Why in News?

The Supreme Court of India criticized the massive markup between the wholesale price and the Maximum Retail Price (MRP) of essential life-saving medicines. Terming a 10-fold markup on a cancer drug as "broad daylight dacoity", the Court questioned the Union Government on why a uniform retailer margin should not be applied to all essential medicines and medical devices.

How is the Pharmaceutical Sector Regulated in India?

Regulation of Pricing

  • Essential Commodities Act, 1955 (ECA): Medicines are declared essential commodities, empowering the government to control their production, supply, and pricing.
  • Drugs (Prices Control) Order, 2013 (DPCO): Issued under the ECA, 1955, it provides the legal framework for drug price control in India.
  • National Pharmaceutical Pricing Authority (NPPA): An independent body under the Department of Pharmaceuticals (Ministry of Chemicals and Fertilizers). It regulates prices, enforces the DPCO, and recovers overcharges from companies.
  • Scheduled Drugs: Medicines listed in the National List of Essential Medicines (NLEM).
  • NLEM 2022 includes 388 medicines and about 1,000 formulations.
  • The NPPA calculates the ceiling price based on the simple average of the Price to Retailer (PTR) of all brands holding at least a 1% market share.
  • A fixed 16% notional retailer margin is added to this average to cap the final MRP.
  • Annual revisions are strictly pegged to the Wholesale Price Index (WPI).
  • Non-Scheduled Drugs: For medicines outside the NLEM, manufacturers can fix the launch price but cannot increase the MRP by more than 10% annually. Because the launch price is un-capped, companies build in massive Trade Margins (the gap between ex-factory cost/PTR and MRP) to incentivize distributors, chemists, and corporate hospitals to push their specific brands.

Regulation of Quality and Manufacturing

  • Drugs and Cosmetics Act, 1940: Regulates the import, manufacture, distribution, and sale of drugs and cosmetics.
  • Central Drugs Standard Control Organisation (CDSCO): The apex regulatory body under the Ministry of Health and Family Welfare. It is responsible for the approval of new drugs, conduct of clinical trials, and laying down standards for drugs.

Key Concerns Regarding India's Pharma Sector Regulation

  • Exorbitant Trade Margins: Launch prices of non-scheduled drugs (which form 80% of the market) are unregulated, so companies offer massive trade margins (often over 500-1000%) to incentivize corporate hospitals, distributors, and chemists to push specific brands.
  • Information Asymmetry & Captive Consumers: Patients lack pharmacological awareness to question doctors or ask for cheaper generic equivalents. In corporate hospitals, patients are "captive buyers" forced to buy in-house pharmacy drugs billed at the maximum printed MRP.
  • Catastrophic Out-of-Pocket Expenditure (OOPE):
  • Per National Health Accounts (NHA) 2022-23, OOPE accounts for 43.4% of Total Health Expenditure (THE) in India.
  • Per NSSO (75th Round) data, medicines alone account for roughly 70% of all out-of-pocket healthcare expenses.
  • Quality Control & Spurious Drugs: The divided regulatory mechanism between CDSCO (Centre) and State Drug Regulatory Authorities (SDRAs) leads to uneven enforcement. The WHO raised concerns over substandard Indian cough syrups contaminated with diethylene glycol and ethylene glycol, linked to around 300 child deaths.
  • Narrow Scope of NLEM: The NLEM covers only about 20% of total pharmaceutical market turnover, leaving most critical and rare-disease drugs outside the ceiling price net.
  • Violation of Right to Health: Allowing manufacturers unrestricted power to set initial MRPs, regardless of actual manufacturing costs, is argued to violate Article 21 of the Constitution (Right to Life).

India's Initiatives for Affordable and Quality Medicines

  • Trade Margin Rationalisation (TMR): The NPPA invoked its extraordinary powers to cap trade margins, leading to drastic price drops for 42 anti-cancer medicines, coronary stents, orthopaedic knee implants, and oxygen concentrators.
  • Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP): Provides quality generic medicines at prices 50% to 80% cheaper than branded counterparts through Jan Aushadhi Kendras.
  • National Health Mission (NHM): The Free Drugs Service Initiative provides essential medicines free of cost at public health facilities from PHCs to district hospitals.
  • Pharma Sahi Daam App: Launched by the NPPA to check medicine prices, find generic substitutes, and register overcharging complaints.
  • Mandatory Schedule M (GMP): Revised rules make WHO-standard Good Manufacturing Practices (GMP) mandatory for all pharmaceutical MSMEs.

Way Forward

  • Universal Trade Margin Capping: Impose a strict cap on maximum permissible trade margins across the entire pharmaceutical supply chain to curb "hospital-driven" pricing.
  • Achieving API Sovereignty: Operationalize Bulk Drug Parks with cheap electricity, effluent treatment subsidies, and tax holidays to compete with Chinese economies of scale.
  • Diplomatic and Market Diversification: Diversify exports beyond the US and EU; use FTAs to safeguard against arbitrary tariffs and export bans.
  • Enforcing Generic Prescriptions: Strictly enforce National Medical Commission (NMC) guidelines mandating prescriptions by generic pharmacological names.
  • Centralised Quality Regulation: Move towards a unified, centralized drug regulatory framework merging State and Central licensing powers.

Constitutional and Legal Provisions

  • Article 21 (Right to Life): Judicially expanded to include the Right to Health; unregulated MRPs are argued to violate this.
  • Essential Commodities Act, 1955: Enables price control of medicines.
  • Drugs (Prices Control) Order, 2013: Operational framework for price regulation.
  • Drugs and Cosmetics Act, 1940: Governs quality, manufacture, and sale.

Previous Year Questions (PYQs)

  • 2019: How is the Government of India protecting traditional knowledge of medicine from patenting by pharmaceutical companies?
  • 2013: What do you understand by Fixed Dose Drug Combinations (FDCs)? Discuss their merits and demerits.

Mains Practice Question

> "Affordable medicines are essential for achieving universal health coverage." Examine the challenges in India's pharmaceutical price-regulation framework.