business

Updated: Sep 09, 2015 12:31 IST

Prices of medicines, including those for treatment of diseases such as tuberculosis, HIV, diabetes and cancer are expected to fall further, as the government looks to reconsider the formula used to fix their rates.

But there’s a catch. Low prices could also force manufacturers to stop production, which may lead to some of these medicines going off the shelves.

In the wake of a recent Supreme Court order in July asking the government to revisit the formula to fix medicine prices, the Centre is mulling going back to the older method.

“We may go back to the older drug pricing formula. The health ministry is working on the proposal where it will invite suggestions from stakeholders,” Hansraj Gangaram Ahir, minister of state, chemicals and fertilisers, told HT. “We are discussing the proposal with industry associations, non-governmental organisations (NGOs) and several consumer activists. No deadline has been fixed, we will take a decision after considering the viewpoint of each stakeholder,” he added.

The current pricing formula is market-based, which takes a simple average of prices of all medicine brands (therapeutic category), which have at least 1% market share to fix the maximum retail price. In the earlier cost-linked system based formula, the government collected data from companies and other sources on the manufacturing cost of different drugs, and fixed their prices through a cost-plus-margin method. In 2013, the market-price linked formula replaced the tedious cost-based method.

However, industry associations are unhappy with the government’s proposal.

“If it happens, prices of drugs would fall much more which would become economically non-viable for manufacturers to continue selling those drugs. Hence, most of the drugs would go off shelf,” said DG Shah, secretary general of industry body, Indian Pharmaceutical Alliance (IPA).

“It could be a big disaster for the industry,” said Sujay Shetty, head of pharmaceuticals’ vertical at consultancy PricewaterhouseCoopers (PwC).

Terming the National Pharmaceutical Pricing Policy and the Drug Price Control Order of 2013 as ‘unreasonable’ and ‘irrational’, the Supreme Court had in July asked the Centre to reconsider aspects, including the formula to fix prices, and then pass a ‘reasoned’ order.

According to the plea submitted in the apex court, market-based pricing is not used anywhere globally. What’s more, under the new policy, simple average ceiling prices were, in many cases, higher than the market leader’s price. “The formula does not seem reasonable and rational. Your pricing is 4,000% more than what is being provided by Tamil Nadu and Kerala governments. What kind of control is it? Why are you not taking cognizance of it?” the bench headed by Justice TS Thakur had asked the ministry of chemicals and fertilisers.