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The Department-related Parliamentary Standing Committee on Chemicals and Fertilisers has recommended to the Ministry of Chemicals and Fertilizers to examine the feasibility of reintroducing cost-based pricing mechanism, through suitable statutory amendments, since in some cases the current market-based pricing results in significant price disparities.
The Panel, in a latest report reviewing the role, functions, and duties of the National Pharmaceutical Pricing Authority (NPPA) with specific reference to increase in prices of medicines in the country, observed that sole reliance on market data, that is the Price to Retailer (PTR) for price fixation may not be, in some cases, able to detect price distortions caused by market monopolies and unjustified or excessive markups at various levels of multi-layered pharmaceutical supply chain.
In light of this, "the Committee recommends that the Ministry may examine the feasibility of reintroducing cost-based pricing mechanism, through suitable statutory amendments, in cases where significant price disparities or abnormally high mark-ups are observed or brought to notice of the Department," said the report.
"The Committee desire that they be apprised of the steps taken in this regard by the Ministry," added the Panel headed by Member of Parliament Kirti Azad Jha, in its 33rd report.
The Drugs Prices Control Order (DPCO), 2013 marked a shift from cost-based pricing to market-based pricing. As per the existing framework of the National Pharmaceuticals Pricing Policy, 2012, prices of a formulation are fixed based on market data, by considering the average PTR of all brands having a market share equal to or more than 1% of that formulation and adding a margin of 16% to it.
The Panel observed that the methodology for price fixation is laid down in DPCO, 2013 and there is no concept of backward working in DPCO, 2013. There is also no provision in DPCO, 2013 to consider cost-audit-based data for price fixation.
The Panel, while preparing the report, sought response from the Department of Pharmaceuticals (DoP) on whether there were any possibilities or opportunities for the pharmaceutical companies to exploit any regulatory gaps in current market-driven pricing policy and whether shifting from cost-based pricing to market-based pricing had any adverse effect on pricing of these medicines.
The Department said that the market-based pricing is a well-thought out decision as evident from NPPP, 2012 and as and when any regulatory gaps are noticed, they are addressed through suitable amendments or administrative instructions. It informed the Panel that there is no provision in the DPCO, 2013 to consider cost-based data.
When the Panel asked about the feasibility of cost audit of medicines, the NPPA representative said that the price regulator has no power to do cost audit.
"Whatever is the market price, I have to fix the price on that. It is a policy issue. If the changes come in the DPCO, if I am given the mandate, we will do that," the Panel quoted the NPPA representative. Earlier, in the cost-based pricing, whatever is the cost of producing a medicine, the margins were added and sold in the market.
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