Govt plans to cap trade margins to control rising medicine prices

DOP recommends an increase in trade margin for all drugs priced above ₹2 per unit

NEW DELHI: The government is planning to cap how much drug retailers and wholesalers can earn on medicines they sell in an effort to arrest rising drug prices.

The Department of Pharmaceuticals (DOP) has recommended an increase in trade margins, or what wholesalers and retailers earn on the sale of medicines, on all drugs with maximum retail price (MRP) above ₹2 per unit i.e. per tablet, capsule, vial, tube, bottle, injection etc, while retaining it at the current level of 30% for those priced below ₹2, two people aware of the matter said.

DOP has now placed the proposal before the minister of chemicals and fertilisers for final approval.

Through the proposed regulation, the government aims to prevent profiteering and provide medicines at reasonable cost to citizens. Rising drug prices have further inconvenienced people, particularly the uninsured, as a broken public healthcare system has forced them to seek private care. For scheduled drugs the current stated margins are 8% and 16%, respectively for stockists and retailers whereas for non-scheduled drugs, the margins are 10% and 20%.

Although it is not mandated under the Drug Price Control Order 2013, National Pharmaceuticals Pricing Authority (NPPA) uses these margins to fix price of drugs. However, there have been allegations that in real practice the margins are higher than what is claimed by the industry and traders.

Effectively, the current margins are 30% on all drugs above ₹2 per unit.

After the new Drug Price Control Order, 2013 came into force, there has been no ceiling on prices of medicines. In its proposal, DOP has recommended graded trade margins with higher margin cap for lower value drugs and lower margin cap for higher value drugs.

“There are many formulations in the market where the margins are very high to the extent of 200400%, so to protect the consumers from such higher margins government is contemplating to cap the margins,” said one of the two people cited above.

A committee was set up under Sudhansh Pant, joint secretary in the department, in 2016 to study the margins on medicine brands that are supplied to traders and distributors directly and not sold through medical representatives to physicians or hospitals.

Experts say that any move to cap prices of drugs will be detrimental to the industry. The current proposal, they say, is also contrary to what was prescribed by the government in its draft pharma policy, which had proposed that the level of trade margins will be prescribed to “create a level-playing field for the industry and bring down the prices”.

“The proposal now being considered will raise margins to trade by ₹11,500 crore, making medicines much more expensive. Trade generics whose margins were to be capped will remain unaffected under the exemption for products costing under ₹2 per unit,” D G Shah, secretary general of Indian Pharmaceutical Alliance (IPA), the body that represents large domestic drug makers.

Earlier, while hearing a public interest litigation filed by the All India Drug Action Network (AIDAN), the Supreme Court had termed the existing procedure of controlling prices of medicines on the basis of market-based competition “unreasonable and irrational” and directed the government to review the pricing policy.

However, AIDAN says the current proposal is counter to the government’s objective of making medicines affordable.

“This proposal appears to have been advanced by pharma companies,” said Malini Aisola, an activist with All India Drug Action Network.

“The objective of trade margin capping is to make medicines more affordable by enforcing norms for markups through the supply chain. The highest proposed margins are in the band of highest sales turnover-this will safeguard the current practices where the standard procedures are routinely violated. However, these bands, being advanced by the industry will actually result in higher prices.”