Mining of DPCO: A Captious study in search of betterment A THESIS Submitted in partial fulfillment Of the requirements for the degree of Master of Business Administration (Pharmaceutical) BY DHWNI SHETH Batch 2012-2014 DEPARTMENT OF PHARMACEUTICAL MANAGEMENT National Institute of Pharmaceutical Education and Research Sector-67, S.A.S. Nagar, Mohali-160062, Punjab, India. June-2014
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Mining of DPCO 2013 : A Captious Study in Search of Betterment
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Mining of DPCO: A Captious study in search of
betterment
A THESIS
Submitted in partial fulfillment
Of the requirements for the degree of
Master of Business Administration (Pharmaceutical)
BY
DHWNI SHETH
Batch 2012-2014
DEPARTMENT OF PHARMACEUTICAL MANAGEMENT
National Institute of Pharmaceutical Education and Research
Sector-67, S.A.S. Nagar, Mohali-160062,
Punjab, India.
June-2014
CERTIFICATE
This is to certify that the work entitled, “Mining of DPCO: A Captious
Study In Search of Betterment” has been carried out by Ms. Dhwni
Sheth under my direction and supervision.
Date: __________________
Place: S.A.S.Nagar, Mohali
Signature: ______________________________
Name: Dr. Anil Kumar Angrish
Designation: Assistant Professor
Department: Pharmaceutical Management
National Institute of Pharmaceutical Education and Research
Sector – 67, S.A.S Nagar, Mohali – 160062,
Punjab, India
DECLARATION
I hereby declare that the present work embodied in this thesis entitled, ‘Mining of
DPCO: A Captious Study In Search of Betterment’ has been carried out by me
under the direct supervision of Dr. Anil Kumar Angrish, NIPER.
This work has not been and will not be submitted in part or in full in any other
university or institution for any degree or diploma or to any other organization for
commercial purpose.
Date: ______________
Place: S.A.S.Nagar, Mohali
Dhwni Sheth
Department of Pharmaceutical Management,
NIPER, Sector-67,
S.A.S. Nagar, Mohali-160062
Punjab, INDIA
ACKNOWLEDGEMENT
With immense pleasure, I am deeply grateful to my esteemed guide Dr. Anil Kumar
Angrish (Assistant professor, NIPER) under the guidance of whom this project has been
done. He has been very generous with both his time and his patience in providing inputs
for effectiveness of the project, generosity with which information & ideas were shared
and for displaying confidence in my ideas and potential. I acknowledge his advice and
guidance throughout the year.
I wish to thank Dr. Anand Sharma (Professor, NIPER) and Dr. Sunil Gupta (Assistant
Professor, NIPER) for being my advisor. I appreciate their assistance and feedback on my
thesis.
I owe a very special word of thanks to my friends for helping me immensely throughout
this work and supporting me morally without which it would have been highly difficult
for me to complete this work.
Besides all, I am highly obliged to Mr. Om Patel who guided me to have the information
regarding the Tendering system in Government institutions. Apart I am highly thankful to
the various doctors of Government and other Hospitals who guided me to have the
information regarding the actual prescription pattern in the respective institutions.
I am also thankful to all other faculties, staff members and my colleagues who have in
any way been helpful to me in this project.
Above all, I am thankful to my parents for helping me attain this position in life. I owe all
my love and affection to them.
