Drug price controls: Protecting patients without distorting the market

The Supreme Court recently questioned whether the Centre’s response on capping trade margins for anti-cancer medicines offered meaningful relief to patients. It also raised the broader question of why similar controls could not cover other medicines. The reported instance of a ₹11 saline bottle being sold for ₹270 highlights concerns about medicine pricing and the burden on patients.

The larger question is: Should the government prescribe profit margins for pharmaceutical companies and drug distribution channels, or should it focus on promoting competition and preventing market abuse?

The risks of price controls

The National Pharmaceutical Pricing Authority (NPPA) has introduced a 30% trade-margin cap for specified non-scheduled anti-cancer medicines to reduce patients’ out-of-pocket expenditure. While affordability is essential, price controls can have unintended consequences.

Also read | Govt to cap trade margins on anti-cancer drugs at 30 pc of maximum retail price

Private hospitals are not charitable institutions. They must generate sufficient revenue to meet operating costs, maintain infrastructure and provide returns to stakeholders. Since public healthcare facilities cannot meet every citizen’s needs, private hospitals and specialised cancer centres play an important role.

Hospitals incur substantial expenditure on equipment, nursing, personnel, utilities and regulatory compliance. Pharmacy income may contribute towards these costs. A sharp reduction in medicine margins could affect their financial viability.

Specialised medicines may require temperature-controlled storage, careful handling and inventory management. If permitted margins do not adequately cover these costs, smaller pharmacies and distributors may find it uneconomical to stock certain low-volume medicines, potentially affecting availability.

Manufacturers may also reconsider their product portfolios if returns become commercially unattractive. However, shortages or diversion to export markets are not inevitable; these risks require evidence-based monitoring.

Who decides permissible margin?

Why should the permitted trade margin be 30% rather than 25% or 35%? The prescribed percentage should be supported by transparent calculations considering distribution costs, inventory risks, storage requirements and reasonable returns.

A manufacturer’s profit margin is different from the trade margin earned by distributors and retailers. These components should not be confused.

The government has a legitimate role in ensuring affordable medicines, but interventions should be proportionate, evidence-based and periodically reviewed.

Does opposing arbitrary price controls mean allowing pharmaceutical companies to exploit patients? Certainly not. Free competition can put downward pressure on prices, provided sufficient competitors exist and consumers have access to reliable information. The government must prevent cartelisation, collusion, artificial shortages and abuse of market dominance.

Generic medicines: An alternative approach

Promoting quality-assured generic medicines wherever clinically appropriate is another way to improve affordability.

Clause 1.5 of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, stated: “Every physician should, as far as possible, prescribe drugs with generic names and he/she shall ensure that there is a rational prescription and use of drugs.”

Also read | ‘Rs 11 saline drip sold for Rs 270’: SC asks govt why it capped only cancer drugs

However, the legal position must be read alongside subsequent developments. The National Medical Commission’s 2023 regulations, which included generic-prescribing provisions, were placed in abeyance. The current applicable regulatory position should therefore be verified before asserting that the 2002 provision is an independently enforceable disciplinary rule. Required modifications may be undertaken for enforcing the original intent of prescribing generic drugs as mandatory.

Generic medicines contain the same active ingredient as their corresponding reference medicines and must meet applicable quality and regulatory standards. Where required, bioequivalence standards also apply. They can offer substantial savings compared with some branded alternatives, provided their quality and therapeutic performance are assured.

Generic prescribing, quality control and transparent pricing can together help reduce patients’ expenditure without compromising treatment.

What saline prices reveal

The reported saline-price disparity raises questions about pricing transparency. The following comparison of listed prices for selected 500 ml saline products illustrates the variation.

Nevertheless, the variation raises an important question: Could competition and informed purchasing help reduce costs when comparable products are available at different prices?

A balanced policy

Medicine affordability need not involve a choice between unrestricted pricing and rigid margin caps. A balanced approach should:

• Strengthen competition and act against cartels and anti-competitive practices.

• Promote quality-assured generic medicines and rational prescribing.

• Monitor prices and intervene where evidence establishes excessive pricing or market failure.

• Base margin caps on transparent calculations and assess their impact on medicine availability.

• Improve price transparency and enforce manufacturing-quality standards.

Putting patients before margins

Medicines are not ordinary consumer products. Patients often have little bargaining power, particularly when facing serious illnesses. Government oversight is therefore necessary, but it must be carefully designed.

Also read | Why is Rs 2,700 medicine sold at Rs 27,000? Supreme Court questions drug pricing

The objective should be affordable medicines, reliable availability, uncompromised quality and fair competition—not arbitrary suppression of margins.

Price controls may be justified where excessive prices or market failures warrant intervention. But they should form part of a broader policy promoting generic medicines, transparency, competition and effective enforcement against market abuse.

Ultimately, medicine-price policy should be judged by whether patients can obtain safe and effective medicines at reasonable prices when they need them, rather than merely by the percentage of trade margin that has been capped.