Drug Pricing in India: Regulations to Foster Innovation, Accessibility and Affordability

By Anand Shukla

UKIBC is an active contributor to India’s policy debates and as a representative of British businesses in India, the UKIBC takes an evidence-based approach to highlight regulatory issues.

We recently facilitated a Roundtable meeting involving policy makers, government regulators, experts from think tank institutions, and representatives from the pharmaceutical sector to deliberate on the effectiveness of drug pricing regulations in India, the implications on drug affordability and availability, and the impact on research and future innovations.

To provide a rich background for the discussion, the UKIBC produced a research report titled ‘Drug Pricing in India: Regulations to Foster Innovation, Accessibility and Affordability‘, which was launched at the Roundtable.

Our report and the roundtable come at a critical and hopeful time for the provision of healthcare in India. The Government’s ambitious and exciting Ayushman Bharat scheme, which will provide health insurance to 500 million Indians, is a game-changer for healthcare providers, the industries that supply the hospitals and, most importantly, for India’s population.

Issues discussed in the report, and at the Roundtable meeting

A significant challenge facing the government today, as the report and the meeting highlights, is of lowering out-of-pocket expenditure on health of households. In order to solve this problem, government caps the price of drugs and medical devices. However, as evidence suggests, this approach has a few unintended consequences which negatively impacts healthcare access – of present as well as future generations.

Excessive price regulation distorts market competition. Because of poor, and sometimes even negative revenues, pharma companies may stall production altogether in the short-term, thereby impacting supplies. They are also likely to refrain from expanding into rural areas or undertaking process innovation. For example, the track-and-trace programme of the central government that aims to control the quality of drugs by strengthening their supply chain, may face implementation difficulties given the limited resources available with companies. In the long-term too, pharma companies may not have enough resources left to sustain investments in research and development of new formulations and drugs.

Can India look at practices in other markets?

In the UK, the legislation secures a reasonable price for branded and licensed prescription drugs for the National Health Service. In Japan, Germany, and Mexico, mechanisms such as bulk procurement, setting a limit of prescription budget, generic drug substitution etc. are used to achieve drug availability and maintain investments in future research and development. Can India adopt similar approaches to make drugs affordable, and at the same time allows pharma companies to achieve a fair return on their investments?

Deliberations towards a healthy future

The Ayushman Bharat scheme will potentially be able to achieve an optimum trade-off between drug affordability for patients and return on investment for pharma companies. This scheme of the government, which aims to provide healthcare insurance to 500 million people, will quite possibly change the structure of India’s healthcare market. Because of the scale of this scheme, government expects that health sector revenue is likely to double in next three years. Therefore, there is the possibility of bulk procurement of drugs from pharma companies. Because of such a key role, the pharma companies are expected to have a lot more say in price determination in the future. Government is also keen on bringing more predictability in their future price capping approach.

The government is taking a number of steps to deliver Ayushman Bharat scheme in an innovative and efficient manner. It is considering a rational pricing approach to determine what a drug should cost, and also rationalizing trade-margins in drug supplies. It is rightfully reconsidering over-the-counter drug basket, as the scheme will substantially increase patient burden on the hospitals in the country.

With better access to care, expanding insurance market and rational pricing, the future of healthcare sector looks brighter than ever before.

If you would like more information on the UK India Business Council’s work on healthcare, please contact Anand Shukla or Surbhi Mathur by email at: anand.shukla@ukibc.com or surbhi.mathur@ukibc.com

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