National List of Essential Medicines and Price Caps

Posted by on May 4, 2017 in Blog | 0 comments

It has been widely reported that an RSS Affiliate (Swadeshi Jagran Manch) has taken issue with the recommendation of the Niti Ayog to delink the Drug Price Control Order (DPCO) from the National List of Essential Medicines (NLEM).

In order to understand if this recommendation makes sense, we need to first understand why a NLEM and a DPCO exist in the first place.

The reason for a NLEM is simple. The World Health Organization (WHO) defines an Essential Medical List as “Essential medicines are intended to be available within the context of functioning health systems at all times in adequate amounts, in the appropriate dosage forms, with assured quality, and at a price the individual and the community can afford.” It further says “National lists of essential medicines usually relate closely to national guidelines for clinical health care practice which are used for the training and supervision of health workers.”

Therefore, clearly, a functioning healthcare system in a country like ours needs to ensure some medicines, which our medical community considers as essential should be available at all times. It is important to note that this is not a static list; depending upon the need of the hour, this list changes. For example, when the avian-flu epidemic hit, Oseltamivir (Tamiflu) was added to this list because of its public-health impact, until we got a handle on that disease.

Now let us understand why we need price controls. In functioning markets, where the consumer demand drives price, controls are redundant. However, as I have argued in the past, healthcare is not a perfect market. The consumer (patient) is often ill-informed about the choices she is prescribed and therefore, regulation is needed to protect the consumer. The question here is whether we apply control across the board or use it as a selective tool to ensure there is no price gouging.

We have used the DPCO as a broad corrective measure to counter inefficiencies in our healthcare system. In an ideal situation, all things being equal (especially the quality of our drug supply), and external influence is minimized (over-the-top promotional practices), natural market forces should drive the price to the point of affordability. Price of medicine will reach some sort of an equilibrium assuming there are more than a few manufacturers who supply the product to the market. Historically, this doesn’t happen because the system is opaque and often skewed. Therefore, the knee-jerk reaction is to impose external controls, which are often counter-productive to achieve the goal of affordability.

Our country needs a viable and thriving pharmaceutical industry; and external controls typically do not foster its health. We need our industry to manufacture good quality product, which works as specified and provides therapeutic benefit. The industry has to make a profit and create value for its shareholders. An across-the-board implementation of price controls is counter-productive to this goal.

The problems that challenge affordability are somewhere else. They are in our regulatory framework, our ability to enforce the law as it is written today and our dysfunctional institutions which are responsible for the implementation of our healthcare policy.

Price controls are necessary when there is no competition. If a particular manufacturer has monopoly on a life saving product, price-caps are justified. But using this method when there are a myriad of manufacturers who are expected to make the same product and compete on price is not good for our healthcare system. Clearly, not all things are equal when it comes to medicines in India. There are grades of quality, and I have adequately written about this earlier. We need to fix that and allow the market to determine who survives and who doesn’t.

In markets for essential medicines, competition will ensure low prices; but we have to accept that prices may be higher than the capped price, because caps, set too low compromise the ability of legitimate manufacturers to make a good quality product. Going back to the WHO definition of EML, a key criteria, good quality, is compromised if the price cap is set too low. For example, in 2011, prior to the introduction of the National Pharmaceutical Pricing Policy, 27 of the 74 drugs under price control were discontinued by the industry because it was unprofitable for them to make. As recently as 2013, wholesalers and retailers temporarily stopped buying stocks of essential medicines with unviable margins leading to a shortage of medicines in the market. How does this help us protect public health?

The larger issue that needs addressing is strengthening our institutions and making governance transparent and accountable. It has been reported that the administration is considering consolidating bureaucracy across multiple ministries to simplify implementation of policy objectives. There is absolutely no reason why Ministry of Commerce and Industry, Ministry of Health & Family Welfare and Ministry of Chemicals & Fertilizers all have to have a say. Improving standards of governance and accountability requires qualified administrators; especially people who have background and experience in public health be hired, empowered and made accountable to the citizens of this country. And finally, bringing our outdated healthcare law on par with globally accepted standards for quality should be a key objective.

