National Pharmaceutical Pricing Policy, 2012 to replace DPCO

The government has finalised the National Pharmaceuticals Pricing Policy 2012, which would replace the Drugs (Price Control) Order, 1994 that currently monitors and regulates prices of essential medicines in the country.

The National Pharmaceuticals Pricing Policy, 2012 seeks to regulate drug prices on the basis of essentiality of the drug through market-based pricing (MBP) of formulations as opposed to regulating bulk drug prices through cost-based pricing (CBP) of bulk drugs under the Drug Policy of 1994.

The new policy proposes to fix price ceiling on the National List of Essential Medicines (NLEM) on the basis of the simple average price of all the brands having market share (on the basis of moving annual turnover) of 1 per cent or more of the total market turnover of that medicine.

This, however, is expected to drive up prices of essential medicines, at least in the short run, considering the wide differences in the pricing of drugs by multinational drug firms and domestic pharmaceutical companies like Cipla.

Price regulation would be applied only to formulations, ie, the medicines actually used by the consumers, and not to any upstream products such as bulk drugs and intermediates. The span of price control will be as per the dosages and strengths as listed in NLEM- 2011.

''The current principle of economic/market share criteria needs to be changed now, given the fact that out of the 348 medicines listed in the NLEM-2011, only 34 drugs are included amongst the 74 drugs listed in the first schedule of the Drugs (Prices Control) Order, 1995 (DPCO 1995),'' an official release said on Tuesday.

Under marked based pricing, the pricing would be based on widely available information in the public domain as against individual manufacturer level production costing data which would result in more transparent and fair pricing, an official release said.

The National Pharmaceuticals Pricing Policy 2012 seeks to regulate drug prices on the basis of essentiality of drugs as different from the economic criteria/market share principle adopted in the Drug Policy of 1994.

The ''Essentiality'' criteria for drugs under the NPPP-2012 is to be met by considering the list of medicines specified in the National List of Essential Medicines (NLEM) as revised from time to time and declared by the ministry of health and family welfare.

A core committee of experts constituted by the Director General of Health Services (DGHS) has prepared the NELM from various lists, including the WHO model list of essential medicines, essential drugs lists of various states, medicines used in various national health programmes and emergency care drugs.

The NLEM contains such medicines that satisfy the priority health needs of the country's population and are required to be made available within the context of a functioning health system at all times in adequate quantities in the appropriate dosage forms to serve large public masses.

The ceiling prices determined for drugs falling under the span of control will also be applicable to such drugs that are imported. There will be no separate determination of ceiling prices for imported drugs falling under the span of control.

The prices of medicines, which are a part of DPCO 1995 but not in NLEM-2011 would be frozen for one year and thereafter a maximum increase of 10 per cent per annum, as in case of other non-NLEM medicines, will be allowed.

The government has constituted a separate committee for finalising the pricing of patented drugs, and decisions on pricing of patented drugs would be taken based on the recommendations of the committee.

The new policy also allows for exemption in order to promote innovation and R&D and the following drugs will be kept out of any type of price control for 5 years:

• A new drug patented under the Indian Patent Act, 1970 (product patent) and not produced elsewhere, if developed through indigenous R&D;
  
• Drug manufactured in the country by a new process developed through indigenous R&D and patented under the Indian patent Act, 1970, (process patent); and
  
• A formulation involving a new delivery system developed through indigenous R&D.

Formulation of a new drug pricing policy has been necessitated by a stay on the 2002 Drug Policy by the Karnataka High Court in November 2002. Although the government got the stay vacated in the Supreme Court in an order dated 10 March 2003, the 2002 policy has never been operationalised and for all practical purposes the earlier Drug Price Control Order 1994 has been adhered to.

''We suspend the operation of the order to the extent it directs that the Policy dated 15.2.2002 shall not be implemented. However, we direct that the petitioner shall consider and formulate appropriate criteria for ensuring essential and life saving drugs not to fall out of the price control and further directed to review drugs, which are essential and life saving in nature till 2nd May, 2003,'' the Supreme Court observed while vacating the stay.

The Supreme Court in its order had also emphasized the need to ''consider and formulate appropriate criteria for ensuring essential and life saving drugs not to fall out of price control''

Price controls on at the bulk drug stage has in recent times, resulted in amongst other reasons shifting of manufacture of drugs away from the notified bulk drugs under price control. In fact only 47 bulk drugs out of the 74 notified in the first schedule of the DPCO, 1995 are now under production. This has had a cascading effect on the formulations manufactured from the concerned bulk drugs, which in turn has affected the availability of such formulations. The consumer-patient has been adversely affected in the process, the release noted.

While pricing both the bulk drug and the formulation makes it complicated and time consuming, price control in the form of formulations ensures more specific pricing control of the required medicine, which is in the interest of the consumer from the point of view of the actual prescription by the doctor, it points out.

Fixing the price of the bulk drug may also act against the entry of a new manufacturer as it is a price-controlled segment and inherently anti-competitive and hence may not benefit the consumer-patient for the same reason.

The new legislation that would meet the requirements of the new pharmaceutical pricing policy, would be notified as soon as possible after the notification of the New Policy, an official release on Tuesday stated. The National Pharmaceuticals Pricing Authority will be the implementation authority for the new drug pricing policy, according to the release.