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SPECIAL ARTICLE

Tracking Medicine Prices in the Supply Chain Who Benefits from the Free Market in India?
Anita Kotwani

The National Pharmaceutical Pricing Policy brings all medicines in the National List of Essential Medicines, 2011 under price control. In order to bring transparency and to make medicines more affordable while providing industry with enough incentives, we need to know the manufacturer’s selling price and add-on costs as the medicine moves along the supply chain till it reaches the consumer. The findings of this paper indicate that the patient does not benefit from trade schemes, marketing strategies, or the free pharmaceutical market. Brand loyalty and marketing strategies do not allow “real” competition. The paper makes a number of recommendations to make medicines affordable to the common citizen.

This study was funded by WHO’s South-East Area Organisation, New Delhi. Acknowledgements are due to many government officials in procurement agencies for extending help for smooth conduct of the survey. I wish to thank all the pharmacists and wholesalers who gave their precious time to provide data. I express my gratitude to my excellent and diligent data collectors, whose sincerity was critical for the success of this project. I sincerely appreciate the technical advice extended by Margaret Ewen, Coordinator, Global Projects (Pricing), Health Action International, Global, Amsterdam, whenever required. I thank Kathleen Holloway for reading and providing constructive inputs to the draft manuscript. Anita Kotwani (anitakotwani@gmail.com) is with the Department of Pharmacology, V P Chest Institute, University of Delhi.

igh prices, low affordability and poor availability of essential medicines are key hindrances to access to treatment in many low- and middle-income countries (Cameron et al 2011). In low-income countries, including India, where the majority of the population buys medicines out-ofpocket, the high cost of medicines (relative to the household budget) means that an illness in the family exposes it to the risk of economic ruin. Therefore, millions of people in India and across the globe go without the medical treatment they need. The issue of medicine prices is increasingly debated in the fields of public health and healthcare financing, and it is believed that high prices reduce access to essential medicines (WHO 2004). However, limited data are available from the field for the actual markups or add-on costs in the public and private sector supply chains, which make up the final price of a medicine. This information will be useful in revising pharmaceutical policy and enhancing awareness amongst stakeholders about cost-effective medicines. The much-needed medicine price component studies have been done only in a few countries (Babar et al 2007; Ruso and McPake 2010) and with limited success, which indicates the difficulty in collecting such information in not so transparent environments that allow for substantial and unjustified markups to some stakeholders. This paper presents a detailed analysis of the tracking of price components of a few essential medicines along the supply chain till they reach the patient. The survey was conducted in September-October 2011 in the National Capital Territory (NCT) of Delhi, using the standardised methodology of the World Health Organisation and Health Action International (WHO/HAI 2008). The findings have implications for the National Pharmaceutical Pricing Policy, 2011 (NPPA-2011) drafted by the Department of Pharmaceuticals, Government of India, which was notified earlier this year. India is well known for its large pharmaceutical industry that supplies low-cost generic medicines to the world. At home, however, India faces the challenge of equal access to affordable essential medicines for its own people. Despite the rapid growth of the pharmaceutical industry over the last two decades, access to essential medicines remains an issue for common citizens. A set of seven surveys conducted earlier to gauge medicine prices and availability in different states, using the WHO/HAI methodology, showed low availability of essential medicines in the public sector where poor patients are dependent on free medicines (Kotwani et al 2007, 2009a).
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usually employing a cadre of medical representatives who promote medicines to doctors and pharmacists. who are then encouraged to promote branded-generics. 1 Healthcare System. These manufacturers promote their branded product through doctors and push their branded-generic product through wholesalers and retailers (Singal et al 2011a). As product patent protection was not available. and pharmacists directly dispense branded-generics to patients. Pharmaceutical Supply Chain and Pricing 1. more costly. These surveys by Kotwani et al (2007. who in turn supply to retail pharmacies. pharmaceutical policy and medicine pricing in India. branded and brandedgeneric. Affordability continues to be an important barrier to access of medicines for the poor population (Kotwani 2009b).1 Healthcare System In NCT. For scheduled medicines. Tertiary care facilities also engage in procurement to augment the supply or in case of non-availability of medicines through the centralised procurement agencies. Centralised procurement is done by each public sector agency. unlicensed practitioners. and finally. and (ii) the relationship between medicine prices. i e. Despite the best efforts of the earlier survey teams. we present the conclusions of the study. The manufacturer handles the marketing. and are the most-sold medicines in India. Delhi (not described here). Branded-generic medicines do not have the same recognition as their influential branded counterpart products. The DPCO. Medicines in India are known as “branded” and “branded-generics” (Kotwani 2012a). Retailers have huge margins for branded-generic products. doctors. In such cases. This was explained as being due to lack of transparency and lack of cooperation from retail pharmacists. They are marketed by the manufacturer’s medical representatives to prescribers. manufacturers do not market or promote their product themselves and supply the medicine to a “super-stockist” or wholesaler. Therefore. the price of medicines available at retail pharmacies to the population is very important. which allows for premium pricing. 