People’s Democracy (Weekly Organ of the Communist Party of India (Marxist)

Vol. XXVI No. 07 February 17, 2002

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New Drug Policy

Savage Attack On
Peoples Health

Amit Sen Gupta

THE new Drug
Policy announced by the government is a savage attack on health care in the country.
Though it has been termed as a “Drug Policy”, the new changes are only aimed at
allowing a rise in drug prices. This has been done at the behest of pharmaceutical
companies, who have been given further license to profiteer at the expense of the sick and
the ailing. All other elements in the Policy are mere window dressing to justify the price
hike. It may be recalled that in 1995 the number of drugs under price control had been
slashed from 166 to 74. This had led to an immediate spiral in drug prices. The New Policy
has further reduced the number of drugs under price control to just 38.

MYTH OF LOW
PRICES

There is a
prevailing myth that drug prices in India are the lowest in the world. This is at best a
partial truth. Drugs that are still Patent Protected are much cheaper in India due to
India’s earlier Patent Act. It should be obvious that we would lose this advantage
after amendment of the Indian Patent Act of 1970. But off-Patent Drugs (which anyway
account for 80-85 per cent of current sales in the country) are not necessarily cheaper in
India. In fact, generally, prices for these drugs are higher in India than those in Sri
Lanka and Bangladesh. In fact as Table 1 shows, prices of some top selling drugs are
higher in India than those in Canada and the UK. The above raises the important
fundamental issues that the benefits of the advantage that the Indian Pharmaceutical
Industry enjoys over all other Third World Nations, in terms of the availability of
indigenous technology and a large domestic market, have not been passed on to the
consumers.

DECONTROL LEADS
TO PRICE RISE

In the New
Policy, in one sweep, the volume of pharmaceuticals under price control has been reduced
from an estimated 40 per cent to just 25 per cent of the total drug market. There has been
no attempt to provide even the semblance of justification for the decontrol of drug
prices. Earlier studies have clearly shown that prices of drugs start rising as soon as
controls are removed. This was evident in 1995-96, after the last round of price
decontrol effected through the Drug Price Control Order (DPCO) 1995. Further, in almost
all segments, the brand leader for a particular drug (i.e. the Brand with the highest
turnover) is usually one of the most expensive (in some cases twice as expensive!). This
flies in the face of the argument that market forces and competition stabilises drug
prices. If a more expensive Brand sells more in the market than cheaper alternatives, it
should be evident that the price of a drug does not determine its volume of sales. This is
so because market mechanisms are notoriously ineffective in stabilising prices of drugs,
as there is no direct interaction between the consumer and the drug market. Companies are
able to sell over-priced drugs through aggressive promotional strategies aimed at doctors
and by providing lucrative margins to chemists. The government’s claim, hence, that
market forces shall prevent price increase is fraudulent. It is even more surprising that
pharmaceutical companies have been provided this windfall when even a lay observer is
aware that pharma stocks have been some of the most robust in the stock market.

MARKET MECHANISM
DOES NOT STABILISE PRICES

It is precisely
because of this phenomenon that practically all countries in the world have mechanisms to
control drug prices. Controls on drug prices are exercised in many market economy
countries. In spite of strong Patent Protection, there are effective measures in place
that allow regulation of drug prices. In Australia since 1993, new drugs with no advantage
over existing products are offered at the same price. Where clinical trials show
superiority, incremental cost effectiveness is assessed to determine whether a product
represents value for money at the price sought.

In Britain,
there exists the pharmaceutical price regulation scheme – a voluntary agreement between
Britain’s Department of Health and the Association of the British Pharmaceutical
Industry in which companies negotiate profit rates from sales of drugs to the National
Health Scheme.

Globally, Drug
Companies are being forced to reduce the cost of medicines. Pressure is being mounted by
Health Insurance Cos., Health Management Organisations (HMOs) and governments (in
countries like UK and Canada where the State provides Health Insurance cover) all over
Europe and North America. These pressures have become stronger in recent years with the
realisation that spiraling drug costs are making Health insurance cover (whether state
funded or privately managed) unsustainable. In all these countries there is a major move
to insist on generic prescription in most cases, thus opening up a huge generics market.
Large TNCs are forced to compete on more or less equal terms with a large number of lesser
known companies, and also sell drugs at relatively cheaper rates. In the US, for example,
from 1995 through 1997, generic drug prices showed a double-digit rate of decrease. In the
US this shift was facilitated by the Hatch-Waxman Act, which made the approval process of
generic drugs much easier. Since 1984 this has resulted in a dramatic increase in
competition from generic drugs, leading to an estimated saving 0f 8-10 billion dollars in
1994 alone.

