ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Balancing Affordability with Access

Without supply management strategies, pricing of essential drugs will fail to ensure access.

The healthcare system in India is characterised by a rapaciously expanding private sector and prohibitive out-of-pocket (OOP) health expenditures that hinder access to healthcare, particularly for the poor and the vulnerable. Either they are simply unable to afford such high costs or are further impoverished by the burden of healthcare expenditures. More disconcerting in this scenario is the spiralling cost of therapeutics, which has emerged as a key driver of the increasing share of healthcare in household consumption expenditures over time. Almost two-fifths of the overall healthcare costs and more than half of the total private OOP healthcare costs in India are for therapeutics. In this context, recent initiatives of the central government for (essential) drug price control, such as the new Drug (Price Control) Order (DPCO) of 2013 or the proposed expansion of the generic drugs scheme by increasing the number of Jan Aushadhi Kendras, are welcome moves, indeed, but to what extent efficacious, is debatable.

Pricing of medicines (essentials) has been an issue of concern even with the central governments that preceded the current one. But, other than repeated promises that were made from time to time by various central governments, nothing much has been done at the statutory level to ensure free medicines for the poor. What has been achieved till date are some state-specific initiatives, and some incentive offers made by the central government to the states through the National Health Mission for launching free drugs and diagnostic services. The policy overtone in this aspect is historically preponderated by “price control,” which, as of now, could encompass even less than a quarter of the domestic pharmaceuticals market. Besides, experiences of drug price control have not been promising. In November 2017, when the National Pharmaceutical Pricing Authority issued a ceiling price of Re 0.29 per unit for Furosemide (brand name Lasix), a diuretic for babies, the prices were slashed down from ₹100–₹110 to ₹10 per pack, and the industry retaliated by cutting down supply of the drug.

On the one hand, a major impediment to drug price control in India lies in the structure of the domestic pharmaceuticals market, which is highly concentrated with the top 10 companies accounting for more than two-fifths of the total sales. In such a set-up, the market-based price ceiling mechanism proposed by the new DPCO is potentially susceptible to the phenomenon of regulatory capture. The price cap is a simple average of prices of all brands with more than 1% market share in a medicinal area. This is prone to overestimation if firms, especially the big ones, collude to raise the price of the regulated formulation in the period preceding the regulation. At the market-based ceiling price, Metformin (a drug for treating type 2 diabetes), for example, is estimated to be almost three times more expensive than under the cost-based pricing approach followed by the DPCO 1995, even though such costs were self-declared by the manufacturers.

On the other hand, deficient supply chain management prevents the utilisation of low-cost generic drugs from picking up. Media reports on the crumbling status of the already existing Jan Aushadhi Kendras due to procurement delays and errant supplies are rampant. Poor forecasts, archaic procurement systems, and small markets, among other things, can cause supply bottlenecks; at the same time, demand is constrained by the lack of clarity on the quality of generic drugs. With the key parts of the drug regulatory systems in the country being controlled by the states, there are no consistent standards for enforcement. Given this, confounding estimates of counterfeit drugs are available. The pharmaceutical manufacturers estimate that 20% of all drugs sold in major city markets are substandard or counterfeit, while the government estimates that these account for almost 10% of the total pharmaceutical market in the country. To worsen matters, the commonly held perception that low-priced drugs are more likely to be spurious can hardly be contested.

India’s universal health coverage framework is based on the tenets of equity, access, and affordability; and pursuing any of these goals would entail some inevitable societal trade-offs. Take the example of the insurance-based financing mechanism for universal health coverage proposed by the current government. While the programme may ensure access to healthcare for the poor, it may lack in safeguarding affordability. In the absence of commensurate supply-side strategies, such as strengthening the public sector provisioning of essential healthcare, the programme is likely to benefit the private players who already dominate healthcare provisioning in India. In such a situation, “price control” may contain the prices of essential drugs, but only when coupled with supply-side interventions such as enforcing a drug regulatory system, improving supply chain management, and understanding the pharmaceutical market. Otherwise, price control may distort access to affordable drugs.

Striking the right balance between these goals is not only an economic decision, but also a matter of political will. It has been empirically proven that free or low-cost healthcare provisioning by the state remains the best way to enhance the health and well-being of households, provided infrastructural bottlenecks are addressed, and low-cost medicines and diagnostics made available to all. However, the current paradigm shift towards demand-side financing of healthcare is indicative of the fact that the government is striving to limit its role in facilitating access to healthcare, while leaving the provisioning to the private sector.

Updated On : 28th Aug, 2018

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