1995 identifies 74 active pharmaceutical ingredients (APIs) for which a pricing formula is used to set the maximum retail price (MRP) for the formulations. Section 4 discusses the findings with policy implications. This survey on the price components of medicines was preceded by a detailed survey on medicine prices and availability in the public and private sectors in NCT. which allowed the Indian generic pharmaceutical Economic & Political Weekly EPW Pharmaceutical pricing policy is the responsibility of the Department of Pharmaceuticals (DoP) which is under the Ministry of Chemicals and Fertilisers. A super-stockist is a distributor who markets medicines to retailers. Prescribed medicines are provided free to patients who visit these facilities. In case of branded-generic medicines. The medicines whose prices are set with this formula are called “scheduled medicines”. though many draft revisions were prepared but none was agreed upon and were never implemented. 1. The price variation for the same medicine as between the market leader and other not-so-popular trade names is shown by Selvaraj and Farooqui (2012). medicine manufacturers want to generate brand name recognition for their product. their components. The objectives of the present survey were to identify: (i) the different components that make up the final price of the medicine. they are usually less expensive and are marketed or promoted by retailers. Section 3 explains the findings on price components. in some locations it was almost impossible to collect data on markups of the actors in the supply chain of medicines till it reaches the patient. all products have trade names and medicines are not available with just their assigned pharmacological or INN name. Often. the National Pharmaceutical Pricing Authority (NPPA) that monitors prices of medicines. Section 1 provides the contextual information about the healthcare system.SPECIAL ARTICLE The majority of the population thus have no other alternative but to purchase medicines from the private retail pharmacies and make out-of-pocket payments.3 Pharmaceutical Policy and Medicine Pricing Until 2005. the manufacturer supplies the medicine to a carrying and forwarding (C&F) agent. The department has established an independent body. most essential medicines manufactured in India can be described as “generic” medicines. Nevertheless. 2013 vol xlviiI no 52 . often by means of incentives. Originators’ brands (OBs) in India are also considered in this “branded” category and have no extra recognition. and pharmaceutical pricing policy. The remaining 80% of the Indian healthcare system is characterised by high out-of-pocket payments by patients and their families and the major portion of this amount is for purchase of medicines (Creese et al 2004). Branded medicines are those manufactured by reputed Indian or multinational manufacturers. only about 20% of the population access healthcare through the public sector. The C&F agent is licensed to sell the medicines in the manufacturer’s name and distributes the medicines to wholesalers. Delhi healthcare is provided by the public sector mainly through three agencies: central (federal) government. Most manufacturers of branded medicines choose to market or promote their products themselves. Section 2 deals with the methodology used for the survey and collection of data on price components for seven medicines in their branded and branded-generic versions along the supply chain. state government and municipal corporation. It is not uncommon that the same company manufactures both versions of the same medicines. nomenclature and supply chain of medicines. India was exempted from implementing the TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement. 1. the NPPA pricing formula sets the mark-ups for wholesalers at 8% 105 december 28. The pharmaceutical policy of 1994 under the Drugs (Prices Control) Order (DPCO) 1995 is applicable till date. Branded medicines are more popular. In India.2 Medicine Nomenclature and Supply Chain industry to flourish. 2009a) also observed a huge variation in prices for a few medicines between the public and private sector as well as price variation among therapeutic equivalents in the private sector. In India.

