Why in news?

The government used the Drug Price Control Order, 2013, to increase the price ceiling (rise in prices) for 21 formulations or medicines by as much as 50%.

What is the rationale?

• The decision was prompted by repeated petitions by the pharmaceutical industry.
• They pointed out that the increasing cost of imports had made the production of some of these drugs unviable.
• Prices of bulk drugs and active pharmaceutical ingredients have, in fact, gone up by up to 88%, and are largely imported.
• There was a risk that the non-viability of prices would affect the availability of drugs.
• Lower prices would have further limited the availability of these drugs, some of which include those used for malaria, leprosy and allergy.
• This would have forced the public to look for other expensive options.
• The increase in price ceiling thus comes as a move to make production viable and ensure the availability of drugs in the market.

What are the concerns involved?

• The bureaucratic process that led to the decision is contentious.
• The National Pharmaceutical Pricing Authority (NPPA) was getting applications for price revision for about 2 years.
• The NPPA looked at some of the applications only in January 2019.
• A committee was constituted in March 2019 to look into a set of formulations that could be considered for increasing prices.
• Subsequent meetings at various levels eventually led to the decision, which allowed a one-time increase in prices.
• This raises a basic question that if the government should control drug prices in the first place.

Is government control over prices questionable?

• In some of the developed countries, most of the population has insurance coverage or medical facilities are provided by the state.
• Unlike this, medical expenses in India are borne by citizens, largely through out-of-pocket expenses.
• Therefore, the state intervenes by keeping prices of some drugs in check to contain such spending.
• However, the unintended consequence is that it affects the supply of drugs and can potentially make citizens worse off.
• Although all pharmaceutical companies may not stop producing drugs with price control, they may limit the supply.
• Further, the government usually may be slow on price hike decisions due to political considerations.
• So, the risk of non-availability of drugs is a key concern in price regulation remaining with the government.

What could be done?

• It is better that the government stays away from dictating prices and allow the market to function.
• Competition in the marketplace will ensure that no company is able to make supernormal profits in basic and essential drugs.
• Since the state has limited capacity, it should focus on regulation.
• It should also ensure that the quality of drugs supplied in the market is not compromised at any point.
• On the other hand, it should address the gaps in providing health care services, including at the primary level.
• This would reduce out-of-pocket expenses for the poor.