DPCO is a tool that we need to use sparingly, not broadly. There are good reasons where price caps make sense, but using is across the board is not helpful. We need to enable market forces to function, and use the regulatory and the legal justice system to hold people who distort the market dynamics publicly accountable. Using it to cover up dysfunction and inefficiencies in our systems is not a sound solution. Price caps are not appropriate for medicines on the EML; we should enable the market to drive affordability. Specialty medicines with monopoly producers is where price caps are most effective, or at least a threat of a negotiated price so that gouging does not occur.

The recommendations of the Niti Ayog seem to be in the right direction for the country. Delinking the EML from DPCO makes sense; price caps may be warranted in certain cases and an EML is required, but competition will ensure low enough prices and hopefully of good quality if we get fix our systems and get our institutions working properly. Let us not make the same mistake we made before; take knee-jerk actions to address a short-term problem and compromise what we need for the country in the long term.

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Affordable Generic Drugs: The end-game

Posted by on May 1, 2017 in Blog | 1 comment

This is my last blog in the series discussing affordability of medicine in India. In my past blogs, we have tried to understand the problem,  the nomenclature that confounds this issue, and elements of a solution space that will give us a roadmap to our goal of affordable generic medicines.  I have tried to focus the discussion on data, rather than on emotive issues and opinions. But honestly, I have never actually addressed the core issue; is it possible for us to have affordable medicines in this country? I will try and address this issue now and I believe this is the most important topic in this entire discussion.

What we have heard on the television debates and in newspaper reports is a lot misdirection. We have several stakeholders whose opinion often contradicts one-another. We heard that any attempt to regulate the industry more than it is now is a death-knell for this emerging sector of our economy, so much so that the industry lobby linked their ability to command a price to their desire to set up new manufacturing facilities overseas (presumably to supply the domestic market). We heard from the regulator, CDSCO in the past that global quality standards cannot be applied to Indian industry serving the domestic market because it is too expensive for the industry to comply. It will put the domestic pharma industry out of business. The rationale of our regulator therefore is that our countrymen should learn to accept second-rate systems and live with it. Tough!

I have two data points for you to consider.

The Indian Pharmaceutical Industry is second only to the IT industry in terms of its ability to earn foreign exchange by selling its product in overseas regulated markets. Here are some reports that present how much our industry earns from foreign markets. Report 1, Report 2, Report 3 & Report 4. Not just revenue, the industry’s profits from these markets are very healthy. Here are a few reports on the industry’s financials: Report 6, Report 7 & Report 8. All of these reports confirm that our industry does extremely well selling into these regulated markets. These markets are profitable and profits from the regulated markets makeup for a significant part of their bottom line.

Now lets see the pricing data that allows our industry to generate these healthy profits from the overseas regulated markets. Dr David Belk has compiled a list of what an average pharmacy in the US pays for generic medicines. His research is available here: The True Cost of Healthcare. For ease of reading, he has categorized generic drug names alphabetically and for each formulation; his tables tell us what an average pharmacy paid for each drug/formulation in 2016. Let us look at a few examples of medicines commonly prescribed in our country for chronic treatments (cardiovascular and metabolic diseases):

Cost Per Tablet in the US
Atorvastatin 10 mg $0.11 7.15 ₹
Atorvastatin 20 mg $0.13 8.45 ₹
Atorvastatin 50 mg $0.15 9.75 ₹
Atorvastatin 80 mg $0.17 11.05 ₹
Simvastatin 10 mg $0.03 1.95 ₹
Simvastatin 20 mg $0.03 1.95 ₹
Simvastatin 50 mg $0.04 2.60 ₹
Simvastatin 5 mg $0.04 2.60 ₹
Carvedilol 12.5 mg $0.03 1.95 ₹
Carvedilol 25 mg $0.03 1.95 ₹
Carvedilol 3.125 mg $0.03 1.95 ₹
Carvedilol 6.25 mg $0.03 1.95 ₹
Glimepiride 1 mg $0.07 4.55 ₹
Glimepiride 2 mg $0.10 6.50 ₹
Metformin HCL 1000 mg $0.03 1.95 ₹
Metformin HCL 500 mg $0.02 1.30 ₹
Metformin HCL 850 mg $0.03 1.95 ₹
Metformin HCL ER 500 mg $0.04 2.60 ₹
Metformin HCL ER 750 mg $0.09 5.85 ₹
1 USD = 65 INR

These are just a few examples, the entire list is available on the link above.

