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Regulating Pharmaceutical Prices in India pp 11–31Cite as

Brief History of Regulating Pharmaceutical Prices

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Part of the book series: India Studies in Business and Economics ((ISBE))

Abstract

In this chapter, we begin with a historical overview of India’s efforts to design a price regulation mechanism for essential medicines and how such efforts culminated in the latest episode of price controls in 2013. The chapter documents how India began regulating nearly 350 medicines in 1970, steadily lowered the scope of regulation to 74 in 1995, and then expanded the number again to nearly 350 in 2013, completing the full circle. The historical account shows how the same set of issues have arisen during the design, implementation, and enforcement of each of the episodes of price control regulations.

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Notes

  1. 1.

    ‘Essential drugs’ are defined as drugs that meet the priority healthcare needs of the population (WHO 2017). Today, priority healthcare needs are established based on disease prevalence and public health relevance, as well as clinical efficacy and safety and cost considerations.

  2. 2.

    The idea of generic prescribing was once again recommended by the Sen Committee in 2005, but it was not implemented (Malhotra 2010).

  3. 3.

    The 1979 DPCO defined markup as the sum of distribution costs, outward freight, manufacturer's margin, promotional expenses and trade commissions, calculated as a percentage value of the cost of production (Government of India 1979).

  4. 4.

    The term ‘Maximum Allowed Post-manufacturing Expenses’ (MAPE) replaced the concept of ‘mark-up’ in the 1987 DPCO to incorporate all costs incurred after production, as well as trade margins (Government of India 1987).

  5. 5.

    The Uruguay Round of Multilateral Trade Negotiations concluded in 1994, establishing the World Trade Organization (WTO). The Organization aims to facilitate the free flow of goods and services across nations and to promote multilateral negotiations for further liberalization of trade (WTO 2017). One of the principal agreements that were signed by all members of the WTO in 1994 was the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), requiring member states to provide a set of minimum standards of protection of intellectual property rights, including patent protection for pharmaceuticals (WTO 1994). Developing countries such as India that had previously abolished product patents were given several years to change their patent regime. Consequently, India became compliant with the agreement in 2005 (Malhotra 2010).

  6. 6.

    According to Selvaraj (2007), the 2006 DPCO affected only ten percent of the drug market in 2007. According to Malhotra (2010), the 74 drugs that were on the 1995 DPCO represented less than 15% of the medicines defined as ‘essential’ by the new NLEM (Malhotra 2010).

  7. 7.

    The number of price-controlled drugs reduced to 74 in 1997. Meanwhile, the list for the 2002 DPCO initially covered 38 drugs but was later reduced to 34 drugs.

  8. 8.

    The All India Drug Action Network (AIDAN), the Medico Friends Circle (MFC), the Low Cost Standard Therapeutics (LOCOST) and the Jan Swasthya Sahyog filed the petition (Narrain 2004).

  9. 9.

    ‘Life-saving’ drugs are defined as drugs that are used in life-threatening situations or for emergency care (The Sen Committee 2005).

  10. 10.

    LOCOST (2006) argues that many essential drugs were systematically deregulated leading up to the 2002 Pharmaceutical Policy, while many non-essential or sometimes dangerous medications remained under price control (for an overview, see Table 1, p. 135). The organization emphasizes the downfalls of using only economic criteria, such as company turnover in the 1995 DPCO, to establish what drugs should be regulated. Until 2002, economic criteria dominated essentiality of medicines, contrary to what the Kelkar Committee recommended in 1984. Therefore, the debate surrounding price control included discussions around the principles of selection for price-controlled drugs (The Sen Committee 2005).

  11. 11.

    Trade margins (i.e., profits) should not be confused with ‘markups’ or the ‘MAPE,’ which cover all costs incurred after production, as well as margins.

  12. 12.

    The following year, trade margins of 200–300% were proposed for the retail price of generics and were found more agreeable by the industry and trade sectors (Francis 2006, 2016).

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Authors and Affiliations

  1. Erasmus School of Economics, Erasmus University Rotterdam, Rotterdam, The Netherlands

    Ajay Bhaskarabhatla

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  1. Ajay Bhaskarabhatla
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Bhaskarabhatla, A. (2018). Brief History of Regulating Pharmaceutical Prices. In: Regulating Pharmaceutical Prices in India. India Studies in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-93393-1_2

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