Thus it needs to
be understood that market mechanisms alone cannot be expected to stabilise drug prices.
Various other interventions are needed to manipulate the market, in order to guard against
monopolies emerging.

RED HERRING
  OF R&D

The new policy
has attempted to justify the price decontrol with the plea that this shall boost R&D
expenditure in the pharmaceutical sector. When concerns (legitimate in our view) were
raised that amendment of the Indian Patents Act would result in rise in Drug Prices, the
ministry of chemicals and fertilisers had consistently claimed that any rise in prices
would be kept in check through mechanisms in the DPCO. It is extremely surprising that now
that we are moving towards a Product Patent regime (the amendment to the Patents Act is
presently pending in parliament), there should be talk of diluting Price Controls. Price
Controls have already been diluted in the past decade and only 40 per cent of the turnover
of the industry was under price control prior to the new policy. Any further dilution
would mean virtual abandonment of price controls. If the government is to consider
this, under the garb of encouraging R&D, it will only substantiate earlier fears that
a change in the Patents Act can only lead to a spiraling rise in prices of drugs.

Present
investments on R&D in the drug industry are less than 2 per cent of sales. The dubious
logic that price controls have led to this situation has been put forward. In the past
decade span of price controls has come down from in excess of 60 per cent of the
industry’s turnover to around 30 per cent. If reduction in price controls is to
spur R&D activity, why has there been no rise in R&D expenditure in the past
decade? It may be recalled that the 1995 policy had a provision for keeping all
drugs developed by indigenous R&D outside price controls for ten years. This too does
not seem to have spurred any significant R&D activity in the industry. The issue of
price controls has nothing to do with infrastructure development for R&D, and the two
issues need to be dealt separately. It appears as though the issue of R&D is being
used as a “red herring” by drug companies to lobby for price decontrol and
thereby license to profiteer.

MILLIONS
“COSTED OUT”

Pharmaceuticals
have another unique characteristic – those who need drugs most are the least likely to be
able to pay for them. Thus even a small increase in prices results in the “costing
out” from the market of a large number of people. In a country where half a million
people die of Tuberculosis – a disease that can be treated by over a dozen drugs – because
drugs are unaffordable, such a license to profiteer is inhuman.

The imminent
rise in drug prices comes at a particularly unfortunate juncture. The public health
delivery system is in shambles and large parts of it are being dismantled or privatised.
Drug supplies at public health facilities are at an all time low. This has already forced
poor consumers to pay for medicines even if they are being treated in public facilities.
Any further price rise can only push such patients to the brink of penury. It is
significant in this context that the Drug Policy is announced by the ministry of chemicals
and fertilizers. Does the ministry of health believe that drugs are mere industrial
products?

NOT A DRUG
POLICY

Finally, it is a
moot point whether the recent policy that has been cleared by the Cabinet Committee on
Economic Affairs can be called a Drug Policy. A Drug Policy has to start with the premise
that drugs are not like any other industrial products or consumer goods. Unlike say,
washing machines or cars, availability of affordable drugs may make the difference between
life and death for millions of people. A Drug Policy, thus, has to address the issues
of quality, indigenous manufacture, availability of essential drugs, review of existing
irrational and hazardous drugs, and affordability of drugs that are available. The new
policy does not address any of these. An estimated 50 per cent of drugs in the market are
irrational, or hazardous, or sub-standard. De-industrialisation has increased in the drug
industry at a frightening pace and many companies are dependant on imported bulk drugs.
Imports of finished formulations have increased by 420 per cent in the past year! Clearly
the new “policy” is only a ploy to allow profiteering at the expense of
people’s health. The timing of the new policy is also significant – it has been
announced when the country’s parliament is not in session. It appears to be a
deliberate, all too familiar attempt, to bypass democratic processes in the country. It is
hoped that the unjustified attack on people’s right of access to affordable medicines
will be debated in full in the coming session of parliament.

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Table 1

International
Cost Comparison of Drugs (in rupees)

       Source: British Columbia Children’s Hospital
Formulary

British
National Formulary, No 35, March 1998,

MIMS India,
March 1998