  s
‘I became sick because of may poverty,’‘Well, I became poor because ofmy sickness.’
 G l   o b  a l   W a t   c  h  R e   p o r  t   2  0  0  5 - 2  0  0  6 

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instead of confusing everybody please clarify why some medical shops in ap are not giving 10%reduction in bills while most of them are accepting 10%reduction on mrp prices.in such cases to whom to report and if there is any govt directive reg 10%reduction. please clarify after all consumers are to be protected.isn't it?
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