NPPA’s role in fixing drug prices?

Q What is the context  ?

A Consumers may have to pay more for medicines and medical devices if the National Pharmaceutical Pricing Authority (NPPA) allows a price hike of over 10% in the drugs and devices listed under the National List of Essential Medicines (NLEM), this coming month.

Q Who regulates Drugs prices?

A 

• The NPPA was set up in 1997 to fix/revise prices of controlled bulk drugs and formulations and to enforce price and availability of the medicines in the country, under the Drugs (Prices Control) Order, 1995-2013.
• Its mandate is:

1. To implement and enforce the provisions of the DPCO in accordance with the powers delegated to it
2. To deal with all legal matters arising out of the decisions of the NPPA
3. To monitor the availability of drugs, identify shortages and to take remedial steps

• The NPPA is also mandated to collect/maintain data on production, exports and imports, market share of individual companies, profitability of companies etc., for bulk drugs and formulations and undertake and/ or sponsor relevant studies in respect of pricing of drugs/ pharmaceuticals.

Q How does the pricing mechanism work?

A 

• Prices of Scheduled Drugs are allowed an increase each year by the drug regulator in line with the Wholesale Price Index (WPI) and the annual change is controlled and rarely crosses 5%.
• But the pharmaceutical players pointed out that over the past few years, input costs have flared up.
• The hike has been a long-standing demand by the pharma industry lobby.
• All medicines under the NLEM are under price regulation.

As per the Drugs (Prices) Control Order 2013, scheduled drugs, about 15% of the pharma market, are allowed an increase by the government as per the WPI while the rest 85% are allowed an automatic increase of 10% every year.

Q How are the prices determined?

A 

• The ceiling price of a scheduled drug is determined by first working out the simple average of price to retailer in respect of all branded and generic versions of that particular drug formulation.
• It should have a market share of more than or equal to 1%, and then adding a notional retailer margin of 16% to it.
• The ceiling price fixed/revised by the NPPA is notified in the Gazette of India (Extraordinary) from time to time.

Q When are the prices revised?

A 

• Prices are revised when there is a rise in the price of bulk drugs, raw materials, cost of transport, freight rates, utilities like fuel, power, diesel, and changes in taxes and duties.
• The cost rises for imported medicines with escalation in insurance and freight prices, and depreciation of the rupee.
• The annual hike in the prices of drugs listed in the NLEM is based on the WPI.
• The NLEM lists drugs used to treat fever, infection, heart disease, hypertension, anaemia etc and includes commonly used medicines like paracetamol, azithromycin etc.

Q Why are inputs costs high?

A 

• One of the challenges is that 60%-70% of the country’s medicine needs are dependent on China.
• WPI is dependent on price rise in a basket of a range of goods that are not directly linked with the items that go into the cost of medicines.