CUTS Centre for Competition, Investment & Economic Regulation (CUTS C-CIER)

“The Indian experience is that, by and large, the suggested maximum price invariably becomes the actual selling price. Hence, for many medicines, there is a risk that the price control will lead to higher prices,”Mr Pradeep S. Mehta, Secretary General, CUTS International, a leading research based civil society organization has said in a statement today.

The policy proposes to bring more medicines under price control but at the same time increase the Maximum Allowable Post-Manufacturing Expenses (MAPE) to 150 per cent from the current level of 100 per cent. This is too high and cannot be justified and also contradicts the policy of trade margin of 50 per cent (15 per cent for wholesalers and 35 per cent for retailers) for generic medicines proposed in the same policy draft, Mr Mehta has said.

According to CUTS, the issue of trade margin deserves more attention as it can check the anti-competitive practices of the retailers who are cartelised and often force the manufacturers to offer higher margins otherwise consumers will be forced to pay higher prices even if the pharmaceutical manufacturers are willing to provide them at reasonable prices.

Instead, the aim should be to encourage competition with appropriately monitoring prices. The regulation should try to simulate the "effects of competition" and price control should not be imposed on drugs where the "effects of competition" already exist.

It would be better to put fewer number of drugs under price control while retaining the existing level of MAPE of 100 per cent and put others on the watch list and adopt a threat-based policy by reserving the right to bring them under price control any time their prices cross certain levels, CUTS has suggested.

Regulation of drug prices is necessary not only because it is a different kind of product that involves issues of life and death for people, but also because normal market forces do not operate as consumers do not make the choice.

In the past, with increasing decontrol over years, prices of some medicines soared, so much that for some drugs prices are not only higher compared to neighbouring countries such as Sri Lanka and Bangladesh, but even vis-à-vis developed countries such as Canada and the UK.

It is true that the drug market is not perfectly competitive due to the peculiarities of the sector. However, it is not just the pharmaceutical companies that are responsible for this but all the other actors of the health services delivery system, including doctors, pharmacists, hospitals and diagnostic clinics, are equally responsible. The Government thus needs to take a holistic look at the issue of healthcare and availability of affordable medicine is only a part of it, CUTS has stated.

For many people living in the rural areas and for the poor in the urban areas, the primary issue is the availability of affordable and "honest" healthcare services rather than the prices of medicines. This would require measures other than price control.

If more medicines are to be brought under price control, they should be restricted to a few that might have seen excessive price increase rather than all essential drugs, Mr Mehta has said.

CUTS Centre for Competition, Investment & Economic Regulation (CCIER) had conducted a study on “Options for Using Competition Law/Policy Tools in Dealing with Anti-competitive Practices in Pharmaceuticals and the Health Delivery System”, in 2005-2006 supported by the World Health Organisation and the Ministry of Health and Family Welfare, Government of India and plans to share the findings of the study in a half day workshop on September 8, 2006, at India International Centre (IIC), Conference Room II, New Delhi.