• Stage 4: Retail price – retailer markup. one secondary care and one tertiary care hospital) were visited to find the procurement price of the public facility and stage-5 charges (VAT/tax/dispensing fees). viz. prints the MRP and registers that price with the NPPA. The medicines Table 1: List of Medicines Surveyed for Price Component Survey in Delhi. As medicines move along the supply chain. All manufacturers are legally bound to print the MRP on the medicine package as per the provision under paragraph 16 of the DPCO and medicines are generally sold at the printed price. 2. and medicines un125 mg No Antibiotic Yes der drug price control or scheduled mediCeftriaxone injection 1 gm vial No Antibiotic Yes cine. five to seven medicines should be surveyed. amoxicillin Ranitidine tablet 150 mg Yes Anti-ulcer Yes No +clavulanic acid was part of the non-essenTheoretically. insurance and freight). markups are not set. classified as scheduled medicines. These 74 molecules. • Stage 3: Wholesale/Central Medical Store price – wholesaler 106 sector. government does not fix the price. 2. huge price Amlodipine tablet 50 mg No Antihypertensive Yes Yes variation in the private sector.2 Medicines Surveyed Medicines were chosen from the findings of the prices and availability survey conducted just before this survey and earlier surveys conducted in India by Kotwani et al (2007. 2009a). Delhi. As one moves through the supply chain. adult Diclofenac tablet 50 mg No Analgesic. and central government was visited. National EML 2003 and Delhi State EML 2007. Municipal Corporation of Delhi (MCD) and central government. contravention of which may result in a penalty for the concerned manufacturer. Yes Public/ anti-inflammatory Private and paediatric preparation (Table 1). paediatric different dosage form. This methodology can be used in any country and region and this categorisation allows comparison both among health systems and between countries or states. Medicine price tracking data needs to be collected along the supply chain and the investigators need to start at the end of the supply chain (public health centre or the retail pharmacy) and then move backwards (towards the manufacturer). there should be sufficient competition in the free market the survey. MCD. markup and if any transport charges for public sector from the central medical store. medicines for acute Amoxicillin+clavulanic acid tablet 500 mg+ and chronic conditions. This survey was conducted as per the detailed methodology mentioned in the manual of WHO/HAI (2008). called “non-scheduled medicines”. from the manufacturer to the patient. Dosage form Strength Scheduled Therapeutic Chronic Price chosen were those found to have huge varia(Price Control) Class Disease Variation tion in public and private sector. India Medicine. For non-scheduled medicines.000 generic manufacturers in tial medicine list (NEML) as per the EMLs in place at the time of India. We chose seven medicines based on the criteria mentioned in the methodology. but several informants of the trade reported that for branded medicines the average mark-ups are around 10% for wholesalers and 20% for retailers. Ethical clearance for the study was obtained from the V P Chest Institute.1 Public Sector A total of eight facilities. with over 20. Two regions were surveyed for the private sector – urban and peri-urban areas. The methodology uses the actual price components of selected medicines as they move along the supply chain.1 WHO/HAI Methodology Two sectors were surveyed – public and private. As per the methodology. it is the manufacturer who sets it. the NPPA monitors the prices of nonscheduled medicines to ensure the prices do not increase more than 10% in one year. • Stage 5: Dispensed price – if dispensing fee applicable/VAT/ sales tax. Delhi and four under MCD (two dispensaries. Delhi does not have a typical rural area so peri-urban areas were selected. • Stage 2: Landed price – port charges (mainly for imported medicines). medicines in Erythromycin suspension 125 mg/5ml No Antibiotic. The data collected on the components of medicine prices are analysed according to five common stages of the supply chain that all medicines traverse as they move from manufacturer to patient: • Stage 1: MSP/CIF (manufacturer selling price/cost. For public The recently revised methodology of WHO/HAI (2008) for surveying medicine price components has been used for this study. 2013 vol xlviiI no 52 EPW Economic & Political Weekly . only one generic version was available at all public sector facilities.3 Sector Surveyed and Data Collection 2. drug companies with whom the rate is fixed by the respective agencies of GNCT.SPECIAL ARTICLE and for retailers at 16%. Legally. data for the same medicinal product and the pack size is collected. 2 Survey Methodology and Data 2. For all the seven medicines surveyed. transport fee or any add-ons are paid by the facility. four under GNCT. to keep the prices of medicines down. Medicines to dispensaries are supplied by central medical store and for hospitals. include a few essential medicines. The central medical store or the procurement agency of GNCT. and non-scheduled medicines. Government of NCT (GNCT). The C&F agents receive a margin of 2% to 4% depending on the quantum of business handled. For all other medicines. Delhi and MCD supplies directly to the hospital store. three public healthcare providers in Delhi were surveyed. and source/supply of medicine. University of Delhi.3. One Omeprazole tablet 20 mg No Anti-ulcer Yes of the selected medicines. Delhi. additional costs are added to the manufacturer’s selling price (MSP). Details december 28.

