NPPA’s role in fixing drug prices – UPSC GS3

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National Pharmaceutical Pricing Authority (NPPA):
  • NPPA was established in 1997 as an office under the Ministry of Chemicals and Fertilizers.
  • It is responsible for regulating the prices of drugs in the country and ensuring their availability, accessibility and affordability to every citizen of the country.
  • Its key function is to implement and enforce the provisions under the Drugs Price Control Order (DPCO), 1995/2013.
  • The NPPA is also empowered to collect and maintain data on production; exports and imports; market share of individual companies, and the profitability of companies.
National List of Essential Medicines (NLEM):
  • Essential medicines are those that satisfy the priority healthcare needs of the majority of the population.
  • The essential medicines list is country-specific and addresses the disease burden of the nation and the commonly used medicines at primary, secondary and tertiary healthcare levels.
  • The first National List of Essential Medicines of India was prepared and released in 1996.
  • The National List of Essential Medicines (NLEM) plays a crucial role in balancing the healthcare delivery system of a country which inter alia includes accessible, affordable quality medicine at all the primary, secondary, tertiary levels of healthcare.
  • The medicines mentioned in the NLEM are available at affordable costs and with assured quality.
  • The key function of NLEM is to promote rational use of medicines considering the three key factors namely cost, safety and efficacy.
  • The NLEM lists the drugs that are used to treat fever, infection, heart disease, hypertension, anaemia, etc. and also includes commonly used medicines like paracetamol and azithromycin.
Mechanism of price increase:
  • The annual hike in the prices of drugs listed in the NLEM is based on the WPI.
  • According to the Drugs (Prices) Control Order 2013, the prices of drugs that constitute around 15% of the pharma market which are listed in the NLEM, are allowed an increase by the government as per the WPI.
  • The prices of the rest of the drugs in the market are allowed a 10% increase every year in the automatic route.
Current demands of pharma players:
  • The pharmaceutical companies claim that the input costs have increased substantially and now are asking for at least a 10% increase in the cost of scheduled drugs (the ones listed under NLEM) irrespective of WPI.
  • The increase in prices will result in consumers paying more to get crucial life-saving medicines.
Issue in Pricing Mechanism:
  • Self-reliance in production:
    • India is highly dependent on China for the import of Active Pharmaceutical Ingredients (APIs) and chemicals/intermediates.
    • Scaling of production of these in the domestic market will ease the prices.
  • Change in the method to calculate the annual ceiling price
    • WPI takes into account a wide range of items, even the ones that are not linked with medicines.
    • This method should be replaced with a cost-plus mechanism that was prevalent under the earlier DPCO 1995 wherein the prices of drugs are fixed by the manufacturers based on their manufacturing costs.
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