India Pharma Margins: Why Its Regulatory

Treatment of cancer is usually compared to a war against the disease. For thousands of Indian families, the struggle becomes a second one against the cost of medicines that may cause a significant financial burden for households even if the treatment is carried out at a governmental hospital or with the help of health insurance.

Public debate on the cost of cancer medicines has raised another essential issue: should India control the margin of wholesalers? While the public interest usually focuses on the cost of the pack of medicine, the margin between the price that manufacturer sells the drug at and the maximum retail price can play its role as well.

The problem is not limited to cancer medicines. It touches upon transparency, competitiveness, patients’ rights, and the equilibrium between the pharmaceutical industry and affordable health care.

The Hidden Economics Behind Medicine Prices

There are many stages that a drug goes through before it reaches the patient. The manufacturers provide their products to the stockist or wholesaler who in turn sells them to the distributor, retailer and pharmacy. These are the margins which cater for the logistics, storage, transportation, financing and running of the business. In cases where there is an unreasonable margin between the cost at which the drugs are procured and the final cost of the product, patients end up paying much more than they should for the product in terms of the actual cost of supply.

The problem becomes very serious in cases where the patients need expensive drugs for long periods of time. Cancer drugs, cardiovascular drugs, diabetes drugs and drugs for other ailments can eat into the finances of a household in a big way. In case of families making frequent trips to hospitals, even a slight lowering of the cost of such drugs will be helpful.

Why Regulating Wholesale Margins Matters

There is already a mechanism in place in India to control medicine prices. The National Pharmaceutical Pricing Authority (NPPA) regulates medicine prices through the Drugs (Prices Control) Order, 2013. Ceiling prices exist for scheduled formulations, and some non-scheduled formulations are regulated through restrictions on price increase.

But margin regulation is not the same thing as price regulation. While the former refers to the permissible price of the medicine regulated, the latter looks at the amount added by various participants from the time of purchase until the time of sale.

Monitoring the margins in the wholesale market can help determine the products for which the margin is disproportionately high. It will also bring in more transparency in a market where consumers have little knowledge about the economic side of their medicines.

But an across-the-board limit on the wholesale margins for all medicines is too simple an approach because medicines are different in storage, distribution, demand, longevity, and availability.

The Case for Transparent Pricing

A starting point might be more transparency in the pharmaceutical supply chain. The producers, distributors and retailers could be required to keep standardized digital data on purchase prices, discounts and selling prices for selected life-saving medicines.

These data will help the regulator to discover any suspicious mark-ups, price discrepancies and anti-competitive practices. These data will allow comparison of the prices in different geographical locations and via different channels of distribution.

Patients need transparent data on cheaper alternatives and on their quality. Medical professionals can provide patients with information about alternative treatments without harming medical standards.

It is important that the regulation does not turn into the unnecessary paper work. A good system must allow auditing, protect private information of the companies and target the enforcement at real abuses of the price setting practice.

Protecting Patients Without Disrupting Supply

However, strict margin regulations have the potential to cause negative effects if they are not well-structured. Too low margins will lead to disincentives among wholesalers to distribute small amounts of medicines to remote locations or stock special types of products.

Inability of wholesalers to recoup costs of doing business will result in shortages, leading to increased costs incurred by patients who rely on urgent buying of medicines from other sources.

There is need for clear separation between excess margins and actual distribution costs. The government may start by looking into regulation of essential medicines such as expensive cancer medicines or chronic medicines.

Any caps that are put forward must be based on evidence regarding procurement cost, distribution cost, regional price variations and competition in the market.

Stronger Enforcement Is as Important as New Rules

India may not require a whole new regulatory system for addressing all issues related to pricing. The existing regulatory bodies may be improved with the use of improved information sharing, technology, regular market surveillance, and timely investigations of grievances.

The NPPA, drug regulating agencies, and competition agencies will need to collaborate when issues of price manipulation are linked to supply restrictions or anti-competitive activities. Information regarding the outcomes of such initiatives should be made public to ensure effectiveness and accountability.

Moreover, the government’s purchasing activities, and generic drugs programs can further contribute to affordability. Nonetheless, reduced costs should not compromise quality and accessibility.

Affordable Medicines Must Become a Systemic Priority

India’s pharmaceutical sector is among the biggest suppliers of drugs worldwide, but their success cannot be measured in the absence of accessibility of treatment to the country’s patients. There is no reason for a sick person to have to try and make sense of a murky price structure as well.

A strictly enforced margin policy is worth serious consideration, but such a policy has to be evidence-driven, well-targeted and based on transparency within the supply chain. The point is not about reducing any kind of commercial gain; the point is about avoiding excessive profit and ensuring availability of essential medicines.

This is especially true when it comes to cancer care. But the idea applies to every patient relying on affordable drugs. A properly working pharmaceutical market is one where innovators can innovate, suppliers can run their business efficiently, and patients can buy essential medicines without undue financial stress.