46 69. the purchase price to wholesaler (price-to-wholesaler). and the independent procurement department of tertiary care central government hospitals pay 5% VAT on the rate fixed with the manufacturer responsible to Economic & Political Weekly EPW For “branded products”.23 20.87 14. cooperative staff and feasibility.BrandedGeneric Generic Generic (urban and peri-urban) were selected on the basis of availability of medicines. stage 4 charges (retailer’s markup Scheme# (Purchase Qty+Free Qty) 10+2 – 10+2 – – – or city tax).additional profit for retailer. These schemes run for extended periods of time (Tables 2-4). amoxicillin +clavulanic acid. The data collected on individual medicines was entered into the workbook on the price components. Delhi.23 65. 3. lected from all the retail pharmacies. p 109) for the seven medicines that have been surveyed. p 111). any stage 5 charges (VAT/ Final unit Price (Rupees) 64.67 128.43 16.17 18. Government (public) procurement agencies pay 5% VAT on the rate fixed with the manufacturer. source of medicine (local 3. at for data collection were identified. After data was col. 2.16 73. Manufacturer contribution with 72. and omeprazole. Tables 6-8.67% is the source of medicine. There is no evidence that patients benefit from the trade schemes: retailers do not discount the medicines for patients. Trade schemes benefit the retailer with larger profit margins.56 The pharmacies chosen for urban area were in central C&F agent mark up (Stage 1) Stage 2 (not applicable) – – – – – – and south district whereas peri-urban pharmacies were Wholesaler mark up (Stage 3) 7. wholesalers to interview easy to understand the contribution of each stakeholder and. “buy 10 get 2 free” (16.30 70.76 4.71 4. as the medicines that they get free on schemes represent pure profit. and # Scheme by manufacturer of buy 10 and get 2 free is given to retailer.09% discount). A 5% VAT was applicable on all the seven medicines for both branded and branded-generic versions surveyed in NCT.2 Stage 4: Per Cent Contribution and Markups of Retailers in the Final Price The methodology has an Excel Workbook designed for entering data and analysis for the price components survey.76 4. retailers’ profit contributes between 13% and 19% in the total price of the product for all the seven medicines surveyed (Tables 2-8). It is the responsibility of manufacturer to supply the medicines either to the central medical store or to the facility without any extra charge.01 132. Four retail Sector to the Final Price the Patient Paid for Ceftriaxone 1 gm Injection Ranbaxy Alkem Aristo Wockhardt Alembic Nicholas pharmacies (called chemist shops in Delhi) for each region Manufacturer Product Type Branded Branded Branded Branded.4 Data Entry and Analysis Detailed break-up of the per cent contribution of each stage in making the final price is shown in Tables 2-8 (Tables 3-5. Trade schemes were found for 3 out of the 7 medicines surveyed: ceftriaxone injection.2 Private Sector supply the medicines. for the public sector. They take the form of “buy 10 get 1 free” (9. As per the methodology. Retailer (Stage 4) 15. 3.01 tax/dispensing fees). private retail pharmacies were visited for collecting the final Table 2: Per Cent Contribution of Each Stage of the Supply Chain in the Private price of the medicine available to patient.2. this extra 16. Findings on markups and contribution of each stage and stakeholder are described below from Stage 5 to Stage 1 so that it is There are no dispensing fees applicable in India.SPECIAL ARTICLE were inquired and invoices were checked for any transport cost. wholesaler. The markup (% profit) for retailers on branded products of the surveyed medicines were ~20% for both scheduled and non-scheduled medicines. The procurement centres of all the public sector agencies.76 4. GNCT.39 49. From wholesalers data was the end. MCD.3. and of central government. only stage 5 (VAT) is applicable. Trade schemes run between manufacturer. 2013 vol xlviiI no 52 .33 107.18 3.60 2. any medicine to the patient.3% discount). We could not interview C&F (carrying and forwarding) agents but the margins of C&F agents are 2-4% as informed by informants in the trade.1 Public Sector For public sector procurement. Therefore.94 17.84 11. 2.76 selling price of the medicine. 3 Findings 3. wholesaler and retailer. both in their branded and branded-generic versions.2. The workbook generates summary tables that were used for analysis and contribution of each stage or the stakeholder was identified in the final price to the patient. i e.1 Stage 5: Dispensing Fees/VAT manufacturer/C&F agents). tax or any other add-ons that were charged by the supplying agency or procurement department to the primary care. stage 3 charges (wholesaler markup).76 4.2 Private Sector For each of the seven medicines.Branded.88 Data from retail pharmacies was collected for final VAT (Stage 5) 4. One very important and interesting finding was the trade schemes on certain branded products.80 in north-east and south-west district of NCT.22 7. procurement price or price-to-retailer. though on certain medicines the profit was as high as 36% (Table 9.11 74. Trade schemes or the free medicines are passed on to retailers.21 75. This tax was borne by the patient and was included in the MRP mentioned on the packing. 107 december 28.76 4. p 108.7% discount) or “buy 6 get 1 free” (14. the contribution of manufacturer in the final price of collected on selling price to retailer or price-to-retailer. secondary care or tertiary care facility on the rate fixed by the procurement agency with the pharmaceutical company. agencies fix the price of medicines (rate control) with the pharmaceutical company. Primary care facilities receive their supply from central medical store without any transport charge or any other add-on. 2-4 “branded” and 2-3 “branded-generic” versions were surveyed for price components in the private sector. Delhi. Delhi.

