Drug Pricing

Drug Pricing

Subject: Government Scheme and Policy

Section: Health

Context- The National Pharmaceutical Pricing Authority (NPPA) has announced an annual change of 10.76% in the Wholesale Price Index (WPI), which could translate into the steepest price increases in years for over 800 scheduled drugs and medical devices in the National List of Essential Medicines (NLEM).

Concept-

Why has the NPPA announced the WPI increase?

• Based on the Wholesale Price Index data provided by the Office of the Economic Advisor, Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, the annual change in the WPI works out as 10.76607% during the calendar year 2021 over the corresponding period of 2020”.
• Every year, the authority announces the WPI change in accordance with The Drugs (Price Control) Order, 2013, or DPCO, 2013.
• While the NPPA sets the ceiling prices for the over 800 essential drugs, for several competitive drugs, companies tend to price them lower than the ceiling.
• The sharp raising of the ceiling may not necessarily translate into actual prices of all brands of formulations in the essential list going up by the same quantum.

The Drugs (Price Control) Order, 2013:

• Drug Price Control Orders (DPCO) are issued by the Government in exercise of the powers conferred under the Essential Commodities Act, 1955,for enabling the Government to declare a ceiling price for lifesaving medicines to ensure that these medicines are available at a reasonable price to the general public.
• Price controls are applicable to “Scheduled drugs” or “Scheduled formulations” i.e. those medicines which are listed out in the Schedule I of DPCO, also referred to as National List of Essential Medicines (NLEM).
• As per the price control order, the NPPA is empowered to fix the ceiling price of essential medicines and medical devices — 886 in number currently.
• The order also provides for a WPI-based price change every year that pharmaceutical companies are allowed to implement. NPPA not only fixes the prices of Essential Medicines, but it also ensures that the prices of the non-scheduled drugs do not increase by more than 10% every year

Which medicines and devices are included in the NLEM?

• Some of the most common drugs and medical devices, including paracetamol tablets, azithromycin tablets, oral rehydration salts, glucose injections, contraceptives like copper IUDs, condoms, insulin injections, Vitamin C tablets, and multivitamin tablets, are in the NLEM.
• These drugs constitute around 18% of India’s aggregate domestic pharmaceutical retail market of approximately Rs 1.5 lakh crore.

How are the Prices of Essential medicines fixed?

• The prices of the medicines are fixed based on Market pricing model.
• The ceiling price of the Essential drugs is the fixed by calculating the simple average price of all the brands having at least 1% of the market share.
• Further, under DPCO, the NPPA has been given the following exceptional powers:
  • Fix the prices of even those drugs that are not listed under NLEM. Example: In pursuance of these powers, the NPPA has fixed the ceiling prices of Cardiac Stents and Knee implants.
  • Increase or decrease the prices of the drugs listed under NLEM. In pursuance of these powers, the NPPA has recently increased the prices of the 21 essential medicines by almost 50%.