Price Regulation and Competition

8/7/2019 Price Regulation and Competition

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Price Regulation andPrice Regulation andCompetition:Competition:--

Indian PerspectiveIndian Perspective

Presented ByPresented ByB K PANDEYB K PANDEY

Director (Formulation)Director (Formulation)NPPANPPA


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Criticality of Affordability ofCriticality of Affordability of

Medicines in IndiaMedicines in IndiaDistribution of Expenditure on TreatmentDistribution of Expenditure on Treatment(Non(Non--Institutional) Based on NSS, 2005)Institutional) Based on NSS, 2005)

0.00%

10.00%

20.00%30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

Medicines Other

Expenditure

Medicines

OtherExpenditure


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Disease Burden In IndiaDisease Burden In India

Source: World Development Report 2006Source: World Development Report 2006


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Relevant Observations of the NationalRelevant Observations of the NationalCommission on Macro Economics & Health,Commission on Macro Economics & Health,

August, 2005August, 2005

Probability of the poor falling sick is 2.3Probability of the poor falling sick is 2.3times more.times more.

A Rs. 1000 increase in per capita incomeA Rs. 1000 increase in per capita incomeincreases life expectancy at Birth by 3increases life expectancy at Birth by 3years.years.

An Estimated 3.3% of the population isAn Estimated 3.3% of the population isgetting pushed below poverty line ongetting pushed below poverty line onaccount of medical treatment.account of medical treatment.


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INFO ASYMMETRYINFO ASYMMETRY

Choice by IntermediariesChoice by Intermediaries

Knowledge asymmetryKnowledge asymmetry

From which flows information asymmetryFrom which flows information asymmetry


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Competition does not reduceCompetition does not reduce

prices!prices! Many Players but prices of Drugs have not come down.Many Players but prices of Drugs have not come down.

Same drug is sold at different prices by the same companySame drug is sold at different prices by the same company

under different brands.under different brands.

Lack of awareness that price is not necessarily aLack of awareness that price is not necessarily adenominator of quality, hence Brand Leader often also thedenominator of quality, hence Brand Leader often also thePrice Leader (Costliest Drug is most sold).Price Leader (Costliest Drug is most sold).

Therefore competition does not automatically bring downTherefore competition does not automatically bring downthe prices.the prices.

In fact more players seems to result in a range of prices.In fact more players seems to result in a range of prices.


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PharmaceuticalsPrice RegulationPharmaceuticalsPrice Regulation

ConsumptionConsumption patternspatterns areare notnot affectedaffected byby pricesprices --aa uniqueunique exampleexample ofof marketmarket failurefailure

TheThe doctorsdoctors andand thethe pharmacistspharmacists -- companiescompaniesinfluenceinfluence themthem

Markets are distorted by unfair and unethicalMarkets are distorted by unfair and unethicalmarketing practices of drug companiesmarketing practices of drug companies

Telephone rates, Insurance premia, ElectricityTelephone rates, Insurance premia, Electricity

tariff, Bank Interest rates are regulated.tariff, Bank Interest rates are regulated. Are Medicines less important?Are Medicines less important?


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PharmaceuticalsPricePharmaceuticalsPrice

RegulationinIndiaRegulationinIndia PriorPrior toto 19621962 nono priceprice control,control, priceprice

ofof medicinesmedicines werewere high,high, dominationdomination ofofMNCMNC

FirstFirst PricePrice regulationregulation inin MedicinesMedicineswaswas introducedintroduced inin 19621962..

InIn 19701970,, thethe DrugDrug PricesPrices ControlControlOrderOrder issuedissued underunder thethe EssentialEssential

CommoditiesCommodities Act,Act, 19551955 InIn thethe samesame year,year, IndianIndian PatentsPatents ActAct(IPA)(IPA) waswas enactedenacted


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PharmaceuticalsPrice RegulationPharmaceuticalsPrice Regulation

inIndia (Contd.)inIndia (Contd.)

DPCODPCO waswas revisedrevised inin 19791979,, 19871987 andand 19951995asas perper pharmapharma policypolicy ofof thethe GovtGovt..

UnderUnder thethe currentcurrent DPCODPCO 19951995,, thethe RetailRetailPricePrice areare fixedfixed asas followsfollows== (MC+CC+PM+PC)(MC+CC+PM+PC) xx ((11+MAPE/+MAPE/100100)) ++

exciseexcise dutyduty(MC(MC == materialmaterial costcost includingincluding costcost ofof bulkbulk

drugs/excipientsdrugs/excipients:: CCCC == conversionconversion costcost;; PMPM== costcost ofof packingpacking materialmaterial;; PCPC == packagingpackaging

chargecharge;; MAPEMAPE == MaximumMaximum AllowableAllowable PostPost--manufacturingmanufacturing Expenses)Expenses)

DPCODPCO 19951995 -- aa uniformuniform MAPEMAPE ofof 100100%% isis grantedgranted


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The Indian Pharma Pricing RegulatorThe Indian Pharma Pricing Regulator

Enforce DPCO 1995,

Detect Violations,

Take ActionEstablished in 1997,

M lti-Disciplinary,

DGCI, CAB,

Sr. Eco. Adv.MOF in the

Authority

Monitor Prices of

Non-Scheduled

Packs & Correct

Aberrations, as per

Govt. Policy

Fix & Regulate

Price of Schedule

APIs & its

Formulation

Determine

&

Recover

Overcharging

Inputs for

Govt.