- DHWNI SHETH
Dedicated to
All divine powers which made me what I am
Table of Contents
I. Executive Summary ................................................................................................................. 2
Figure 1 : Human Development Indicators ......................................................................................... 2 Figure 2 : Price Regulation in India .................................................................................................... 4 Figure 3 : Break Up of Insurance coverage in India ......................................................................... 14 Figure 4 : ATC Classification of drugs in WHO EML (2011) and India EML (2011) .................... 17 Figure 5 : Drugs that are banned worldwide but allowed to market in India ................................... 18
Figure 6 : Comparison of Chittorgarh, TNMSC procurement prices and Market prices retail basis 19 Figure 7 : Total Domestic Market according to IMS MAT Apr' 2013 ............................................. 26 Figure 8 : 80% market out of control ................................................................................................ 27 Figure 9 : Market scenario of Respiratory Category ........................................................................ 27 Figure 10: Market scenario of Pain/Analgesics Category ................................................................ 28
Figure 11: Market scenario of Anti Malarial Category .................................................................... 29 Figure 12: Market scenario of Gynecology Category ....................................................................... 30
Figure 13: Market scenario of Gastro Intestinal Category ................................................................ 31
Figure 14: Market scenario of Anti Diabetic Category .................................................................... 32 Figure 15: Market scenario of CNS Category .................................................................................. 33 Figure 16: Market scenario of Anti TB Category ............................................................................. 34
Figure 17: Market scenario of Cardiac Category .............................................................................. 35 Figure 18: Market scenario of Anti Infective Category .................................................................... 36
Figure 19: Market scenario of Cardio-Diabetic Category ................................................................ 37 Figure 20: Market scenario of Analgesic (Paracetamol) Category ................................................... 38 Figure 21: Procurement of Tamilnadu Medical Corporation ........................................................... 41
Figure 22: Medicines out of control.................................................................................................. 42
List of Tables
Table 1: Global Health Expenditure Database .................................................................................... 3
Table 2: Jan Aushadhi budget allocation during 12th plan................................................................. 9 Table 3: Start of some health expenditure coverage schemes .......................................................... 13 Table 4: Covered population with health insurance schemes ........................................................... 14
Table 5: Market-based pricing as per draft 2012 .............................................................................. 15 Table 6: Calculation of Cost of Medicine per month ....................................................................... 38 Table 7: What do doctors prescribe? ................................................................................................ 38
Table 8: Procurement price comparison of various agencies………………………………………39
Table 9: Top brands out of control in Chronic Category .................................................................. 43 Table10: Benefit of Compulsory License ......................................................................................... 44
List of Abbreviations
DPCO - Drug Price Control Order
NLEM - National List of Essential Medicines
OOP - Out of pocket
MNC - Multinational Company
GDP - Gross Domestic Product
API - Active Pharmaceutical Ingredient
SME - Small & Medium Enterprise
RUD - Rational Use of Drugs
NPPA - National Pharmaceutical Pricing Authority
NPPP - National Pharmaceutical Pricing Policy
LOCOST - Low Cost Standard Therapeutics
TNMSC - Tamilnadu Medical Services Corporation
PCM - Paracetamol
APL - Above Poverty Line
BPL - Below Poverty Line
PSU - Public Sector Undertaking
CPSU - Central Public Sector Enterprise
GMP - Good Manufacturing Practices
GLP - Good Laboratory Practices
GBD - Global Burden of Diseases
WHO - World Health Organization
UNICEF - United Nations International Children’s Emergency Fund
FDC - Fixed Dose Combination
MAT - Moving Annual Turnover
HDI - Human Development Indicator
GOI - Government of India
MOHFW - Ministry of Health & Family Welfare
CBP - Cost Based Price
MBP - Market Based Price
MRP - Maximum Retail Price
JABP - Jan Aushadhi based pricing
COPD - Chronic Obstructive Pulmonary Disease
EML - Essential Medicine List
PHFI - Public Health Foundation of India
ISID - Institute for Studies in Industrial Development
AIOCD-All India Origin Chemists & Distributors
I. Executive Summary
“Failure of perspective in decision-making can be due to aspects of social utility
paradox, but more often result from simple mistakes caused by inadequate thought.”
– Herman Kahn (1922-1983), Futurist
Currently, in India the ratio of private to public spending on health care is nearly 4:1, with over
71% of all OOP expenditure of households accounted for drugs alone. As a result of this, poor
populations are pulled even deeper into poverty. About 38 million people in India (which is more
than Canada's population) fall below the poverty line every year due to healthcare expenses, of
which 70% is on purchase of drugs. The MRP charged by companies is often many times the cost
of production leaving them with profit margins unheard. Price control was meant to address this
problem, particularly in medicines important for India. But it has failed to make any significant
difference. The much-awaited drug price control order (DPCO) 2013, meant to control the price of
medicines does not cover over 80% of the medicines in the market. Many drugs crucial for India's
disease profile have been left out, which means people are unlikely to see any significant reduction
in expenditure on medicines.
