Govt panel recommends cap on profits to control drug prices

In a move that could significantly reduce prices of expensive medicines, a high-level committee set up by the government has recommended capping of trade margins of costly drugs at 35 per cent of the maximum retail price (MRP).

The committee constituted by the Department of Pharmaceuticals (DoP) last year, has recommended that the government must set trade margins for all drugs, as also medical implants such as stents and orthopaedic implants, in order to check skyrocketing prices of essential drugs

The committee has recommended that the classification of scheduled or nonscheduled, ethical or non-ethical, generic or branded generics should be done away with for capping price margins, so that the fleecing of consumers may be avoided.

The committee recommended no cap on drugs where the retail price is up to Rs2 per unit, ie, per tablet, per capsule, per vial, tube, bottle, injection etc.

It also proposed graded trade margins, such as margin with reference to MRP per tablet, capsule, vial, tube, bottle, injection, etc.

The committee does not recommend higher trade margin cap for lower value drugs and lower margins for higher value drugs.

The benefit of any bonus offer freebies on fresh stock should be passed on to the consumer by revising the margins as mentioned in recommendation above proportionately. For example for a bonus offer of l+l, the maximum trade margin in per cent terms will be halved. The fresh stock would mean the balance expiry period of which is not less than 75 per cent of the expiry period mentioned on the pack, the committee in its 122-page recommendation said.

The committee further recommended that addition of Para 7(2) in DPCO, 2013 as "No manufacturer shall sell a drug to the Trade, unless otherwise permitted under the provisions of this order or any order made thereunder, the MRP of which exceeds the margins notified by the government from time to time with reference to the price to trade."

Earlier, a committee headed by Sudhansh Pant, joint secretary, DoP, set up on 16 September 2015 had looked into issues like the percentage of trade generics compared to regular channel sales; to what extent is the practice unethical; to what extent are consumers adversely affected in the trade generic segment compared to regular trade channels; to what extent is declaring stockist price anti-competitive; whether the government should control MRPs in trade generics; and whether fixing trade margins by the government will be anti-competitive.

The new committee followed various representations on high trade margin being paid by the manufacturers which leads to the increase in prices of medicines especially with regard to generics.

The DoP has invited comments from experts and others latest by 7 April 2016.