83 76. the MRP should be same irrespective of the manufacturer and branded or branded-generic product. For the so-called branded version. etc. The findings revealed that there was no consistency in december 28.+ Free Qty.02 16. 3.76 4.84 price Rs 18.) 10+2 – 10+2 – – – # Scheme by manufacturer of buy 10 and get 2 free is given to retailer.70 26. ceftriaxone injection and amoxicillin+ clavulanic acid tablets.61 – – 8.00) (20.29) (18. The median per cent contribution of manufacturer that includes the cost of manufacturing was found to be 72% (the range was 54% to 77%) for branded medicines (Tables 2-8).76 the wholesaler had a good markup (48%) and for the Final price (unit price in Rupees) 402.00 36.2.990) (2.Branded.22 branded-generic the retailer had a 163% profit (Table 3 (40. The main profit for retailers was seen for branded-generic version of medicines where the range of markups was 163% to 460%.76 4. the wholesaler margin contributed 2% to 4% in the final price of medicines Table 3: Per Cent Contribution of Each Stage of the Supply Chain in the Private (Tables 2-7).57 70.68 8.76 4.76 38.64 72.46 75.32 22.92 Retailer markup (Stage 4) 13.19 two versions.76 4.76 4.) – – 6+1 6+1 – – # Scheme by manufacturer of buy 6 and get 1 free is given to retailer.76 82.76 4.80 32. irrespective of the version.32 8. Product Type Branded Branded Originator Branded.87 15. However.61 87. The MRP of ranitidine was found to be reasonable and unit price consistent.05 – – – – – – 10.30 – – – 7.76 4. For scheduled medicines or the medicines whose price is fixed by the government.0% and 78. for amoxicillin+clavulanic acid the total profit was 37%. the profit was 37% and 43%. for the same medicines.770) (2. 3.21 25.76 4. branded or branded-generic (Table 7). port charges. and for omeprazole the profit was 32% on the branded product with the scheme (Tables 2-4). There were two exceptions where 108 All the strips and containers of medicines are printed and labelled with MRP by the manufacturer.18 16.5 Stage 1: Per Cent Contribution of the Manufacturer in the Final Price 59.80 (0. but it was believed to be in the range of 2% to 4%.28% is the additional profit for retailer. In India.23 18. For the price-controlled medicine. ranitidine.03 120.16 2.35 15.2.76 9. most of the essential medicines are locally produced and all the seven medicines were locally manufactured.76 4.54 4.99 16.56 59. this extra 14.41 275.50 22. The actual markup for wholesaler or the profit Sector to the Final Price the Patient Paid for Amoxicillin+Clavulanic Acid (500 mg+125 mg) for wholesaler was around 10% for both the scheduled Manufacturer Ranbaxy Cipla GSK Elder Pharma Cipla Intas and non-scheduled medicines surveyed (Table 9). Stage 2 contribution was not applicable.90 27.22 15.73 7.96 107.17 252. the profit for the branded-generic was in the range of 45% to 90% (Table 9).SPECIAL ARTICLE Of course.780) 73.200) (3. 3. Manufacturer contribution with amoxicillin+clavulanic acid manufactured by Cipla in C&F agent markup (Stage 1) 72.21 VAT (Stage 5) 4.00 1. the markup of the C&F agent could not be found.98 62. Scheme # (Purchase Qty.2.25) 67.650) * Originator brand is also a type of branded medicine.70 (5. Table 5: Per Cent Contribution of Each Stage of the Supply Chain in the Private Sector to the Final Price the Patient Paid for Amlodipine 5 mg Manufacturer Product Type Pfizer Originator Brand* Mankind Branded Zydus Branded Cadila Cipla Alembic Branded Branded. The other six medicines surveyed belonged to non-scheduled medicines or those whose price is not fixed by the government.31 74.1666) (2.2.4 Stage 2: Per Cent Contribution of Import Duty Stage 2 markups are for import duty.84 4.3 Stage 3: Per Cent Contribution and Markup of Wholesaler in the Final Price For the branded products surveyed.76 Final price (unit price in Rupees) 82.86 27. the margin or profit for the retailer markedly increased if the manufacturer offered trade schemes – the profit for the retailer then became 40% and 37% on the two products of ceftriaxone.16 53.52 76.76 4.76 4.76 4.670) Scheme# (Purchase Qty. most often the wholesaler margin contributed around 7% to 11% in the total price of medicines.50 (8.88 4.11 Stage 2 (not applicable) – Wholesaler markup (Stage 3) 7.842) (4. this extra 16.01 18.69 2.Branded.BrandedGeneric Generic For each medicine. The MRP for Stage 2 (not applicable) – – – – – – both the products was almost not very different (unit Wholesaler markup (Stage 3) 7. and we have included this in manufacturer’s selling price.BrandedBrand* Generic Generic Generic One interesting finding was seen for a product.87 15.96 2.40 4. e g.00) (40.441) (5.31 81. Therefore.99 241.57 71.50 (2. the median per cent contribution of manufacturer for branded-generics was only 20% in the total price of medicines (the range was 15% to 58%).76 4.63 62.67% is the additional profit for retailer.25 14.59) (2.50 68.487) (5.00 14. branded and branded-generic. VAT (Stage 5) 4.87) and Table 9).42 4.00 vs 20.BrandedGeneric Generic Generic Manufacturer contribution with C&F agent markup (Stage 1) Stage 2 (not applicable) Wholesaler markup (Stage 3) Retailer markup (Stage 4) VAT (Stage 5) Final price (unit price in Rupees) 3.21 ferent for each version. 2013 vol xlviiI no 52 EPW Economic & Political Weekly .01 78.23 2. Ranitidine was one such medicine surveyed which is a scheduled medicine.19) (42.97 18.62 16. The actual profit in the local currency becomes huge for medicines which are expensive. which are mainly for imported medicines.+ Free Qty.6 MRP of Surveyed Medicine or Price-to-Patient Manufacturer contribution with C&F agent markup (Stage 1) 74.22 2. The retailer’s profit for non-scheduled medicines contributes between 59. But for branded-generics.34 25.87 72.07) (45. Table 4: Per Cent Contribution of Each Stage of the Supply Chain in the Private Sector to the Final Price the Patient Paid for Omeprazole 20 mg Manufacturer Product Type Torrent Dr Reddy Zydus Alkem Ranbaxy Cipla Branded Branded Branded Branded.2% (except for erythromycin suspension) for branded-generic product in the final price of medicine to the patient.16 19.07) but the market strategy was difRetailer markup (Stage 4) 15.