The Government notified the new DPCO 2013, bringing 348 essential medicines or 652 medicine
packs of various dosages & strengths under direct price control, as against 74 bulk drugs under
DPCO 1995. With the notification of the order, the National Pharmaceutical Pricing Policy 2012
comes into effect, which was being expected with much anticipation & hope that it would bring
drug prices within reach of common-man but however is has been resulted into a big
disappointment. All drugs under NLEM, which account for 60% of total domestic Pharma market
amounting to nearly Rs. 29,000 crore, would come under price control. These NLEM currently
contribute Rs. 13,033 crore to the total annual sales of Rs. 75,000 crore. This share is estimated to
come down by 12% that is Rs. 11,437 crore annually. So, ultimately policy will negatively impact
sales & margins of Pharmaceutical firms in India.
The draft policy does not address the primary concerns of majority of Stakeholders nor is it
designed to make drugs affordable, a question that ought to have been its basic surmise. There are
serious implications of the proposed policy that would adversely affect the ability of the poor to pay
for life saving medicines.
While market based pricing on the contrary to earlier cost based method can potentially reduce
rates for two-third essential medicines, there are far too many loopholes taking advantage of which
Pharma companies can make consumer instead pay more for some medicines. The DPCO itself
covers only 14 %-17% of the Rs75, 000 crore Pharma market, which means only a small subset of
the market will be impacted. Major lacuna with DPCO 2013 are (a) Fixed Dose Combinations
(FDCs) out of price control, (b) Permission of price increment of roughly 10% on 1st April year
after year,(c) patented drugs not covered which will lead to domestic manufacturers suffering and
MNCs benefitting. There will be lots of opportunity to shift from regulated to unregulated drugs.
Combinations of two drugs (within 348) will be out of price control. An estimated half of all
dosage forms will be out of price control on this account. The policy (NPPP) and its instrument (the
DPCO 2013) are shockingly silent on these escape routes. Since ordinary customers do not
understand drugs and their composition and combinations, it is a breeding ground for unethical
practices and improper selling by pharma manufacturers. There are many ways in which this
happens.
Since the implementation of the new Pharma policy, a tussle has been happened between Pharma
companies and trade channels over margins. It is has resulted into stockiest reducing their orders
leading to scarcity of widely prescribed medication like painkillers, anti-infective, cardiac drugs
and antibiotics. Supplies of essential medicines have been particularly disrupted in Gujarat,
Karnataka, Tamil Nadu, West Bengal and Jharkhand. Thus, government’s aim was fair but their
stratagem made it unfair-for both companies & consumer.
So, this study had been conducted to understand the actual picture of Drug Price Control
Order 2013 & its implications & checking its loopholes behind which affordability &
accessibility of prescription medicines are proclaimed.
Secondary analysis of IMS 2013 MAT data was also done to analyze scenario of top class
medicines based upon their moving annual turnover in respective categories. By comparing
those data with recently revised NLEM to check out which medicines/combinations are
actually essential & being used, but not included in NLEM. This was aimed to give
suggestive list of essential medicines which should be included in NLEM.
The study will provide in depth knowledge of other policies & successful programs (Jan
Aushadhi Campaign & Tender Business for procurement of medicines by central
government) which are also working with same aspiration.
Also the brief study regarding the decision making method of price fixation of essential
medicines (Scheduled/ Non Scheduled) may solve major drawback of Drug Price Control
Order.
