Pharmaceutical Pricing Ripe For Update

Recently, Rajib Khatri, a member of the parliament, spoke of irregularities involving the price increase of pharmaceuticals by the Department of Drug Administration (DDA), the medicines regulatory authority (MRA) of Nepal. In his speech in the parliament, he alleged that the act amounted to billions of rupees. Within days after his speech, the DDA’s Director General was recalled to the Ministry of Health and Population from the DDA’s helm. Medicine manufacturers argue that they cannot keep producing at the rates fixed decades ago, arguing that the rates of industrial inputs have gone way up since the maximum retail prices (MRP) of the medicines were set.

Section 26 of the Drugs Act, 2035, authorises DDA to fix the price of any drug if it deems necessary by obtaining approval of the government and upon publication in the Nepal Gazette. Stepping on this provision, the DDA fixed the ceiling price of 96 products that are in common use and those used for cancer and chronic ailments through a notice published in Nepal Gazette on August 3, 2015. Before this, on September 27, 2007, the DDA had fixed the MRP of 21 products, including paracetamol tablets and oral rehydration salt (ORS), which it says was done through a ministerial-level decision. Combining these two decisions, so far, the MRP of 117 products is fixed out of the thousands in circulation in the market. 

Price dynamism

The Drug Advisory Council, formed under Section 3 of the Drugs Act, is the advisory body to the government in fixing the price of medicines. The council is a high-level body formed under the Drugs Advisory Council and Drugs Advisory Committee Formation Rules, 2073 (1970). With the health minister along with a host of secretaries making up the members, the council looks very hard to convene to give any advice to the government related to pharmaceutical affairs. This has paused the price dynamism of the products whose prices have remained unchanged for almost 20 years.

Thus, the price of a paracetamol 500 mg tablet fixed at one rupee almost 20 years ago still remains the same, and so does the price of the ORS at 10 rupees per packet. As per Nepal’s central bank, the inflation remained well-above five percent during most of those 20 years period. The per capita income of the Nepali has gone up from $385 to almost $1450 during the same period. As per the recent consumer price index (CPI) figure published by Nepal’s central bank, the health sector contributes a weightage of 5.51 to the CPI out of 100, which means an average Nepali household spends 5.51 per cent of its total consumption budget on health-related goods and services, with pharmaceuticals sharing almost half of the expenditure. So, pricing of the pharmaceuticals remains a political hot potato. 

In India, the National Pharmaceutical Pricing Authority (NPPA) is responsible for fixing the price of medicines. That authority has fixed the price of paracetamol 500 mg tablets at 1 rupee in Indian currency (equivalent to 1.60 Nepali rupees) and that of equivalent ORS at around 21 Indian rupees, which is just above 33 Nepali rupees. So, it is evident that Nepali pharmaceutical companies that rely mostly on imported raw materials are selling their products at relatively cheaper price, though they are not enjoying the economies of scale the Indian firms do. This makes Indian companies less willing to compete in Nepal’s market for products with fixed prices. Nepali companies, for their part, are unable to enjoy producer’s surplus (a condition at which producers are willing to produce thanks to a profit margin) to manufacture these products. This scenario often contributes to shortages of paracetamol and ORS in Nepal, especially when demand goes high during natural disasters, denying those in need of these vital medications. 

People should have access to quality medicines, and producers should be incentivised to produce them and to continuously add quality innovations to their products. Since medicines are critical to patient recovery, producers should be able to compete on quality, with price not creating a barrier to pharmaceutical innovations that enhance the quality. The current government should devise a policy and entrust a subsidiary body or agency to assign the pricing of the pharmaceutical commodities. However, entrusting the responsibility to the DDA would mean there is no duplication of effort and conflicting views within the government mechanism, which would facilitate the decision-making process. 

Regulatory reform

There are varying practices in regional countries, though. In Bangladesh, the Directorate General of Drug Administration, the MRA, is responsible for setting the price of essential medicines. Bhutan follows a similar model with its own MRA, while in India, the NPPA handles the same task. Indonesia places this responsibility with its health ministry, and in Thailand, the Ministry of Commerce is in charge. Such a body or agency should have the mandate to develop a dynamic pricing policy based on factors such as international and regional pricing structures, periods of global uncertainty, overall inflation, exchange rates, export policies of source countries, applied innovations, cross-subsidies applied in essential medicines, production factor costs, and other factors that dynamically influence medicine prices. This would pave the way for pharmaceutical innovations for quality in the country, which could even be leveraged for export.

All this is down to the pharmaceutical regulatory reform. The expectation is high with the current government that the much-needed pharmaceutical reform takes centre stage, which ensures that consumers have access to quality medicines and the producers are incentivised to invest in pharmaceutical innovations, all while making essential products affordable to the poor. The government’s plan and policies, unveiled for the upcoming fiscal year, have also included a policy statement of prioritising the development of domestic pharmaceutical companies. Let’s hope that the upcoming budget will allocate sufficient resources to implement these commitments. 

(The author is a pharmacist by profession.samratuses@gmail.com)