Context: The Supreme Court has raised concerns over large disparities between the Price to Retailer (PTR) and Maximum Retail Price (MRP) of certain medicines, particularly anti-cancer drugs.
- In some cases, the difference has reportedly reached 1,000%, creating concerns about affordability, competition and patients’ access to medicines.
How the PTR–MRP Problem Works
- PTR is the price at which a medicine is supplied to the retailer/hospital, while MRP is the maximum price that can legally be charged to the consumer.
- For prescription medicines, patients generally have limited ability to choose between competing brands because hospitals and doctors influence or determine the brand used.
- Pharmaceutical companies may therefore offer hospitals a very low PTR while retaining a high MRP, creating a large margin for the hospital.
- This creates an economic incentive for hospitals to prefer medicines offering higher margins, even when therapeutically equivalent, lower-priced alternatives exist.
- The arrangement may not technically constitute a conventional kickback, but its economic effect can resemble one because the financial benefit is embedded in the pricing structure.
- When private hospitals require patients to purchase medicines through on-premise pharmacies, patients lose the ability to compare prices or purchase equivalent medicines elsewhere.
- This weakens normal price competition and can disadvantage affordable generic or equivalent alternatives.
- High medicine costs can impose significant financial burdens, particularly on patients requiring long-term cancer or chronic-disease treatment, potentially affecting treatment adherence.
Regulatory Gap under Drug Price Control
- The problem partly arises from the Drugs (Prices Control) Order (DPCO), 2013, which regulates the maximum price of scheduled medicines but does not directly control the margin earned by hospitals on their procurement price.
- Under the market-based pricing mechanism, the National Pharmaceutical Pricing Authority (NPPA) determines a ceiling price based on the market-derived average price, with the prescribed margin added.
- For example, if the calculated average price is ₹100, the ceiling price may become ₹116; a hospital purchasing the medicine from the manufacturer for ₹50 can still charge up to ₹116, creating a ₹66 differential.
- Thus, regulation of the final ceiling price does not necessarily prevent substantial margins from arising between manufacturer price and hospital selling price.
NPPA's Earlier Intervention
- In 2019, the NPPA undertook a proof-of-concept exercise by capping trade margins at 30% for 42 non-scheduled anti-cancer medicines.
- The Department of Pharmaceuticals subsequently reported that prices of 526 brands fell by up to 91%, indicating that significant portions of some MRPs consisted of potentially reducible trade margins.
- The episode demonstrated that trade-margin regulation can substantially affect the final price paid by patients, particularly where large margins are embedded in the supply chain.
Supreme Court's Intervention
- The Supreme Court has highlighted the need to address excessive differences between PTR and MRP, especially where patients have little ability to exercise consumer choice.
- It has suggested consideration of a fixed percentage markup across medicines as one possible mechanism for limiting excessive margins.
- A uniform percentage alone, however, may still provide sellers with an incentive to favour expensive medicines because the absolute rupee margin rises with the price of the medicine.
- A possible complementary approach is a regressive/degressive margin structure, under which the permitted percentage margin falls as the medicine's price increases.
- Such a system could reduce incentives to promote higher-priced brands merely because they generate larger absolute margins.
National Pharmaceutical Pricing Authority (NPPA)
- The NPPA is an attached office of the Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers.
- It implements and enforces pharmaceutical price-control provisions under the DPCO.
- Its functions include determining/revising prices of controlled medicines, monitoring drug availability and detecting violations of regulated prices.
Scheduled vs Non-Scheduled Drugs
- Scheduled drugs: Medicines listed in the First Schedule of the DPCO and subject to price regulation.
- Non-scheduled drugs: Generally not subject to the same ceiling-price mechanism, although manufacturers must comply with applicable provisions governing price increases.
- The distinction is important because price-control mechanisms differ depending on whether a medicine is scheduled or non-scheduled.