Chapter 1
Introduction
1. Introduction
1.1 Indian Pharmaceutical Industry: Current Scenario
India is among the top five emerging pharma markets and has been posting double digit growth on
account of several socio-economic factors, including rising sales of generic medicines, continued
growth in chronic therapies and increasing penetration in rural parts of the country. The pharma
sector in India is expected to clock total sales of US$ 27 billion by 2016, according a recent report
by Deloitte. The study is expecting the sector to register a growth of 14.4 per cent from last
year. India holds over 10 per cent share in the global pharma production with over 60,000 generic
brands across 60 therapeutic categories and manufacturing over 400 different active pharmaceutical
ingredients (APIs).
India is considered as pharmacy of world. Globally, India ranks 3rd
in terms of volume and 13th
in
terms of value. The lower value is due to the fact that Indian medicines are amongst the lowest
priced in the world. The drug prices in China is said to be almost 7 times that of comparable
molecules in India. However, despite this medicine costs continue to be an important component in
the overall Medicare expenditure in the country. The prices of brands in India on-average are lower
than countries such as Indonesia, Thailand, China, Malaysia, Philippines and Pakistan. Still 70% of
citizens do not have access to essential medicine. Even though Government distributes free generic
drugs in public facilities there is still a large portion of non-essential drugs out of price control that
require regulation.
Indians are living longer than before, but illness and disability of a very high order & early death
remain severe health care challenges.
Here are some of findings from the study of Global Burden of Diseases, Injuries & Risk Factor.
Figure 1 : Human Development Indicators
(Source: World Health Organization, 2012)
Following are two contradictory sentences:
The Planning Commission has proposed a 200% increase in fund allocation for the Ministry
of health and family welfare for the 12th
Plan period (2012-2017). If the proposal is
accepted, the allocation for the Ministry of health is expected to be around Rs. 280,551
crore-232.65% higher.
Healthcare is among the major reasons for indebtedness in Indian households. India’s
healthcare system already has one of the world’s highest percentages spending on health
coming out of private pockets. As many as 4 crore people of our country plunge into
poverty each year due to expenses on medical treatment. As per available data of World
Bank, public expenditure on health in India was 29.2% of total health spending; against the
global average of 62.8%. India spends 4.1% of GDP on health expenditure. The global
average is 10.4% of GDP.
In India both health expenditure as percentage of GDP and public spending as percentage of total
health expenditure is low when compared to developed countries.
Table 1: Global Health Expenditure Database
Country Total
Expenditur
e on health
as % of
GDP(2010)
Total
Expenditure
on health per
capita
(Intl $,2009)
General
Government
expenditure
on health as
% of total
health
expenditure
(2010)
Private
expenditure
on health as
% of total
health
expenditure
(2010)
Current
EML
USA 18 7417 53 47 Not present
Timor-Leste 9 120 56 44 2004
Maldives 6 412 60 40 2009
Nepal 6 69 33 67 2009
Bhutan 5 274 87 13 2009
Thailand 4 345 75 25 2008
India 4 132 29 71 2011
Sri Lanka 3 193 45 55 2009
Bangladesh 3 48 34 66 2006
Indonesia 3 99 49 51 2006
Myanmar 2 23 12 88 2010
(Source: Word Health Organization Annual report 2012)
So, what is the actual fact?
To discuss that here comes the widely debated & discussed issue “Drug Price Control Order
(DPCO) 2013”.
1.2 History of Price Regulation in India
Figure 2 : Price Regulation in India
Access to essential drugs is a pressing concern in India today. Price control over drugs was first
introduced in the country in the aftermath of the Chinese aggression with the promulgation of the
drugs (display of prices) order, 1962 and the drugs (control of prices) order, 1963. Thereafter, a
series of price control regimes were notified through various orders in the country from time to
time based on different principles, in which the span of control of prices as well as the nature of
control of prices varied from order to order as per the disposition of the respective drug
policies.
Recently, The National Pharmaceutical Policy was approved by the Cabinet and notified in 2012.
Based on this policy, a new Drugs Price Control Order was notified in May, 2013.