25 6.04 8.99 by Mankind versus the highest-priced by Pfizer at Rs 8.10 21.550) (3.70 11.73 19. suitable amendments can be sought in that particular region to make medicines affordable.84 4.76 20.1 indicating huge price variation in the medicine price for most of the medicines surveyed.3352) (0. it is not the absolute price but the affordability to citizens that is an important criterion for access to medicines in a particular country.17 – 7.25 10.04 60. the price of OB was less as compared to other branded.12 – 7.50 15.950) Table 7: Per Cent Contribution of Each Stage of the Supply Chain in the Private Sector to the Final Price the Patient Paid for Ranitidine 150 mg Manufacturer Product Type Cadila JB Chemical GSK Cyber Pharma Panm Branded Branded Originator Branded. diclofenac. 4. the lowest available tablet was for Re 0. diclofenac.01 – 6.76 4.78 16.76 4.3333) *Originator brand is also a type of branded medicine.76 10. Cameron et al (2009) have reported that medicine prices in India are relatively less expensive than many other lowincome and middle-income countries.00 by Cipla versus the highest-price by Ranbaxy and GSK at Rs 40.5. 1.88 72.704) (0.29 6. The present study has given an insight into the supply chain and shown how all the actors in the chain are benefited without any consideration for the patient. 2012a). omeprazole (Tables 4-6) and one version of amoxicillin+clavulanic Economic & Political Weekly EPW The price paid for a medicine is made up of a number of price components. For amoxicillin+clavulanic acid.80 VAT (Stage 5) 4.06 16.29 5.26 19.51 5. But there was no difference in OB and other branded product for amoxicillin+clavulanic acid where the OB Table 6: Per Cent Contribution of Each Stage of the Supply Chain in the Private Sector to the Final Price the Patient Paid for Diclofenac 50 mg Manufacturer Product Type Biochem German Systopic Novartis Blue cross Cipla Branded Remedies Branded Originator Branded.84 15.1 Discussion Manufacturer contribution with C&F agent markup (Stage 1) Stage 2 (not applicable) Wholesaler markup (Stage 3) Retailer markup (Stage 4) VAT (Stage 5) Final price (unit price in Rupees) 72. though the one with the highest MRP had a trade scheme available for the retailer.7. the prescribers or the patients. The lowest-priced tablet for diclofenac was by Biochem for Re 0. wholesale and retail markups (Levison and Laing 2003).77 4.884) (1. On the basis of the evidence from the field. The difference between originator brand (OB) and other popular brands is sometimes very high.550) (0.51) (0. all the stakeholders in the health sector need to understand what these costs are and how they affect the final price of medicines to the government or to patients.82 3.32 – – – 9.25. 2.57 (0.3716) 77. as seen for amlodipine and diclofenac (Tables 5. Medicinal price components are a concern for all those involved in public health and access to medicines. A clear picture of how the final price (MRP) of medicines in the private sector is reached was determined by collecting data for both “branded” and “branded-generic” versions of each medicine surveyed.880) (1.09 10.74 8.26 28. affordability is an issue for the majority of the population in India (Kotwani 2009b.37 16. 2.50 (0. 6). non-governmental organisations (NGO).76 15.76 4.62 45.5.SPECIAL ARTICLE the final price to patient for various versions of the same therapeutic molecule available in the market. The ratio of highest priced to lowest unit price-to-patient for amlodipine. 4.76 4.76 4. erythromycin. a social insurance plan.69 Retailer markup (Stage 4) 15. It is the popularity or the promotion by the pharmaceutical company which is responsible for higher prices for particular brand names.504) 72. The one exception was the price for the brandedgeneric of ceftriaxone injection which was higher than the branded product (Table 2). amoxicillin+clavulanic acid.76 4.85 4.70 versus the highest-priced by Novartis for Rs 3. including the MSP and all costs for freight. Table 8: Per Cent Contribution of Each Stage of the Supply Chain in the Private Sector to the Final Price the Patient Paid for Erythromycin Suspension 125 mg/5 ml Manufacturer Product Type IPCA Branded Abbott Originator Brand* Alembic Branded Biochem BrandedGeneric Manufacturer contribution with C&F agent markup (Stage 1) Stage 2 (not applicable) Wholesaler markup (Stage 3) Retailer markup (Stage 4) VAT (Stage 5) Final price (unit price in Rupees) 72.22 15.03 54.76 4.500) * Originator brand is also a type of branded medicine. In order to reduce costs. popular products and was usually available with retail pharmacies (Table 8). Price component data must be collected and pharmaceutical policy must be amended in order to improve access to essential medicines.20 (0.80 19.Pharma Brand* Generic BrandedGeneric acid. tariff and taxes.3.46 70. The add-on costs could be more than double or many times the manufacturer’s cost. OB is not available in India and the three so-called branded versions surveyed had almost the same price. 2.75 Stage 2 (not applicable) – – – – – – Wholesaler markup Stage 3) 7.76 22.5017) (0.85 29.76 4.76 Final price (unit price in Rupees) 7.23 58.50 47.36 11. ceftriaxone.30 (0. 2013 vol xlviiI no 52 .BrandedBranded Brand* Generic Generic Manufacturer contribution with C&F agent markup (Stage 1) 72.44 9. and 1. Selvaraj and Karan (2009) have also pointed out that policymakers must safeguard the interest of 40 million people who are pushed below the poverty line and an equal number who bear the risk of economic ruin due to high medicine prices. the lowest price was Rs 18. the price of the branded-generic was less than the branded version as seen for amlodipine. omeprazole. distribution.80 14. whether the government.53 39. ranitidine was 8. storage. In spite of a flourishing pharmaceutical industry.6.172) (0. However.3.76 7.29 11.02 – – – 8.76 4. For omeprazole.10 (0.17.91 22.12 4.26 15.86 4.10 30.69 71.00 (0. The study has revealed that the main profit is for the actor who 109 december 28.21 68.20.59 8. and one other branded product was being offered with a 10+2 scheme to the retailer (Table 3).505) 71. But there was no difference in the final price to the patient between branded and branded-generic as found for few versions of amoxicillin+clavulanic acid and erythromycin suspension.28 77. Generally. A huge price variation was seen for the final price that the patient pays for these medicines: for amlodipine. In case of erythromycin suspension.

