Why price control of drugs by the National Pharmaceutical Pricing Authority is important

Considering the Indian population, the country's economic condition including the unequal distribution of wealth and particularly, the overall health issues faced by a substantially high number of people, the government is very active in ensuring equitable distribution and availability of medicines at fair prices. In respect of the price control of drugs, the central government acts through the National Pharmaceutical Pricing Authority (NPPA), a body that was set up in 1997 especially for this purpose.

The central government publishes a National List of Essential Medicine (NLEM) from time to time, the latest one being in 2011 which is also included in the Drug (Pricing Control) Order, 2013 (DPCO). This list contains a list of 348 medicines, which ought to not be sold at the price beyond what is fixed by the central government.

Additionally, paragraph 19 of the DPCO provides that in extraordinary circumstances, and in public interest, the government can fix the prices of the “non-essential drugs” as well. 

The NPPA, in May 2014 drew up internal guidelines and resolved that since it can fix prices for non-essential drugs in public interest, it ought to set ceiling prices for them as well, to avoid large inter-brand differences in prices (internal guidelines). Accordingly, on 10 July 2014, the NPPA issued notifications, setting the ceiling price for 108 drugs used for treating diabetes and cardiovascular diseases (CVD).

A study by the International Diabetes Federation indicated that the South-East Asian region had around 71.4 million people suffering from diabetes in 2011. Of this 71.4 million, it was estimated that 61.3 million are from India. CVD, studies indicate, is the leading cause of death globally. Studies show that in 2008, India alone contributed to about 25% of the global cardiovascular related deaths. 

Given the above, the move of the NPPA to set a ceiling price for these drugs was welcomed by the patients, who expected a price reduction of even as high as 35% in respect of certain drugs. However, various pharmaceutical companies challenged the notifications in the Delhi High Court and the Bombay High Court. While the Delhi High Court refused to stay the notifications, the Bombay High Court directed the government not to initiate any coercive steps on the basis of the notifications.

More recently, on the advice of the Solicitor General of India, the central government withdrew the internal guidelines. The Solicitor General was of the view that paragraph 19 of DPCO ought to have been exercised only in exceptional circumstances like an “epidemic”. However, the government clarified that it has not recalled the notifications or the powers of the NPPA. Therefore, technically, unless the court rules otherwise, NPPA would continue to exercise power to regulate prices of drugs including anti-asthma and anti-tuberculosis, anti-cancer drugs.

While the government still has the power to control non-essential medicines under section 3 of the Essential Commodities Act, 1955, considering the pending litigation on this issue and the recent advice given by Solicitor General of India, it is unclear whether the government can use paragraph 19 of the DPCO to issue such notifications. 

With the order of the Bombay High Court, the benefits of the notification are yet to be fully felt by the consumers. In a nation like India with such high prevalence of diabetes and CVD, the move of the NPPA is of great significance; however, the hindrances currently posed may likely discourage the NPPA from taking further steps in respect of expensive anti-cancer, anti-asthma, anti-tuberculosis and other such drugs, which are of great importance to the patients.

The authors are a part of the Pharmaceuticals and Healthcare team at Khaitan & Co and can be contacted on mumbai@khaitanco.com or pharma@khaitanco.com. The views of the authors are personal and should not be attributed to the firm.