Cancer, kidney, AIDS drugs sold at up to 70 times procurement cost: Karnataka Health Minister
Must read — 2 past UPSC questions on this theme (Mains GS-2 2018, Mains GS-2 2021).
2-minute summary
Karnataka's Health Minister, U.T. Khader, has written to the Union Health Minister highlighting that critical life-saving drugs for cancer, kidney diseases, and AIDS are being sold to patients at prices up to 70 times higher than their procurement costs. While the existing Maximum Retail Price (MRP) framework prevents selling drugs above the printed price, it fails to regulate the inflation of the printed MRP itself. Manufacturers and stockists set highly disproportionate MRPs, allowing private hospitals to retain massive undisclosed margins. This practice severely exploits vulnerable in-patients and emergency cases who cannot compare prices or defer treatment. The Minister has called for a national study to compare printed MRPs, manufacturer/importer prices, hospital acquisition costs, and final patient bills, proposing that patient-facing prices be capped at the hospital's net acquisition cost plus a reasonable, notified service margin.
Why it's in the news
The Karnataka Health Minister has formally requested the Union Health Ministry to initiate national action against the 'abnormal gaps' between the procurement cost and the printed MRP of critical drugs, which are being sold at markups of up to 7000% (70 times) in hospitals.
Facts to remember
- Critical life-saving drugs for cancer, kidney diseases, and AIDS are sold to patients at prices up to 70 times higher than procurement costs.
- Pharmaceutical prices in India are regulated under the Drugs Prices Control Order issued under the Essential Commodities Act, 1955.
- Non-scheduled formulations are not subject to strict ceiling prices, and manufacturers are permitted to increase their prices by up to 10% annually.
- Out-of-Pocket Expenditure accounts for nearly half of India's total health expenditure and acts as a major driver of poverty.
Background and context
In India, pharmaceutical prices are regulated under the Drugs (Prices Control) Order (DPCO) issued under the Essential Commodities Act, 1955. The National Pharmaceutical Pricing Authority (NPPA) regulates the prices of 'scheduled formulations' listed in the National List of Essential Medicines (NLEM). However, 'non-scheduled formulations'—which include many advanced oncology, nephrology, and critical care drugs—are not subject to strict ceiling prices. Instead, manufacturers are permitted to increase their prices by up to 10% annually. This regulatory loophole allows manufacturers to print artificially high MRPs. Private hospitals and distributors purchase these drugs at heavily discounted wholesale rates but sell them to captive patients at the printed MRP, pocketing exorbitant trade margins. This significantly inflates Out-of-Pocket Expenditure (OOPE), which accounts for nearly half of India's total health expenditure and acts as a major driver of poverty.
Constitutional provisions
- Article 21 — Right to Life, which has been judicially interpreted by the Supreme Court to encompass the Right to Health, including access to affordable life-saving medicines.
- Article 47 — Directive Principle of State Policy (DPSP) mandating the State to regard the raising of the level of nutrition, standard of living, and the improvement of public health as among its primary duties.
- Article 39(e) & (f) — DPSPs directing the State to ensure that the health and strength of workers and tender age of children are not abused, and that citizens are not forced by economic necessity to enter avocations unsuited to their age or strength.
Committees and reports
- High Level Expert Group (HLEG) on Universal Health Coverage (UHC) — Recommended increasing public health spending and ensuring free provision of essential medicines to drastically reduce out-of-pocket health expenditures.
- NITI Aayog's Three Year Action Agenda — Emphasized reforming drug price control mechanisms to balance affordability for patients with the sustainability of the pharmaceutical industry.
Government schemes
- Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) — Aims to provide quality generic medicines at highly affordable prices to all citizens through dedicated Jan Aushadhi outlets.
- Ayushman Bharat - Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) — Provides cashless secondary and tertiary healthcare coverage up to Rs. 5 lakh per family per year, mitigating the impact of high drug costs on vulnerable families.
International organisations
- World Health Organization (WHO) — Advocates for Universal Health Coverage (UHC) and provides guidelines on country pharmaceutical pricing policies to manage expenditures and improve access to essential medicines.
Previous UPSC questions on this theme
- Mains GS-2 2018 — Appropriate local community-level healthcare intervention is a prerequisite to achieve 'Health for All' in India. Explain.
- Mains GS-2 2021 — "Besides being a moral imperative of a Welfare State, primary health structure is a necessary precondition for sustainable development." Analyze.
Mains practice: Exorbitant trade margins on non-scheduled drugs undermine the objective of affordable healthcare in India. Discuss the regulatory challenges in controlling drug prices and suggest measures to address the gap between procurement costs and MRPs.
Introduction
Out-of-pocket expenditure (OOPE) accounts for nearly 50% of total health expenditure in India, with pharmaceutical purchases being the single largest contributor. Recent revelations that critical life-saving drugs (for cancer, kidney diseases, and AIDS) are sold at up to 70 times their procurement cost highlight a severe market failure and regulatory gap in India's healthcare sector.