it was found that one of the manufacturers. For branded medicines. probably unique to India. These pharmacies near tertiary care hospitals sometimes offer 5% to 10% discount on MRP printed on such products and themselves make enormous profits. is that one manufacturer markets both the branded and the branded-generic product. the pharmaceutical company for branded products and the retailer for branded-generics. patients are not even aware that there are such schemes on medicines. There is a benefit to the wholesaler as well. the DPCO established margins for wholesalers of 8% and for retailers of 16%. However. amoxicillin+clavulanic acid with almost similar MRP or price-to-patient. Price components for ceftriaxone injection reveal how pharmaceutical manufacturers in the free market push their products. The survey found that though the final price to patient was consistent but margins were december 28. This should be true whether the medicine is branded or branded-generic. is the presence of trade schemes. Trade schemes were available on three branded medicines out of the seven medicines. many other reputed pharmaceutical companies manufacture two versions of the same medicines with different price structures and two different marketing strategies (Singal et al 2011a). price-to-retailer. not by bringing down the price of medicines for patients but by giving more profits to middlemen. the actual profit for the retailer is massive. exception one product. In India. These trade schemes run between manufacturer. and offer-trade schemes. erythromycin suspension) in the final price with markups as high as 460%. A trade scheme of “10+2” means that there is enough profit in the standard manufacturer margin on five packs of the medicine to cover the manufacturer’s costs and profit for six packages. for expensive medicines. 201%. A very different marketing strategy.3 Branded and Branded-Generic Another very important finding. The fact that manufacturers can offer trade schemes on branded medicine for an entire year indicates that the manufacturer has a huge profit margin. was making two versions of the product. 4. for most of the medicines government does not fix the price. indicative of the fact that manufacturers have huge profits and that the prices of medicines can be lowered. respectively. A high MSP of branded product is the profit of the company and the incentives they offer to prescribers to push the product to make it a popular branded product. Singal et al (2011a) have earlier reported that the same company is manufacturing two versions for cetirizine. These trade schemes were in the form of “buy 10 get 2 free” or “buy 6 and get 1 free”. and. Babar et al (2007) have shown a similar high MSP for certain branded products in Malaysia. These high-priced branded-generic injections are generally stored by pharmacies near tertiary care hospitals. The probable reason for branded-generic injections being more costly than branded products (unlike for other branded-generic medicines) is that injections are usually prescribed for inpatients or for critically ill patients and the pharmacies near big hospitals can easily sell these products at a higher rate to patients’ relatives. The earlier survey conducted in New Delhi by Kotwani and Levison in 2007 to confirm the appropriateness of the methodology 110 Another surprising finding for ceftriaxone injection was that the branded-generic product was printed with a higher MRP than the branded product.016%. 2013 vol xlviiI no 52 EPW Economic & Political Weekly . one was like the branded product but with a huge margin to the wholesaler (48%) and the other was the branded-generic with good amount of margin (163%) to the retailer.33% extra profit to the retailer. wholesaler and retailer and often run for extended periods of time – so such schemes are almost always available.2 Trade Schemes also found a scheme of “2+1” on branded ceftriaxone injection indicating 33. the final price (MRP) of a branded-generic medicine is usually less than the branded product. We found that two manufacturers of branded versions of ceftriaxone injection were offering 10+2 schemes but one particular brand which was a little more expensive was the most popular and was almost always available on the pharmacies. In India a few essential medicines are under price control.SPECIAL ARTICLE is pushing and is responsible for promoting the sale of a medicine. Such branded-generics allow huge markups for retailers. i e. This again shows that the manufacturer derives enormous profits from branded products. A comparatively very low MSP (manufacturer’s selling price) or price-to-wholesaler of a branded-generic compared to a branded product clearly indicates the cost of manufacturing is very low. lansoprazole. In this survey. Trade schemes benefit the retailer with larger profit margins. Another important finding is that in spite of huge profits for retailers on brandedgeneric medicines. as they have increased volume of sales for those products with trade schemes. 4. Regarding the margins for the scheduled medicines (ranitidine). This particular most-popular branded medicine of ceftriaxone injection that was usually available in retail shops with 10+2 scheme was also offering a higher markup to the wholesaler (17% vs 10%) and retailer (40% vs 37%) than the other branded product with 10+2 scheme. There is no benefit to patients from trade schemes: retailers do not discount the medicines for patients. This finding was also observed by Kotwani and Levison in 2007. and 415%. as the medicines that they get “for free” represent pure profit. It is believed that free market forces will keep the prices of medicines in-check. It is the manufacturer who decides the final price. For branded-generic medicines. mainly it is the retailer who is pushing the sales in the market and the retailer mark-ups constituted the major component (59% to 78%. and alprazolam and for the branded-generic versions of these products the retailer margin was 1. Cipla. prints the MRP on the medicine package and decides the price-to-wholesaler. pharmaceutical companies play an active role to push sales through their medical representatives and it was observed that the manufacturer’s selling price constituted the major component (54% to 77%) in the final price. the marketing strategy was different for both the products.