In recent past, the Ministry of Health has also revised the National List of Essential Medicines and
notified the new NLEM, 2011. It may be noted that various drug policies adopted from time to
time have tried to cope up with the challenge of striking a balance between the at times varying
requirements of enabling industry to grow and at the same time ensuring affordable and
reasonably priced to the consumers, particularly the poorer masses. This balancing of diverse
and conflicting interests is indeed a difficult task, as is the reconciling of short term interests
with long term goals and concerns.
1.2.1 Drug Price Control Order 2013: Overview
According to the website of Department of Pharmaceuticals, the government has notified the DPCO
2013, issued under the Essential Commodities Act, 1955, will lay the framework of the drug policy
and mechanism of regulating prices. Earlier Drug Prices Control Order 1995 regulated prices of only
74 bulk drugs. The new order will give power to the National Pharmaceutical Pricing Policy 2012 to
regulate prices of 348 essential drugs. As per the new drugs policy, all strengths and dosages
specified in the National List of Essential Medicines 2011 will be under price control.
Main Features of the DPCO 2013
The new order will bring 348 drugs & their 652 formulations under price control.
New Drug Pricing Mechanism: The new policy uses a market-based pricing mechanism
against the earlier proposed cost-plus method. At the core of the new regime lies the ceiling price.
This would be calculated by taking the simple average of prices of all brands of a drug with a market
share of 1% or more. The maximum retail price of a drug would factor in a margin of 16% of the
chemist. The prices prevailing in May 2012 will be taken as the reference point for calculating the
caps. This Pricing mechanism has turned out to be fruitful or not, nobody is concern about.
Companies selling medicines above the government-mandated ceiling rated would have to
slash prices to meet the demands of new rules, but those selling drugs below the ceiling price
wouldn’t be allowed to raise prices.
Firms that launch new medicines can sell them at or below government-set price caps.
Existing firms will not be allowed to stop production of any drug without permission from
the government.
Drug producers will be permitted an annual increase in the retail price in sync with the
wholesale price index.
1.3 Essential Medicines
The concept of essential medicines, first introduced by the World Health Organization in 1977, has
been adopted by many countries including India.
“Essential Medicines are those that satisfy the priority healthcare needs of the majority of the
population. The list specific to India addresses the disease burden of the nation besides being
commonly used medicines at primary, secondary & tertiary healthcare levels.”
The primary purpose of NLEM is to promote rational use of medicines considering the three
important aspects i.e. cost, safety and efficacy. It promotes prescription by generic names.
1.3.1 National list of essential medicine 2011
The National list of essential medicines is one of the key instruments in balanced healthcare
delivery system of a country which includes accessible, affordable quality medicine at all the
primary, secondary, tertiary levels of healthcare. Realizing this GOI, MOHFW decided to have its
own essential medicines list. The first National List of Essential Medicines of India was prepared
and released in 1996. This list was subsequently revised in 2003.
To address the issues of changing disease prevalence, treatment modalities, introduction of newer
medicines and identification of unacceptable risk- benefit profile as well as therapeutic profile of
some medicines, the GOI, MOHFW considered the need for updating the NLEM.
Revision of NLEM was also based on the two important national reference documents i.e., Indian
Pharmacopeia 2010 and National Formulary of India, 4th Edition, 2010. While the former deals
with the standards of identity, purity and strength of medicines the later provides the information
on rational use of medicines particularly for healthcare professionals.
In this core committee meeting it was deliberated that although WHO has prepared an updated list
of “Essential Medicines”, it cannot be adopted as such. The NLEM of India should be country
specific considering the disease prevalence, cost effectiveness of Medicines etc in the country.
1.3.2 Process Adopted For Revision of National List of Essential Medicines
1) National List of Essential Medicines 2003 (Base document)
2) Consultation meetings with Experts
3) Deliberation on Evidence based criteria for addition and deletion of medicines from the NLEM
4) Therapeutic area wise group discussion(Group composition: Clinicians, Pharmacologists,
Pharmacists, Scientists and Regulators)
5) Presentation by groups in open house discussion
6) Deliberations/ discussion and reasoning for additions/Deletions/modifications
7) Draft recommendations for NLEM
8) Consideration and adoption of NLEM by the Core Committee
There is no doubt that with a objective of benefitting the Indian Consumer, government has come up
with DPCO, but have government really checked that their efforts have really benefitted them or not
is still a question?
