Price Regulation and

Competition:-

Indian Perspective

Presented By
B K PANDEY
Director (Formulation)
NPPA

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Criticality of Affordability of
Medicines in India
Distribution of Expenditure on Treatment
(Non-Institutional) Based on NSS, 2005)

80.00%
70.00%
60.00%
50.00%
Medicines
40.00%
30.00%
Other
20.00% Expenditure
10.00%
0.00%
Medicines Other
Expenditure

2
Disease Burden In India

Source: World Development Report 2006

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 Relevant Observations of the National
Commission on Macro Economics & Health,
August, 2005

• Probability of the poor falling sick is 2.3

times more.
• A Rs. 1000 increase in per capita income
increases life expectancy at Birth by 3
years.
• An Estimated 3.3% of the population is
getting pushed below poverty line on
account of medical treatment.
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Why market cannot decide medicine
prices?

• Free Market/Invisible hand not possible

• Because buyers and sellers have different
bargaining strengths
• Sellers and doctors decide
• Buyers (patients) have little or no choice
• Buyers have to make decision usually
under distress

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 INFO ASYMMETRY
• Choice by Intermediaries

• Knowledge asymmetry

• From which flows information asymmetry

6
 Competition does not reduce
prices!
• Many “Players” but prices of Drugs have not come down.

• Same drug is sold at different prices by the same company

under different brands.

• Lack of awareness that price is not necessarily a denominator of

quality, hence Brand Leader often also the Price Leader
(Costliest Drug is most sold).

• Therefore competition does not automatically bring down the

prices.

• In fact more players seems to result in a range of prices.

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Pharmaceuticals Price Regulation

• Consumption patterns are not affected by prices -

a unique example of market failure 
• The doctors and the pharmacists - companies
influence them 
• Markets are distorted by unfair and unethical
marketing practices of drug companies
• Telephone rates, Insurance premia, Electricity
tariff, Bank Interest rates are regulated.
• Are Medicines less important?

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 Pharmaceuticals Price
Regulation in India
• Prior to 1962 – no price control, price
of medicines were high, domination of
MNC
• First Price regulation in Medicines
was introduced in 1962.
• In 1970, the Drug Prices Control
Order issued under the Essential
Commodities Act, 1955
• In the same year, Indian Patents Act
(IPA) was enacted

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 Pharmaceuticals Price Regulation
in India (Contd.)

• DPCO was revised in 1979, 1987 and 1995 as per

pharma policy of the Govt.
• Under the current DPCO 1995, the Retail Price
are fixed as follows
= (MC+CC+PM+PC) x (1+MAPE/100) + excise
duty
(MC = material cost including cost of bulk
drugs/excipients: CC = conversion cost; PM
= cost of packing material; PC = packaging charge;
MAPE = Maximum Allowable Post-manufacturing
Expenses)
• DPCO 1995 - a uniform MAPE of 100% is granted

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The Indian Pharma Pricing Regulator
Enforce DPCO 1995,
Detect Violations,
Take Action
Established in 1997,
Inputs for Multi-Disciplinary,
DGCI, CAB,
Govt. Sr. Eco. Adv.
Policy MOF in the
Authority
NPPA

Monitor Prices of
Determine
Fix & Regulate Non-Scheduled
& Price of Schedule Packs & Correct
Recover APIs & its Aberrations, as per
Overcharging Formulation Govt. Policy

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 Regulation for Pricing &
Availability in India DPCO, 1995

Formulation Prices 74 APIs & Its

as per formula Formulations
Under Price Cost
Control
For indigenous Based
Drugs = Cost + Pricing
100% MAPE of APIs
For Imported Price
Drugs = Control of
Landed Price + 50% Any Pack in
margin Public Interest

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MECHANISM FOR PRICE REVISION
AND REVIEW UNDER DPCO’1995
• Companies can file application for revision
of prices
• In case the companies are not satisfied
with prices fixed by NPPA, an appellate
administrative mechanism with the Govt.
available under DPCO 1995

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Market Shares of Drugs under DPCO

Year Number of Approximate

Drugs Market Share
(%)
1979 347 80

1987 142 60

1995 74 40
At Present 74 20
(2008)
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 Growth in Scheduled Drugs
Position as of start & 12 years of DPCO,1995

Name of Bulk Drug No. of % Variance

formulators

Jan Sept.
1995 2007
Human Insulins 4 10 150
Ciprofloxacin Oral Solid 59 130 120

Ranitidine Oral Solid 30 63 110

Cefotaxime Injectables 24 50 108
Cefadroxil Oral Solid 47 90 91

In – house data based analysis by NPPA

(Source : ORG Data)
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 Trend of Prices
In-house study by NPPA of :
15 TOP FORMULATIONS of 15 TOP BULK DRUGS which
remained under Price Control in DPCO,1995/ went out of Price
Control in 1995

Comparison* Unit DPCO Non DPCO

Price Increase Nos. 6 15

Price Decreased Nos. 9 -
Total Nos. 15 15
Price increase / % 10.3% 117.8%
reduction during
the period

* 1994 Prices compared with July,2007 16

 Pooled Procurement Prices !

• Govt. tender prices fraction of retail prices

• For example: Albendazole 1.89 percent of
market price!
• Amylodipine: 6.13 percent of market price!
• See www.tnmsc.com for tender prices of a
good, transparent govt. procurement
agency

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 Impact of Price Regulation

• Total No. of Packs in Market = 55,984

• % of Packs with Price Increase = .11
• % of Packs with Price Reduction = .009
• % of Packs remain stable = 99.8%

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 Initiative taken by NPPA (GOVT.)

• Compulsory printing of MRP of Medicines

• Annual Cap of price increase for non scheduled
category reduced from 20% to 10% from April 2007.
• 60 companies voluntary reduced the price to follow
the Govt. instruction.
• In 26 cases of non scheduled packs, NPPA fixed and
notified the prices in public interest.
• Efforts to revive Central Public Sector Companies
with view to increase availability and keep prices
stable

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 Initiative taken by NPPA (GOVT.)

• Notification on Official Website, Compendium of

Prices
• Online Facilities for Application and Complaints
• NPPA – Centre for Information Facilitation and
Grievance (CIFG) handling created at large
numbers of places.
• Civil Society capacity building through NGO’s,
consumers

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 Options
• There is no alternative to price regulation
• In India, majority of the people are covered neither by
public nor private insurance
• Promote Transparency in Pricing
• Price regulation only on Formulations and reference
price system for API’s
• Regulation of Trade Margins
• Create consumer awareness
• Promote good quality generic drugs
• Tax and fiscal incentives to those who make generic
generics as per WHO list and essential medicines
• Tax and fiscal incentives to those who make drugs for
diseases of national importance

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