Price Regulation and Competition:Competition:Indian Perspective

Presented By B K PANDEY Director (Formulation) NPPA

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Criticality of Affordability of Medicines in India
Distribution of Expenditure on Treatment (Non(Non-Institutional) Based on NSS, 2005)

80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Medicines Other Expenditure
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Medicines Other Expenditure

Disease Burden In India Source: World Development Report 2006 3 .

A Rs. August. 1000 increase in per capita income increases life expectancy at Birth by 3 years.Relevant Observations of the National Commission on Macro Economics & Health. 2005 Probability of the poor falling sick is 2. 4 .3 times more.3% of the population is getting pushed below poverty line on account of medical treatment. An Estimated 3.

Why market cannot decide medicine prices? Free Market/Invisible hand not possible Because buyers and sellers have different bargaining strengths Sellers and doctors decide Buyers (patients) have little or no choice Buyers have to make decision usually under distress 5 .

INFO ASYMMETRY Choice by Intermediaries Knowledge asymmetry From which flows information asymmetry 6 .

the prices. hence Brand Leader often also the Price Leader (Costliest Drug is most sold). ‡ Therefore competition does not automatically bring down ‡ In fact more players seems to result in a range of prices.Competition does not reduce prices! ‡ Many ³Players´ but prices of Drugs have not come down. ‡ Lack of awareness that price is not necessarily a denominator of quality. 7 . ‡ Same drug is sold at different prices by the same company under different brands.

Bank Interest rates are regulated. Are Medicines less important? 8 . Electricity tariff.companies influence them Markets are distorted by unfair and unethical marketing practices of drug companies Telephone rates.Pharmaceuticals Price Regulation Consumption patterns are not affected by prices a unique example of market failure The doctors and the pharmacists . Insurance premia.

Indian Patents Act (IPA) was enacted 9 . Order issued under the Essential Commodities Act. 1955 ‡ In the same year.Pharmaceuticals Price Regulation in India ‡ Prior to 1962 ± no price control. the Drug Prices Control 1970. domination of MNC ‡ First Price regulation in Medicines was introduced in 1962. ‡ In 1970. 1962. price of medicines were high.

the Retail 1995. charge. Govt. 1987 and 1995 1979. as per pharma policy of the Govt.) ‡ DPCO was revised in 1979. ‡ Under the current DPCO 1995. PM cost. charge.Pharmaceuticals Price Regulation in India (Contd.a uniform MAPE of 100% is granted 100% 10 . MAPE = Maximum Allowable PostPostmanufacturing Expenses) ‡ DPCO 1995 . Price are fixed as follows = (MC+CC+PM+PC) x (1+MAPE/100) + +MAPE/100) excise duty (MC = material cost including cost of bulk drugs/excipients: drugs/excipients: CC = conversion cost. PC = packaging material. = cost of packing material.

M lti-Disciplinary. MOF in the Authority Inputs for Govt. DGCI. Eco. Take Action Established in 1997. Adv. Detect Violations. Policy NPPA Determine & Recover Overcharging Fix & Regulate Price of Schedule APIs & its Formulation Monitor Prices of Non-Scheduled Packs & Correct Aberrations.The Indian Pharma Pricing Regulator Enforce DPCO 1995. Sr. Policy 11 . as per Govt. CAB.

1995 Formulation Prices as per formula 74 APIs & Its Formulations Under Price Control For indigenous Drugs = Cost + 100% MAPE For Imported Drugs = Landed Price + 50% margin Cost Based Pricing of APIs Price Control of Any Pack in Public Interest 12 .Regulation for Pricing & Availability in India DPCO.

available under DPCO 1995 13 . an appellate administrative mechanism with the Govt.MECHANISM FOR PRICE REVISION AND REVIEW UNDER DPCO 1995 Companies can file application for revision of prices In case the companies are not satisfied with prices fixed by NPPA.

Market Shares of Drugs under DPCO Year Number of Drugs 347 142 74 74 Approximate Market Share (%) 80 60 40 20 14 1979 1987 1995 At Present (2008) .

2007 10 130 63 50 90 150 120 110 108 91 % Variance In ± house data based analysis by NPPA (Source : ORG Data) 15 .Growth in Scheduled Drugs Position as of start & 12 years of DPCO. of formulators Jan 1995 Human Insulins Ciprofloxacin Oral Solid Ranitidine Oral Solid Cefotaxime Injectables Cefadroxil Oral Solid 4 59 30 24 47 Sept.1995 Name of Bulk Drug No.

8% * 1994 Prices compared with July. Nos.Trend of Prices In-house study by NPPA of : 15 TOP FORMULATIONS of 15 TOP BULK DRUGS which remained under Price Control in DPCO.3% Non DPCO 15 15 117. Nos. % DPCO 6 9 15 10.2007 16 .1995/ went out of Price Control in 1995 Comparison* Price Increase Price Decreased Total Price increase / reduction during the period Unit Nos.

Pooled Procurement Prices ! Govt. transparent govt. tender prices fraction of retail prices For example: Albendazole 1.com for tender prices of a good.13 percent of market price! See www.89 percent of market price! Amylodipine: 6. procurement agency 17 .tnmsc.

009 % of Packs remain stable = 99.984 % of Packs with Price Increase = .8% 18 .Impact of Price Regulation Total No.11 % of Packs with Price Reduction = . of Packs in Market = 55.

Initiative taken by NPPA (GOVT. instruction. NPPA fixed and notified the prices in public interest. In 26 cases of non scheduled packs. 60 companies voluntary reduced the price to follow the Govt. Efforts to revive Central Public Sector Companies with view to increase availability and keep prices stable 19 .) Compulsory printing of MRP of Medicines Annual Cap of price increase for non scheduled category reduced from 20% to 10% from April 2007.

) Notification on Official Website. consumers 20 . Civil Society capacity building through NGO s.Initiative taken by NPPA (GOVT. Compendium of Prices Online Facilities for Application and Complaints NPPA Centre for Information Facilitation and Grievance (CIFG) handling created at large numbers of places.

Options There is no alternative to price regulation In India. majority of the people are covered neither by public nor private insurance Promote Transparency in Pricing Price regulation only on Formulations and reference price system for API s Regulation of Trade Margins Create consumer awareness Promote good quality generic drugs Tax and fiscal incentives to those who make generic generics as per WHO list and essential medicines Tax and fiscal incentives to those who make drugs for diseases of national importance 21 .

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