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Price capping: A necessary policy?

India’s public health system must grapple with a number of widespread diseases. This state of affairs necessitates that some essential medicines be price-capped according to a recent report. 

Price capping
Has price capping been effective?

‘Medicines in India: Accessibility, Affordability and Quality’, published by the non-profit research organisation Brookings India, describes “price control” as “a double-edged sword.” The report’s co-authors, researchers David Dam, Shamika Ravi, and Prachi Singh, argue in the report that, for the drugs included in the National Essential Medicines, “price controls are more important than ever.” However, the practice “should be carefully used, keeping in mind the two objectives – the growth of industry (innovation and investment) and interest of consumers.” 

The National Essential List of Medicines currently includes 347 drugs and more than 800 formulations. As such, these products are subject to price controls. This is a marked increase from past decades: between 1995 and 2012, the List included 74 drugs before its expansion in 2013.

The report indicates that expenditure on pharmaceuticals comprise roughly 43 percent of out-of-pocket expenditure. The implication of this is that — given necessary regulation to prevent hospitals imposing other fees to induce costs elsewhere — the overall amount of money spent by individuals on healthcare outside of insurance policies and government programmes could be reduced considerably through price capping.

Price control has a contentious history in India, particularly with its expansion in the past decade. It has been controversial as to whether this translates to benefits for patients. 

For example, the price of cardiac stents was capped following the release of data by the National Pharmaceutical Pricing Authority (NPPA), revealing that profit margins from the manufacturer to the patient were as high as 1000 percent. This was in most cases due to a markup in price at each stage of retail – at the import stage or from the manufacturer, often through numerous middlemen to the supplier of the hospital, then from the hospital to the patient. 

While in theory this decision should have reduced the price for the patient, this was often not the case. The increase in price was then borne by the patient, with many hospitals reducing the cost of the stent, yet increasing the cost of mundane medical items or the procedure itself in order to offset the loss. 

The report also addresses substandard and fraudulent medications. This state of affairs has been brought into the issue of price capping as some believe that the lack of profits could encourage substandard manufacturing processes in order to cut corners and curb losses. The report gives suggestions to combat such events taking place. Among their key suggestions is the centralisation of manufacturing licensing and regulation

“States are powerless to stop substandard drugs manufactured out-of-state. The regulatory structure should be modified to facilitate better cooperation & coordination between state FDAs, for the purpose of closing the investigations regarding substandard drugs. Centralising this system can reduce the number of substandard drugs in the market and hold all states accountable for licensing approvals.”

Some have additionally argued that strict price controls hinder innovation. The argument follows that, as there are often slim profit margins for these drugs and devices, there is little incentive for manufacturers to innovate. Any improvements that require higher manufacturing costs could see the drugs sold at a loss.

Contrasting this, the report has argued that as India’s disease burden has largely shifted towards noncommunicable disease (NCDs). As such, without necessary price controls on essential medications regarding cardiovascular and respiratory disease, many will struggle to afford to pay for medication and their conditions may not be properly treated or managed, leading to health complications (and further pressure on the public health system). The report has urged that, for basic prescriptions, generic medications should be used as far as possible to alleviate the cost to the patients

Doctor prescriptions should focus more on generic medications than branded ones: Branded medications are more expensive, regardless of whether the bulk drug is patented. An increase in generic prescriptions not only creates more demand and competition among the generic producers, but saves consumers needless extra spending. Quality standards for generic medicines should be maintained for the eventual benefit of consumers.”

Such an idea is not meritless. Even with programmes such as Ayushman Bharat, the treatment of NCDs is unlike that of infectious disease. In many instances, individuals will be paying for medications for the duration of their lives to address chronic diseases. This leaves a significant financial burden that could often spill over the amount allotted by Ayushman Bharat in the case of multiple illnesses within a single family. Despite controversy, as the report states, price capping may be the only effective means to address such an issue.

“Medicines in India: Accessibility, affordability and quality” can be accessed here.


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