Low Medicine (Prices) or No Medicine?

The financial burden of healthcare can be crippling, eroding life savings and in some cases even pushing people into poverty. To avoid being accused of total apathy, the government took a high moral stand while adopting the path of least resistance. Through the Drug Price Control Order (DPCO 2013), it announced that prices of all essential medicines would be capped.

While this order will be touted as UPA’s commitment to the “aam aadmi” in the run up to Elections 2014, does the common man really stand to gain? According to the Order, prices of approximately 348 molecules will be capped. This is a huge increase from the earlier 74 molecules and represents about 60% of the total pharmaceutical market in India. Also, the government PR machinery is going overboard to say that the price of medicines that treat killer diseases like cancer, heart ailments, and diabetes will fall by up to 88%.

 Let us assume this to be true. The question then is will companies continue to manufacture these medicines if their profits are eroded to this extent? The fallout of the last DPCO diktat was that companies stopped making 47 of the 74 medicines under price control, due to unfeasibility.

 Under DPCO 2013 companies who want to discontinue manufacturing price-controlled medicines have to provide a 6-month notice to the government. At best the government can force them to continue manufacturing for 12 months. What happens after that? Imagine the consequences of 348 molecules slowly falling off the market as companies cut back on unprofitable business.

As always, the public will blame the industry for choosing “profit over patient”. Will they see through the ill-informed intent of the government? What people need are more doctors and better hospitals. Opening up the infrastructure sector and encouraging more players to enter will both create health infrastructure and force prices down as competition increases.

According to a McKinsey study, medicines comprise ~15% of total health costs. Instead of killing two birds with one stone (building more health infrastructure and controlling health care cost to the public), the government focuses on the path of least resistance and risks creating further scarcity in an already scarce public good

4 thoughts on “Low Medicine (Prices) or No Medicine?

  1. Salil, going by the past, when DPCO fixed the price based on cost of production, Industry leaders were against this methodology and their anger was reflected as seen by many companies had stopped production of essential drugs after the product coming into DPCO. There were lot of examples of this in the past.
    However with the NLEM-2012, with the ceiling price fixed based on the Market based pricing, Industry leaders have welcomed this move. And based on the reaction of the industry leaders, it is unlikely that companies would discontinue manufacturing products coming under NLEM.


  2. Ram, thanks for your comment. What you say is the fervent hope of all concerned. If that’s the case, the claims in the media (that prices would fall by upto 88%) seem grossly exaggerated. The scenario I have built is in the event if that were true. You’re right that DPCO 2013 is more industry friendly than the earlier version, but the trade-offs were a more lenient version at the cost of covering a larger part of the industry (~60%?). Therefore, if the “better” brands that are disproportionately impacted by the control exit, would consumers suffer from lower quality medicines? Is this the govt’s way of absolving its decision to shelve Jan Aushadi 2.0? What would have been better? Ideally the health policy should move towards UHC. Is it?


  3. Salil Sir
    Your observation on DPCO 2013 is a talk of Pharma Industry and is nicely written . In India Pricing is the major FACTOR of success than other P’s of Marketing now a days !.
    Good to know that now other talents are required to grow NOW.


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