India should not succumb to US pressure on pharma price control

Amidst all the pomp, spectacular roadshows, and big-ticket arms deals during the Trump visit, the proposed mini-trade deal between the United States and India has gone into limbo.

Of course, considering India’s total annual trade figure of $88 billion with the US and the total annual US trade volume of $4.2 trillion, a mini trade deal worth $10 billion, conceived as a symbolic gesture, is indeed no big deal. When the US unilaterally said no to the proposed trade deal saying that the President’s visit would only focus on strategic dialogue and defence deals after which the US Trade Representative called off his visit to prepare for the deal on the eve of Trump’s visit, India did not object.

Clearly there was a deadlock as the US was demanding far-reaching concessions on contentious issues such as data localisation in digital trade and removing any cap on the prices of drugs and diagnostic equipment to which India was not ready to budge.

Related news: India’s largest pharmaceutical hub raises pollution fears

Not only the tag of developing country was removed from India, Trump even hinted at a protracted phase of difficult trade negotiations between India and the US lying ahead, when he said a bigger trade deal was for the future, at least not until the US elections are over.

With a trade deal postponed to a distant future, the contentious issues and the progress hitherto made in the negotiations on them have also gone haywire.

Price cap on drugs

On the capping of prices of drugs and diagnostic devices, for instance, considerable ground had already been covered between the Indian and American negotiators. In February 2017, the National Pharmaceutical Pricing Agency (NPPA) capped the price of bare-metal and drug-eluting stents at 75 per cent less than the market price. Out-of-pocket expenditure after the capping reduced by an average 13 per cent across corporate, medium and large private hospitals, and government hospitals.

Before that, the average retail price for a bare-metal stent was ₹45,000, while drug-eluting stents were priced at around ₹1.2 lakh, generating profit margins that ranged from 270 percent to 1000 percent. 2015 estimates showed that 475,000 stent procedures were carried out in India annually and 60 per cent of the cost burden was borne by patients. This triggered opposition from US companies.

Related news: How the Singh brothers of Ranbaxy and Religare lost their billions

In the face of US opposition, the Indian side gave substantial concession with a face-saver option in the name of “Rationalisation of Trade Margin”, wherein the price regulation would be based on the difference between the price at which the US manufacturers sell to distributors/stockists in India and the retail price. This would spare the US manufacturers as earlier price caps were based on the difference between cost and retail price.

An agreement on this could well have been reached. But it seems the Trump administration is not keen on piecemeal deals on specifics but would rather go in for hard negotiations on a whole range of issues for a package deal extracting several other concessions. So, a deal on price caps has become a hostage to a future package deal.

Can India curb costs?

India cannot obviously agree to the residual American demand of doing away with price caps altogether.

For India, curbing cost of import of medical devices is important from an economic point of view. India imports around 80 per cent of its medical devices requirement and in 2018 the import bill was over ₹38,837 crore. Compared to GOI health budget of ₹64000 crore, this import bill is a big amount and forms about 58 per cent of India’s health budget.

Also, control of drug prices and medical equipment in India is not just an executive decision that can be altered at will by the government in power. Drug prices in the country are controlled by National Pharmaceutical Pricing Authority (NPPA) under Drug Price Control Order 2013 (DPCO) deriving its authority from the Essential Commodities Act. Though it is only an executive order, several judicial pronouncements have given the policy of control of drugs and diagnostic equipment in India the force of law.

Related news: Ranbaxy’s ex-promoter Shivinder Singh arrested in ₹740 crore fraud case

In fact, as far back as 2002, the Karnataka High Court, in its order on 12 November 2002, directed the government to ensure that the prices of life-saving drugs are brought under a regime of drug control. The same was reiterated by the Supreme Court in its order dated 31 March 2011.

When the prices of Indian pharmas are being regulated, how is it possible for the government to make an exception in the case of American pharmass?

The Indian government controls the prices of bulk drugs and their formulations through NPPA. The NPPA has prepared a National List of Essential Medicines (NLEM) and these medicines are included in the Schedules under the Drug Pricing Control Order (DPCO), 2013. These are scheduled drugs and the NPPA is also empowered to regulate the prices of non-scheduled drugs.

Control of drug prices

The control of drug prices has been evolving over time. The Sandhu Committee in 2005 and two other government committees earlier had recommended price control after the Karnataka High Court order. Thanks to pressure from pharma multinationals, by 2013 the number of drugs under price control has come down from 347 in 1979 to 74 in 2013. But political opposition mounted against high drug prices and DPCO was passed. American opposition to the capping of drug prices started at the time of Obama itself and in 2015 the Modi Government constituted an expert committee on trade margin rationalization.

Trade margin is the difference between the price at which the foreign manufacturers sell the drugs to Indian stockists/bulk distributors/wholesalers and the final price to patients (maximum retail price).

The committee proposed a formula under which the cap on retail prices would be fixed at the price sold to the bulk wholesalers plus a margin of about 50 per cent of it as cost for sales/distribution, which is quite reasonable. On this basis, on 27 February 2019, the Government of India notified a list of 43 cancer drugs whose prices would be capped.

Related news: Tamil Nadu likely to be worst hit by US withdrawal of trade concessions

The American opposition is unjustified. As per an NPPA notification dated 27 February 2019, the scheduled formulations then under price cap formed 16 to 17 per cent of the pharma industry, the only control on the remaining non-scheduled drugs was by ensuring that the annual price increase is not more than 10 per cent.

Dr. Amalorpavanathan, former Member-Secretary, Transplant Authority of Tamil Nadu told The Federal that in India where out-of-pocket expenses are very high, the drug prices need to be kept in check.

“Not just Sustainable Development Goals but every index in health care is predicated on access to affordable and effective drugs.  NPPA needs to be supported in its effort to maintain its autonomy and its efforts to regulate drug prices without jeopardising the pharma industry too,” he said.

“While India needs to stand firm against American pressure on capping prices, we need to carry along domestic stakeholders, especially local pharma leaders, bulk importers, and stockists, etc. The list of essential drugs should not be allowed to shrink. In fact, it must expand including newer and more powerful formulations,” he concluded.

(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not reflect the views of The Federal.)