For the branded version. The lowest-priced medicines found during this survey were all from reputed pharmaceutical companies which were manufacturing branded-generic versions. Medicines or drugs are unlike other commodities where people can visit different shops. ask for discounts and then take their decision on the “best buy”. A huge price variation was seen for the final price that the patient pays for these medicines as mentioned in the results section for amlodipine. The new policy also takes into consideration the strength and dosage form of the molecule mentioned in the National EML for price 111 december 28. The top-selling brands are usually the more expensive as this survey has also shown. Branded-generic medicines have less name recognition. under price control. but instead of a cost-based-pricing system. either by a different manufacturer or by the same manufacturer. unqualified doctors or by pharmacists themselves. The MSP has a cumulative effect on the margins of the wholesaler and the retailer as the percentage of markup is calculated on MSP. The government has notified a new National Pharmaceutical Pricing Policy (NPPP) 2012 after discussion and debates with various stakeholders. Thus under the policy the price of most medicines will increase and the manufacturers of the cheaper equivalent products will push up the prices to take advantage of “government price control”. There is a strong rationale for exempting medicines from tax as it is essentially a tax on the sick. Generally. in the strength mentioned. For branded-generics. the MSP is lower but the margin for the wholesaler is higher and the margins or profits for the retailers are huge. the margins were very high. diclofenac. in addition to VAT. on the higher MSP wholesaler and retailer margins are high in terms of actual value. the weighted average price of the three top selling branded medicines will be the benchmark for price fixation. a huge saving can be made. Very few medicines are exempted from VAT. Generally. The 5% VAT is directly paid by the consumer and by the government procurement agencies. the patient/consumer is dependent on the “trade name” of the medicine the doctor has prescribed. and the margins increased if the trade schemes were available (Table 9). The NPPP has proposed to bring all the medicines mentioned in the National Essential Medicine List (EML) 2011. The new pharmaceutical policy has some provisions and measures that ensure affordable and reasonably priced medicines to consumers as well as ensuring a healthy and transparent industry. In India or other developing countries many-a-time retail pharmacists are prescribing and dispensing as well (Kamat and Nichter 1998. Selvaraj et al (2012) have also shown for a few therapeutically similar medicines that the prices of the leading market player or the top three players put together are the highest. Therefore. Economic & Political Weekly EPW The findings of the survey clearly show that market competition does not seem to be driving medicine prices in the downward direction to a level that is as low as is possible. Affordability and adherence to therapy can also be increased. The presence of trade schemes also reveals that there is scope to decrease the price of medicines. which is a state subject. so if the patient is prescribed the cost-effective medicines. The findings reveal that there is no transparency in the fixing of the MRP by the manufacturer.SPECIAL ARTICLE not as established. also have CST (central service tax). Kotwani et al 2012b) and often brandedgeneric medicines are dispensed by dispensing GPs (general practitioners). 4. search for various products and brands. the margins were around 10% for the wholesaler and about 20% for the retailer but for the branded-generic the margins were in the range of 20% to 27% and 45% to 90% (Table 9). All products carry a brand (trade) name. the policymakers need to ensure good governance and amend the pharmaceutical pricing policy. and it falls on the retail pharmacy to promote the medicine. the most expensive medicines are the most sold and the more popular medicines and the former two medicines are used for chronic diseases. like Haryana. the new policy has market-based-pricing (MBP). For brandedgeneric versions. The markups for retailers for some medicines were high. up to 460% for retailers as mentioned above. awareness of patients/consumers about medicine pricing and quality of branded-generics as well as insist on accountability in the healthcare system. For non-scheduled medicines. Under this system. levied on medicines manufactured outside the state.4 Ineffective Competition Ranitidine (price-controlled) Ceftriaxone injection Amoxicillin+clavulanic Amlodipine Diclofenac Omeprazole Erythromycin Syrup ~10 10-17 ~10 * 10-12 7-15 11-14 9-11 ~20 17-23# ~20# 16-25 20-25 18-36# 11-21 20-27 17-22 12-14 11-17 19-52 15-19 14 45-90 280-392 163-460 37-378 176-306 260-418 43 * Branded product of amoxicillin+clavulanic acid of Cipla had 48 markup for wholesaler and branded-generic product of Cipla had 163 profit for retailer. 37%. in the range of 25-36%. They are more popular and are the most-sold medicines. bring about transparency in the markups of the various stakeholders in the supply chain (WHO 2006). A few states. amoxicillin+clavulanic acid and omeprazole and on these products the retailer margins were 40%. Table 9: Per Cent Markup for Wholesaler and Retailer for Each Medicine Surveyed in the Private Sector Medicines Branded Wholesaler Retailer Branded-Generic Wholesaler Retailer prescribers or the consumer have doubts about the quality of low-priced branded-generics manufactured by a not so wellknown company. “Branded-generics” more closely resemble what are globally referred to as “generics”. Government charged 5% VAT on the surveyed medicines apart from the other taxes levied on active pharmaceutical ingredients (APIs). Note for Tables 2-9: Medicines in India are known as “branded” and “branded-generics” but both describe generic medicines. # Trade schemes were available on ceftriaxone injection. Moreover. margins for the wholesaler were around their established values of 10% though there were few exceptions. the MSP is high. therefore. and amoxicillin+clavulanic acid. 2013 vol xlviiI no 52 . 32%. The findings revealed a huge price difference in MSP for branded and branded-generic versions of the same molecule. Branded medicines are manufactured by reputed companies and are marketed by the manufacturer’s medical representatives to prescribers. For branded ranitidine. These doubts can easily be removed by increasing the awareness of the stakeholders about prices and conducting quality testing of low-cost branded-generic medicines (Singal et al 2011 and Singhal et al 2011). Government can easily remove these taxes on medicines to make medicines more affordable.

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