Part -1

The National Pharmaceuticals Pricing Policy, 2012 (NPPP-2012) is framed to put in place a regulatory framework for pricing of drugs so as to ensure availability of essential medicines at reasonable prices on the basis of market-based data (MBD).   

The three aspects of the regulation of prices of drugs as per the National Pharmaceuticals Pricing Policy, 2012 are as follows:

1.  Essentiality of drugs as specified under National List of Essential Medicines (NLEM)-2011: Price of medicines is fixed because they are considered essential. This was done to abide by the Supreme Court’s ruling which, inter alia, had directed the Government to consider and formulate appropriate criteria for ensuring essential and life saving drugs not to fall out of price control. (earlier policy was based on market share criteria, whereby prices were brought under control if there could be possibilities of monopoly and cartelization, given the market share of companies producing it).
2. Regulating the prices of formulations only (i.e, medicines used by consumers and not applicable to any upstream products such as bulk drugs or intermediaries), as opposed to regulation of both bulk drugs and their formulations under DPCO-1995. Thus, even though the NLEM-2011 list contains 348 drugs with various dosages/ strength, any formulations based on combination of any one of these drugs can be subject to price fixation.
3. Fixing the ceiling price of formulations through Market Based Pricing (MBP) as opposed to cost based pricing in DPCO-1995 as it is easy to obtain price data than cost data. 

 As per the provisions of NPPP-2012, all the manufacturers/importers manufacturing/importing the medicines as specified under NLEM-2011 will be under the purview of price control. Such medicines will have a maximum retail price (MRP) equal to or lower than the ceiling price (plus local taxes as applicable) as notified by the Government for respective medicines.

DPCO 2013:

As per the provisions of DPCO-2013 which was Introduced by Central Govt (Ministry of Chemicals and Fertilizers) in order to exercise the powers confirmed by section 3 of the Essential Commodities act, 1955, ceiling prices are now being fixed at the average retail price of the medicine, produced by all those companies engaged in its production with a market share of ≥ 1% of the total market turnover, and adding 16% margin to the retailer thereto.  All the previous DPCOs, 1970, 1979, 1987 and 1995 were based on cost to manufacturers with allowance for post manufacturing expenses.

As per DPCO-2013, the term “Drug” Includes –

(i) all medicines for internal or external use of human beings or animals and all substances intended to be used for, or in the diagnosis treatment, mitigation, or prevention of any disease or disorder in human beings or animals, including preparations applied on human body for the purpose of repelling insects like mosquitoes;

(ii) such substances, intended to affect the structure or any function of the human or animal body or intended to be used for the destruction of vermin or insects which cause disease in human beings or animals, as may be specified from time to time by the Government by notification in the official Gazette; and

(iii) bulk drugs and formulations.

Bulk drug or Active pharmaceutical ingredients (API) means any pharmaceutical, chemical, biological or plant product including its salts, esters, isomers, analogues and derivatives, conforming to standards specified in the Drugs and Cosmetics Act, 1940 (23 of 1940) and which is used as such or as an ingredient in any formulation.

On the other hand, “formulation” means a medicine processed out of or containing one or more drugs with or without use of any pharmaceutical aids, for internal or external use for or in the diagnosis, treatment, mitigation or prevention of disease and, but shall not include any AYUSH medicine.

Generic medicines are unbranded medicines which are equally safe and having the same efficacy as that of branded medicines in terms of their therapeutic value. The prices of generic medicines are much cheaper than their branded equivalent.

A branded generic is a drug that is bioequivalent to the original product, but is now marketed under another company’s brand name. IMS Health, which began tracking and reporting on branded generics in 2002, defines the category as including prescription “products that are either novel dosage forms of off-patent products produced by a manufacturer that is not the originator of the molecule, or a molecule copy of an off-patent product with a trade name.” This definition is used by both the FDA in US and the United Kingdom’s National Health Service (NHS).

SCHEDULED DRUGS:

Price controls are applicable to what is generally known as “Scheduled drugs” or “Scheduled formulations” that is, those medicines which are listed out in the Schedule I of Drug Price Control Order (DPCO), issued by the Government of India from time to time. No person is allowed to sell any scheduled formulation to a consumer at a price exceeding the price notified by the NPPA under DPCO-2013. Ceiling price of scheduled formulations  included in the First Schedule whether referred to by generic versions or brand name  is revised on the 1st of April every year on the basis of wholesale price index (WPI) of the previous year. Prior approval of the Government in this regard shall not be required as per DPCO-2013.

However, manufacturers who wish to represent themselves of the revised ceiling price have to send intimation to the NPPA within 15 days of such revisions. In case of decline in wholesale price index, a corresponding reduction in the prices shall be effective. While fixing the ceiling price, 16% margin is allowed to the retailers and  MRP at no point in time should exceed ceiling price plus local taxes. The ceiling price calculated and notified by the Government is applicable to imported formulations also.

For non-scheduled formulations (medicines not under price control) there is no control over the launch price. With respect of non-scheduled medicines, manufacturers are allowed to increase maximum retail price (MRP) by 10% annually.  NPPA, however, regularly examines the movement in prices of non-scheduled formulations. The monthly market turnover reports of IMS Health (a US based company that provides information, services and technology for the healthcare industry) and the information furnished by individual manufacturers are utilized for the purpose of monitoring prices of non-scheduled formulations.  Any formulation based on combination of any one of these drugs appearing under NLEM can also be subjected to price fixation.