Medicine Pricing in India: Why the Supreme Court Is Concerned

Context

The Supreme Court has examined the pricing of medicines in the context of substantial differences between the Price to Retailer (PTR) and Maximum Retail Price (MRP) of certain drugs. The proceedings have brought renewed attention to the design and coverage of India’s medicine-pricing framework.

Legal Framework

India’s medicine-pricing system is primarily governed by the Drugs (Prices Control) Order (DPCO), 2013, issued under the Essential Commodities Act (ECA), 1955.

1. Section 3(1) of the ECA, 1955 empowers the Central Government to regulate the production, supply and distribution of essential commodities to maintain adequate supplies and ensure their equitable distribution and availability at fair prices.
2. Section 3(2)(c) enables the Government to issue orders for controlling the prices of essential commodities.
3. The National Pharmaceutical Pricing Authority (NPPA) was established in 1997 under the Department of Pharmaceuticals.
4. Its major functions include:
   • Fixing and revising prices of scheduled formulations.
   • Fixing retail prices of new drugs under the applicable framework.
   • Monitoring compliance with the DPCO.
   • Recovering amounts charged in excess of permitted prices.

Scheduled and Non-Scheduled Formulations

The DPCO distinguishes medicines according to their inclusion in the prescribed price-control framework.

1. Scheduled Formulations

• Covered under Schedule I of the DPCO, 2013.
• Schedule I is based on the National List of Essential Medicines (NLEM) prepared by the Ministry of Health and Family Welfare.
• Their prices are subject to the prescribed ceiling-price mechanism.

2. Non-Scheduled Formulations

• Not included in the scheduled list.
• Their initial prices are not subject to the regular ceiling-price mechanism.
• Manufacturers determine the initial MRP, subject to restrictions on subsequent price increases.

According to the supplied source, the NLEM contains 384 medicines, while medicines covered by the price-control mechanism account for about 20% of total drug-market turnover.

Ceiling Price Mechanism

For scheduled formulations, the ceiling price is determined through a market-based methodology:

1. Different branded and generic versions having the same active ingredient, strength and dosage form are considered.
2. Formulations with a market share of less than 1% are excluded.
3. Market share is assessed using Moving Annual Turnover (MAT) data.
4. The Price to Retailer (PTR) of eligible formulations is considered.
5. The average PTR is calculated.
6. A 16% retailer margin is added to arrive at the ceiling price.

The ceiling price is revised annually on the basis of the Wholesale Price Index (WPI), and the revised ceiling price takes effect from 1^st April of each year. If the annual WPI-based revision results in a lower ceiling price, manufacturers must reduce the price accordingly within the prescribed period.

Pricing of Non-Scheduled Medicines

The principal regulatory distinction for non-scheduled medicines concerns their initial market price.

1. Manufacturers determine the initial MRP when a medicine enters the market.
2. Subsequent increases are subject to a 10% limit over the preceding 12 months, as described in the supplied material.
3. Petitioners have argued before the Supreme Court that a percentage-based restriction on later increases may have limited effectiveness when the initial price is not subject to a ceiling.

The proceedings have therefore brought launch-price regulation into focus as a distinct aspect of medicine-price policy.

Constitutional and Public Health Dimension

The petitions invoke Article 21, linking access to affordable healthcare with the constitutional protection of the right to life.

The material also raises questions concerning:

1. Affordability of treatment for patients requiring long-term or critical care.
2. Transparency in medicine pricing.
3. Prescribing and dispensing practices.
4. The potential role of generic medicines in reducing treatment expenditure.

The supplied material cites the petitioners’ submission that generic medicines may be substantially cheaper than their branded counterparts.

Way Forward

1. Improve price transparency by strengthening public access to information on PTR, MRP and applicable margins.
2. Review launch-price regulation to assess the adequacy of the existing framework for medicines outside the scheduled category.
3. Strengthen monitoring and enforcement to ensure compliance with prescribed pricing norms.
4. Encourage rational prescribing and dispensing while maintaining standards of medicine quality and patient safety.
5. Periodically evaluate price-control mechanisms in light of changes in medicine availability, market structure and healthcare expenditure.

Conclusion

India has developed a structured medicine-pricing framework through the ECA, DPCO and NPPA. The Supreme Court proceedings highlight the need for the framework to remain responsive to affordability, transparency and access to healthcare. A balanced regulatory approach can protect patients while supporting the availability and sustainability of medicines.

FAQs

1. What is the main legal instrument governing medicine prices in India?
   The DPCO, 2013, issued under the Essential Commodities Act, 1955.
2. What is the role of the NPPA?
   The NPPA fixes and revises prices of scheduled formulations, fixes applicable retail prices for new drugs, monitors compliance and recovers amounts charged in excess of permitted prices.
3. What is PTR?
   Price to Retailer (PTR) is the price at which a manufacturer or distributor supplies a medicine to a retailer or hospital pharmacy.
4. What is a scheduled formulation?
   A formulation included in Schedule I of the DPCO, 2013, and therefore subject to the prescribed ceiling-price mechanism.
5. How is the ceiling price calculated?
   The methodology considers eligible PTRs of formulations with the same active ingredient, strength and dosage form, calculates their average PTR and adds the prescribed 16% retailer margin.
6. What distinguishes non-scheduled medicines?
   Their initial MRP is outside the regular ceiling-price mechanism, while subsequent price increases are subject to prescribed restrictions.
7. Why is Article 21 relevant to medicine pricing?
   The petitions link access to affordable healthcare with the right to life under Article 21.
8. What measures can improve medicine affordability?
   Greater price transparency, stronger regulatory monitoring, appropriate review of launch prices and rational prescribing can support affordable access to medicines.