1.4 Flipside of the coin:
It is a universal truth that we cannot have access to health care without access to affordable drugs.
Statistically, despite a huge network of hospitals, dispensaries and sub-centres set up by the
Government in each and every State, 80% patients still prefer to go to private sector and 71%
of the cost of treatment is on purchase of medicines alone.
1.4.1 Drawbacks of DPCO
DPCO is full of loopholes, taking advantage of which Pharma companies can instead make you pay
more for same medicines.
There's good reason why we need price controls. The MRP charged by companies is often many
times the cost of production leaving them with profit margins unheard of in any other sector. Price
control was meant to address this problem, particularly in medicines important for India.
One reason is the way prices are determined under the current DPCO. Under the 1995 DPCO, the
drugs prices under controls was decided by taking the cost of manufacture and fixing a certain
percentage as mark-up, which included packaging and distribution costs, retailers' margin, excise
duty and profit. But the current DPCO uses a new formula under which the price is fixed by taking
the average price of brands, having one percent or more of market share and adding 16% as retail
margin.
The prices of the medicines will be fixed by taking the weighted average of the prices of the top
three Brands during the past twelve months. This may result in bringing down the prices by merely
2-4% from the existing levels, which would still be significantly higher than the prevailing prices of
equivalent Generic medicines available in the market, particularly in Jan Aushadhi outlets. It would
thus not give any respite to people as they would continue to shell out almost the same amount as
before.
The researchers found that the coverage of drugs under the DPCO 2013 is limited to only about 17
per cent of the drugs being prescribed and promoted at present in the country. Stating that the price
impact of the implementation of DPCO 2013 is marginal for the retail consumers, the study
projected the absolute decrease in sales because of price control at about Rs 1,300 crore,
approximately 2 per cent of the Rs 75,000 crore worth domestic drug market.
The study also says that of the 100 top selling brands in the Indian market, 55 of the brands fall
outside the scope of price control. Of the top 20 acute brands, eight fall outside, and 13 of the top 20
chronic brands are outside price control. It notes that the Drug Price Control Order (DPCO) 2013
has failed to bring newly introduced drugs under its scope. Of the top 20 newly introduced brands in
the last 24 months, majority (18) are outside price control. Given that the primary objective of price
control is to contain high prices of medicines, the scope of DPCO 2013 will not extend to new
market entrants.
Among the 652 formulations for which ceiling prices were fixed by the National Pharmaceutical
Pricing Authority (NPPA) under DPCO 2013, 394 or 94 per cent products enjoy a market share of
over 25 per cent or greater. In 280 cases, the share of market leader in the product is even greater
than 50 per cent. But the reduction in revenue for a majority of the market leaders would be limited
to the extent of 10 per cent.
According the draft policy, in its present form, it will seem that it is heavily loaded in favor of the
Pharmaceutical Industry, rather than being consumer-oriented. Example of two common drugs,
namely, Cetrizine and Paracetamol tablets, which are also being sold through Jan Aushadhi outlets
set up by the Government, substantiate this point.
Cetrizine tablets (10 mg) of assured quality are being sold at Jan Aushadhi outlets at MRP
of Rs 2.75 per 10 tablets. Even at this price, the manufacturing companies are making
reasonable profit on this product. In other words, Government is not providing any subsidy
to companies manufacturing this product to keep the price at affordable level. The total
market size of this product in India, (total MAT value) including those being sold under
different brand names, as per IMS Health data of May 2013, is Rs 112.67 crore. About
75% of this market is occupied by ten Pharmaceutical companies, namely,
Chaudhury RR, Parameswar R, Gupta U, Sharma S, Tekur U, Bapna JS (2012) Quality
medicines for the poor: Experience of the Delhi programme on rational use of drugs.
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care: Current progress and challenges in India, Journal of Pharmacology &
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