Govt may cap trade margins to control drug prices
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 Rs2 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 Rs2, two people aware of the matter said.
DoP has now placed the proposal before the minister of chemicals and fertilizers for final approval.
Through the proposed regulation, the government aims to prevent profiteering and provide medicines at a reasonable cost. Rising drug prices have 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% for stockists and retailers, respectively, whereas for non-scheduled drugs, the margins are 10% and 20%. Although it is not mandated under the Drug Price Control Order, 2013, the National Pharmaceutical Pricing Authority uses these margins to fix the price of drugs. However, there have been allegations that in practice, the margins are higher than what is claimed by the industry and traders.
Effectively, the current margins are 30% on all drugs above Rs2 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 200-400%, so to protect the consumers from such high margins the government is contemplating capping the margins,” said one of the two people cited above.
A committee was set up in 2016 under Sudhansh Pant, joint secretary in the department, to study the margins on medicine brands which are supplied to traders and distributors directly and not sold through medical representatives to physicians or hospitals.
Experts said any move to cap drug prices will hurt the industry. The current proposal, they said, 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 Rs11,500 crore, making medicines much more expensive. Trade generics, whose margins were to be capped, will remain unaffected under the exemption for products costing under Rs2 per unit,” said D.G. Shah, secretary general of Indian Pharmaceutical Alliance, the body that represents large domestic drugmakers.
In November, while hearing a public interest litigation filed by the All India Drug Action Network (AIDAN), a network of pharmaceutical non-governmental organizations, 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 said 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 AIDAN.
“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, she added.