Regulatory Challenges in Controlling Drug Prices
• **Limited Scope of Price Control**: The National Pharmaceutical Pricing Authority (NPPA) regulates prices primarily for 'scheduled formulations' listed in the National List of Essential Medicines (NLEM). Non-scheduled drugs, which include many advanced tertiary care medicines, are only subject to a 10% annual price increase limit, leaving their base MRPs unregulated.
• **Asymmetry of Information**: Patients, especially in emergency or intensive care settings, lack the information or capability to compare prices or negotiate, creating a captive market for hospital-administered drugs.
• **Trade Margin Distortion**: Manufacturers print artificially high MRPs to allow high trade margins for distributors and private hospitals, incentivizing hospitals to prescribe and stock these high-margin brands over cheaper alternatives.
• **Lack of Legislative Teeth**: The existing Maximum Retail Price (MRP) framework under the Legal Metrology Act only prevents selling *above* the printed price; it does not regulate the fairness of the printed price itself.
Suggested Measures
• **Trade Margin Rationalization (TMR)**: The NPPA should cap trade margins at successive points of the supply chain (from first point of sale to patient) for all non-scheduled drugs, as successfully piloted for select cancer drugs.
• **Mandatory Prescription of Generics**: Enforce regulations requiring doctors to prescribe drugs by their generic names, and strengthen the Jan Aushadhi network.
• **Price Transparency**: Implement Karnataka's proposal of a national database comparing manufacturer prices, hospital acquisition costs, and final patient billing.
• **Strengthening Public Procurement**: Scale up centralized pooled procurement models (like TNMSC in Tamil Nadu) to leverage bulk-buying power and lower costs.
Conclusion
Ensuring affordable healthcare is a moral and constitutional obligation under Article 21. Addressing the artificial inflation of drug prices requires transitioning from mere retail price capping to systemic trade margin rationalization, ensuring that life-saving treatments do not push families into financial ruin.
Prelims practice questions
Q1. With reference to the National Pharmaceutical Pricing Authority (NPPA) in India, consider the following statements: 1. It is an attached office of the Ministry of Health and Family Welfare. 2. It is empowered to fix and revise the prices of controlled bulk drugs and formulations under the Drugs (Prices Control) Order (DPCO). 3. It monitors the prices of decontrolled drugs to keep them within reasonable limits. Which of the statements given above are correct?
- 1 and 2 only
- 2 and 3 only
- 1 and 3 only
- 1, 2 and 3
Answer: B. Statement 1 is incorrect: The NPPA is an attached office of the Department of Pharmaceuticals under the Ministry of Chemicals and Fertilizers, not the Ministry of Health and Family Welfare. Statements 2 and 3 are correct: NPPA enforces the DPCO and monitors prices of both controlled (scheduled) and decontrolled (non-scheduled) drugs.
Q2. The National List of Essential Medicines (NLEM) in India, which forms the basis for drug price regulation, is formulated by which of the following entities?
- Ministry of Chemicals and Fertilizers
- Ministry of Health and Family Welfare
- National Pharmaceutical Pricing Authority (NPPA)
- Central Drugs Standard Control Organisation (CDSCO)
Answer: B. The National List of Essential Medicines (NLEM) is prepared and updated by the Ministry of Health and Family Welfare. The NPPA (under the Ministry of Chemicals and Fertilizers) then controls the prices of the drugs listed in the NLEM under the provisions of the DPCO.
Q3. Which of the following best describes the concept of 'Trade Margin Rationalization' (TMR) in the pharmaceutical sector?
- The complete deregulation of drug pricing to encourage market competition.
- Capping the difference between the price at which a manufacturer sells a drug to distributors/hospitals and the final price paid by patients.
- A mechanism to subsidize the export of generic drugs to developing nations.
- Eliminating all import duties and GST on life-saving medicines.
Answer: B. Trade Margin Rationalization (TMR) is a regulatory tool used to cap the trade margins (the difference between the price to distributor/hospital and the final MRP paid by the consumer) to make medicines affordable without hurting innovation.
Revision flashcards
- Which Ministry oversees the National Pharmaceutical Pricing Authority (NPPA)? Ministry of Chemicals and Fertilizers (specifically, the Department of Pharmaceuticals).
- What is the difference between Scheduled and Non-Scheduled formulations under the DPCO? Scheduled formulations are listed in the National List of Essential Medicines (NLEM) and have capped ceiling prices. Non-scheduled formulations do not have capped prices, but their annual price increase is limited to 10%.
- What is 'Out-of-Pocket Expenditure' (OOPE) and its status in India's healthcare? OOPE is the direct payment made by individuals to healthcare providers at the point of service. In India, it accounts for nearly 50% of total health expenditure, frequently driving households into poverty.
- Which constitutional article directs the State to improve public health as its primary duty? Article 47 (Directive Principles of State Policy).
- What is the primary objective of the Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP)? To provide quality generic medicines at affordable prices to all, particularly the poor, through dedicated outlets known as Jan Aushadhi Kendras.