Clearly, these prices (converted into Indian Rupees) look affordable to me. Mind you, the industry is still able to generate healthy profits from selling their products at these negotiated prices in the world’s most regulated market (the USA). To comply with the US Standards for cGMP, manufacturing facilities used by our own industry put what they use to make drugs for domestic consumption to shame. They conduct bioequivalence studies to demonstrate therapeutic efficacy, conduct long term stability studies to support expiry dates (which is still not mandatory in India, we just assume the drug is good until the date printed) and submit annual reports both for safety and batch release to the US FDA on schedule. And this is not the whole list. All of these things do take time, effort and money. Despite complying with these standards, our own industry, which accounts for more than 50% of the US drug supply  makes a healthy profit selling their product at these negotiated prices.

My question is simple. If our industry can do this for the US market, what is stopping it for replicating this model at home? Why are we told that we have to live with a lower standard, consume substandard medicines and  if we dare question the industry’s practices, then all hell breaks loose? What I find absolutely amazing is that the regulator, whose job is to protect public health becomes a vocal proponent of the industry’s arguments.

Our pharmaceutical industry made investments to comply with US standards and is generating healthy profits for their shareholders by selling into that market. Do they do half of that for a license to sell domestically in India? I think we all know the answer to this question. Why is that?

Keep in mind that these negotiated costs include costs to ship the product made in India to the US. Furthermore, it doesn’t address the fact that our patient pool in India is three times as large as the US. Doesn’t that scale warrant additional efficiencies?

Why then, are we told both by the industry and the regulator to suck it up and stop complaining? That if we ask for compliance with global standards, we will kill this industry? What are we missing here?

If there is one lesson from the discussion over the last two weeks about the issue of affordability, it is that we need to remove the issue of “quality” as a variable from the equation. Look at the same issue being debated in the US, do they even bring the issue of “quality” up? It is a testament to their regulator and their administration that the discussion is focussed on price, and just price.

This was the reason I approached the Supreme Court of India in March 2016 with a set of Public Interest Litigations based on two years of grueling RTI work. I was disappointed that the Chief Justice then questioned my standing, because I am a US Citizen of Indian origin to bring such a case in an Indian court. The judge said my arguments were academic, and that the court had more important issues to adjudicate. Now that this issue has been brought into the public awareness by none less than the Prime Minister of India, perhaps there will be a more successful effort in us achieving his vision of providing affordable medicines to the citizens of this country.

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Affordability: What does procurement have to do with it?

Posted by on Apr 30, 2017 in Blog | 0 comments

In the last blog, we looked at how we can enable pharmaceutical manufacturers to use quality as a differentiator and empower the citizens of our country to make more informed decisions about the medicines that they purchase. We briefly touched upon access, and I said we will come back to revisit this topic later. Let us now look closely at a few interesting facts about how our public procurement systems work, which is a key determinant of access.

Other than policy related documents on how procurement of medicine “should” work in our country, there has been very little research on its implementation and on-the-ground reality of how it actually does. The best reference I came across is this 2013 study published in the British Medical Journal where the authors from Indian School of Business and Indian Institute of Public Health compared drug procurement among five Indian states. Using information collected through the RTI process among other things, they looked at how Tamil Nadu, Kerala, Odisha, Punjab and Maharashtra implemented their drug procurement policies. The article makes for very interesting reading, and their conclusions are nicely summarized in this poster,

For the purposes of our discussion here, I would like to draw your attention to the following conclusions drawn by the authors followed by my comments inline:

  • Lack of any sophistication in demand estimation and forecasting models. States use previous year’s consumption as the basis, no feedback in the modeling exercise.
    • In today’s complex and dynamic disease burden conditions, clearly we can do better than this. Forecasting is sophisticated science, there is absolutely no reason we shouldnt utilize it in our demand planning.
  • Quality control: Empaneled private labs and/or government labs.  Tamil Nadu has empaneled laboratories to which every sample from each batch is sent for quality testing before distributing to user institutions.  Odisha and Maharashtra do not have any quality testing protocols in place, apart from the supplier s internal quality certificate. Pre-qualification criteria, GMP/WHO-GMP/US-FDA is a requirement for all
    • I have trouble reconciling this fact with what the DCGI and the CDSCO has publicly said, that a large majority of our manufacturing facilities do not conform even to Schedule M, forget WHO-GMP. How then are these states fulfilling this requirement?
  • More than half of the suppliers to Tamil Nadu are from within the state. The same statistic for Kerala is 14%, for Maharashtra 34% and for  Odisha, a surprising 0%! 
    • While it could be a good practice to help develop the local drug manufacturing industry, this also points to political patronage. Although difficult to substantiate, patronage manifests itself in many ways, including shortages, availability and overpayments.
  • There was no observed correlation between price vs. volume but there is a negative correlation between level of quality control and pre-qualification criteria vs. price
    • This is very surprising, particularly the second observation. Clearly, quality is not a differentiator when it comes to public procurement it appears. As far as the first observation goes, doesn’t it defeat the whole purpose of having a consolidated procurement system?
  • Tracking dispatched/delivered drugs: value based to none
    • Again, we can do a whole lot better here. Leakages within the system benefit no one, especially, those toward whom this is targeted. Political patronage plays a key role here.
  • A clear difference in the efficiency of the processes can be seen between the autonomous organizations and the state-run organizations in terms of lead times for payments, quality control and in the usage of IT systems and so on. Autonomy refers to the extent of government involvement in the decisions of the procurement organization; fully autonomous’ implies minimal involvement while government owned indicates a high degree of involvement. The idea of having an autonomous organization in the public sector is to enable it to function more transparently by avoiding the plausible procedural delays and also to enable it to make decisions of contracting and outsourcing that are best suited for the prosperity of the organization.  

The procurement process followed by the central and the state governments is vividly described, with interesting anecdotes in this 2007 Working Paper from the University of Edinburgh, which also makes for very interesting reading.

While this study is limited to just a few states, the observations and conclusions drawn are applicable to all. If access to medicines is a priority for us, several of these obvious gaps in our supply chain need to be better managed.

There are no silver bullets, this is a complex web. Most of the changes needed here are systemic. However, there are a number of things we can do in short order to help. Here are some low hanging fruit that we can adopt to simplify our supply chain:

  • With the advent of GST, one of the key reasons for the existence of the many Clearing & Forwarding (C&F) Agents that dot our drug supply should vanish. These entities existed primarily to address the disparate tax collection systems between the various states and the centre and contributed to the price of the drug at the pharmacy counter.
  • While selecting the provider and negotiating contracts:
    • We should change our approach away from selecting the lowest bidder in government contracts. When it comes to medicines, the lowest cost bidder is not always the best. We want the industry to function, and deliver good quality medicine.
    • Only those formulations which have proven therapeutic efficacy should make the cut. The manufacturer ought to have secured regulatory approval for safety and efficacy prior to qualifying for the bidding process
    • The bidding process should be transparent and automated to make it free of political influence. In all my research, this seems to be a big factor. Because Health is a State subject, individuals in power within the State administration essentially have a carte-blanche when it comes to procurement of medicine. There is virtually no accountability or transparency.

Then there are lessons we can draw from how the US is handling drug shortages. Driven primarily by the regulatory observations and actions against pharmaceutical manufacturers based in India, the US public health system has also been at the receiving end of shortages of some life saving drugs. The way in which the system responded to these challenges and the remedies that they have put in place is instructive to us as a country. For more information on how they did it, you can read it here.

As you can see, affordable medicines is a noble objective which can be achieved. But it needs us to understand why we are where we are and chart out a roadmap to our goal in a thoughtful and deliberate manner.

Guidelines from the MCI for example, which were reiterated last week, show how poorly these institutions understand the ground reality of how our drug supply chain works. We should refrain from offering such simplistic platitudes and focus our effort toward developing a better understanding how how the system works today, where systemic issues such as the ones highlighted here prevent efficiencies and therefore result in lack of access.


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