Policy

NPPA


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Regulation for Pricing &Regulation for Pricing &

Availability in India DPCO, 1995Availability in India DPCO, 1995

74 APIs & Its

Formulations

Under PriceControl

Cost

Based

Pricing

of APIs

PriceControl of

Any Pack in

Public Interest

Formulation Prices

as per formula

For indigenous

Drugs = Cost +

100% MAPE

For ImportedDrugs =

Landed Price + 50%

margin


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MECHANISM FOR PRICE REVISIONMECHANISM FOR PRICE REVISION

AND REVIEW UNDER DPCO1995AND REVIEW UNDER DPCO1995 Companies can file application for revisionCompanies can file application for revision

of pricesof prices

In case the companies are not satisfiedIn case the companies are not satisfiedwith prices fixed by NPPA, an appellatewith prices fixed by NPPA, an appellateadministrative mechanism with the Govt.administrative mechanism with the Govt.

available under DPCO 1995available under DPCO 1995


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Market Shares of Drugs under DPCOMarket Shares of Drugs under DPCO

YearYear Number ofNumber ofDrugsDrugs

ApproximateApproximateMarket ShareMarket Share

(%)(%)

19791979 347347 8080

19871987 142142 6060

19951995

At PresentAt Present(2008)(2008)

7474

7474

4040

2020


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Name of Bulk DrugName of Bulk Drug No. ofNo. offormulatorsformulators

%% VarianceVariance

Growth in Scheduled Drugs

Position as of start & 12 years of DPCO,1995

JanJan

19951995

Sept.Sept.

20072007

Human InsulinsHuman Insulins 44 1010 150150

Ciprofloxacin Oral SolidCiprofloxacin Oral Solid 5959 130130 120120

Ranitidine Oral SolidRanitidine Oral Solid 3030 6363 110110Cefotaxime InjectablesCefotaxime Injectables 2424 5050 108108

Cefadroxil Oral SolidCefadroxil Oral Solid 4747 9090 9191

In house data based analysis by NPPA

(Source : ORG Data)


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Trend of Prices

In-house study by NPPA of :

15 TOP FORMULATIONS of 15 TOP BULK DRUGS which

remained under Price Control in DPCO,1995/ went out of Price

Control in 1995

Comparison*Comparison* UnitUnit DPCODPCO Non DPCONon DPCO

Price IncreasePrice Increase Nos.Nos. 66 1515

Price DecreasedPrice Decreased Nos.Nos. 99 --

TotalTotal Nos.Nos. 1515 1515

PricePrice increaseincrease //reductionreduction duringduringthethe periodperiod

%% 10.3%10.3% 117.8%117.8%

*1994 Prices compared with July,2007


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Pooled Procurement PricesPooled Procurement Prices !!

Govt. tender prices fraction of retail pricesGovt. tender prices fraction of retail prices For example: Albendazole 1.89 percent ofFor example: Albendazole 1.89 percent of

market price!market price! Amylodipine: 6.13 percent of market price!Amylodipine: 6.13 percent of market price! See www.tnmsc.com for tender prices of aSee www.tnmsc.com for tender prices of a

good, transparent govt. procurementgood, transparent govt. procurementagencyagency


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Impact of Price RegulationImpact of Price Regulation

Total No. of Packs in Market = 55,984Total No. of Packs in Market = 55,984 % of Packs with Price Increase = .11% of Packs with Price Increase = .11 % of Packs with Price Reduction = .009% of Packs with Price Reduction = .009 % of Packs remain stable = 99.8%% of Packs remain stable = 99.8%


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Initiative taken by NPPA (GOVT.)Initiative taken by NPPA (GOVT.)

Compulsory printing of MRP of MedicinesCompulsory printing of MRP of Medicines Annual Cap of price increase for non scheduledAnnual Cap of price increase for non scheduled

category reduced from 20% to 10% from Aprilcategory reduced from 20% to 10% from April2007.2007.

60 companies voluntary reduced the price to60 companies voluntary reduced the price tofollow the Govt. instruction.follow the Govt. instruction.

In 26 cases of non scheduled packs, NPPA fixedIn 26 cases of non scheduled packs, NPPA fixedand notified the prices in public interest.and notified the prices in public interest. Efforts to revive Central Public Sector CompaniesEfforts to revive Central Public Sector Companies

with view to increase availability and keep priceswith view to increase availability and keep prices

stablestable


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Initiative taken by NPPA (GOVT.)Initiative taken by NPPA (GOVT.)

Notification on Official Website, Compendium ofNotification on Official Website, Compendium ofPricesPrices

Online Facilities for Application and ComplaintsOnline Facilities for Application and Complaints NPPANPPA Centre for Information Facilitation andCentre for Information Facilitation and

Grievance (CIFG) handling created at largeGrievance (CIFG) handling created at largenumbers of places.numbers of places.

Civil Society capacity building through NGOs,Civil Society capacity building through NGOs,consumersconsumers


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OptionsOptions

There is no alternative to price regulationThere is no alternative to price regulation In India, majority of the people are coveredIn India, majority of the people are covered

neither by public nor private insuranceneither by public nor private insurance

Promote Transparency in PricingPromote Transparency in Pricing Price regulation only on Formulations andPrice regulation only on Formulations andreference price system for APIsreference price system for APIs

Regulation of Trade MarginsRegulation of Trade Margins Create consumer awarenessCreate consumer awareness

Promote good quality generic drugsPromote good quality generic drugs Tax and fiscal incentives to those who makeTax and fiscal incentives to those who make

generic generics as per WHO list and essentialgeneric generics as per WHO list and essentialmedicinesmedicines

Tax and fiscal incentives to those who makeTax and fiscal incentives to those who make

drugs for diseases of national importancedrugs for diseases of national importance


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Price Regulation and Competition