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High Trade Margins Push up Drug Prices: CCI

Concerned over the spiraling healthcare costs, the Competition Commission of India (CCI) has pointed at unreasonably high trade margins as responsible for exorbitant drug prices, highlighting the role of intermediaries in increasing prices of medicines along with need to promote generic medicines with quality assurance. In a policy note, the anti-trust regulator said high margins are a form of incentive and an indirect marketing tool employed by drug companies. Essential medicines constitute over 60 percent of out-of-pocket expenditure on healthcare in India. “One major factor that contributes to high drug prices in India is the unreasonably high trade margin. Further, self-regulation by trade associations also contributes towards high margins as these associations control the entire drug distribution system in a manner that reduces competition,” the country’s fair play watchdog said in the note, titled Making Markets Work for Affordable Healthcare.

CCI has shared the note with the ministry of corporate affairs, health, department of pharmaceuticals and Niti Aayog for any further action on the issues highlighted in the policy paper. The anti-trust regulator said it received 52 cases pertaining to the pharmaceutical and healthcare sector in last nine years and while deciding on the cases, it observed information asymmetry sector significantly restricts consumer choice. The note said in-house pharmacies of super specialty hospitals are completely insulated from competition as in-patients are not allowed to buy any product from outside pharmacies. “This calls for regulation that mandates hospitals to allow consumers to buy standardized consumables from the open market,” it noted. To allow access of essential medicines at lower prices, the CCI suggested efficient and wider public procurement and distribution of essential drugs to circumvent the challenges arising from the distribution chain and price regulation.

It also endorsed electronic trading of drugs with appropriate regulatory safeguards. CCI said e-pharmacies can bring in transparency and spur price competition among platforms and among retailers, as has been witnessed in other product segments. Underlining quality perception behind proliferation of branded generics, the regulator stressed on the need for stringent quality control measures by the drug regulator and recommended a one-company-one drug-one brand name-one price policy to counter brand proliferation by introducing artificial product differentiation in the market, offering no therapeutic difference but allowing firms to extract rents. “Worldwide, generic drugs are seen as a key competitive force against the patent-expired brand name drugs marketed at monopoly prices. In India, the pharmaceutical market is dominated by branded generics which limit generic-induced price competition. The branded generic drugs enjoy a price premium owing to perceived quality assurance that comes with the brand name. Quality consideration may be a reason behind the prescription of branded generics by doctors. However, it is also equally possible that the brand proliferation is to introduce artificial product differentiation in the market, offering no therapeutic difference but allowing firms to extract rents,” the note said.

Estimates show more than 70 percent of the over ₹1 lakh crore local pharmaceutical market is dominated by branded generics, whereas 9 percent is patented medicines. Though there have been several policy proposals in the past suggesting to replace brand names by salt names of medicines on doctors’ prescription, the government has not been able to implement any of these proposals given the pressure from the industry. – TOI