Pharma Policy 2012 and Essential Drug’s Pricing


Author: Parveen Kaswan (Follow)


Supreme court while delivering judgement on Public Interest Litigation directed government to come up with drugs pricing policy for essential medicines before deadline.  Government finally  approved national pharmaceutical pricing policy for 348 drugs listed in national list of essential medicines (NLEM 2011). Earlier there were  only for 74 drugs under this net. This policy is actually aimed at providing  essential medicine at affordable prices to the normal people, by setting Ceiling price for 348 essential medicines. In the case of each bulk drug, which is under price control a single maximum selling price is fixed that is applicable throughout the country and that is called as ceiling price.


Objectives of the Drug Policy:

  • Ensuring abundant availability, at reasonable prices of essential and life saving and prophylactic medicines of good quality;
  • Strengthening the system of quality control over drug production and promoting the rational use of drugs in the country;

Government took this step after the delay of almost seven years and yet decided to go with the simple average Market Based  Pricing (MBP) policy for price fixation of 348 essential drugs ostensibly to reduce drug prices. People doubt this move by the authorities and for regulating medicine prices they are demanding cost based pricing method. Earlier, the government through the National Pharmaceutical Pricing Authority (NPPA) controls prices of 74 bulk drugs and their formulations through cost-based pricing. To understand this in a better way, we have to go through the meaning of both terms: Market Based  Pricing (MBP) and Cost Based Pricing (CBP).

A market-based pricing strategy is also called as simply a competition-based strategy. In this method, the pharmaceutical company will evaluate the prices of similar products that are on the market and will decide the price of their product according to the competitor’s price. It is important to only consider those products that are similar to the product being offered. So for example if they have same type of qualities than  they tend to use “going-rate” pricing – i.e. setting a price that is in line with the prices charged by direct competitors.

Cost Based Pricing involves setting a price by adding a fixed amount or percentage to the cost of making or buying the product. Cost of raw material plus costs of conversion, plus the maximum allowable post manufacturing expenses(which is currently 100%) which includes profit also.  This was the method used since 1979 in India for setting up the regulating prices for medicines.

For essential materials like drugs which are also life saving, Cost Based Pricing is considered as better. Supreme Court in its ruling also suggested to use CBP for the new drug policy( Yes government is not liable to act upon suggestion of SC as it is a policy matter). Even  MBP is never used for any type of price regulation, whereas CBP is used in regulation of price for telephone, electricity etc. MBP has no relation with the cost of the medicine, it is based totally on the market or competitor.  Government can get points from people for regulating prices without actually having done so. Still  many life saving  drugs are outside the basket of Essential Drugs, and the current share of these 348 medicine in domestic pharmaceutical is about 25-30 %. For example for treatment of bronchial asthma only ‘Salbutamol’ is covered in this list, while others in same therapeutic category  are not covered. For such cases on what bases price is decided for that class of medicine under the market based priced mechanism. There are many examples which shows how current mechanism is going to make many drugs costly.


(Source: Jan Swasthya Abhiyan (JSA) )

This happens many time because of the strategy of a company to make its brand valuable. For this, people and many NGO’s have recommended that  essential drugs should be de-branded or can be sold under generic name. The strategy which is  followed in Bangladesh from 1982, you will shocked to know that Bangladesh is doing better in health indicators than India. As per the figure of 2011 the Neonatal Mortality Rate (NMR) (per thousands live births) of India is 34 whereas  NMR of Bangladesh is 30. The Under–Five Mortality Rate (U5MR) (per thousands live births) of India is 64, and that of Bangladesh is 52. 42.5 percent children in India are underweight whereas in Bangladesh figure is at 41.3 percent.

Pronab sen task force in  2005 also recommended for  de-branding of essential drugs and a single regulatory authority for drug pricing. I think Government should review again which pricing policy it should consider, or come with a strong base or study to change from CBP to MBP. Review is also required to add more categories and drugs in this  net of national list of essential medicine.

What is NPPA:
National Pharmaceutical Pricing Authority (NPPA), was established on 29th August 1997 as an independent body of experts as per the decision taken by the Cabinet committee in September 1994 while reviewing Drug Policy. The Authority, interalia, has been entrusted with the task of fixation/revision of prices of pharmaceutical products (bulk drugs and formulations), enforcement of provisions of the Drugs (Prices Control) Order and monitoring of the prices of controlled and decontrolled drugs in the country.

Pronab Sen Task Force Report

(Sources: Jan Swasthya Abhiyan (JSA), WHO, NPPA, Pronab Sen Task force Report etc.)


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