Medicine Pricing in India: Why the Supreme Court Is Concerned

Medicine Pricing Latest News

• The Supreme Court described the markup between a medicine’s price to retailers and its printed MRP as “carnage,” calling it akin to “broad daylight dacoity with patients.” 
• A bench of Justices Vikram Nath and Sandeep Mehta, hearing petitions on medicine pricing, asked the Centre why the 16% retailer margin under the Drugs (Prices Control) Order (DPCO), 2013 should not apply to all essential medicines.
• The triggering example: An essential cancer drug supplied to retailers for ₹2,700 carries an MRP of nearly ₹27,000 — ten times the supply price. 
• The bench remarked: “If this is not extortion, then what is it? It is very surprising that the authorities who are supposed to take a decision on this are absolutely silent.”
• The petitions seek regulation of drug prices, generic prescriptions, medical devices, and stricter enforcement of price controls to prevent disproportionate profit margins across the drug supply chain.

The Legal Framework

• Essential Commodities Act, 1955 gives the Centre power over essential goods, including medicines.
  • Section 3(1): Allows regulation of production, supply, and distribution “for maintaining or increasing supplies… or for securing their equitable distribution and availability at fair price.”
  • Section 3(2)(c): Allows issuing orders to control commodity prices.
• The DPCO is such an order (under Section 3(2)(c) of the act) — the primary framework governing medicine prices in India. 
• It authorises the National Pharmaceutical Pricing Authority (NPPA), set up in 1997 under the Department of Pharmaceuticals, to:
  • Fix and revise ceiling prices of scheduled formulations.
  • Set retail prices for new drugs.
  • Monitor overcharging and enforce the DPCO.
  • Order recovery of money from companies if patients are overcharged.
  • In some cases, cap prices even of medicines/devices otherwise outside regular price control.

‹ ›

Scheduled vs Non-Scheduled Medicines

• The DPCO divides medicines into two categories. A formulation means a medicine in a particular strength and dosage form.
  • Scheduled formulations: Listed in Schedule I of the DPCO, based on the National List of Essential Medicines (NLEM) prepared by the Ministry of Health and Family Welfare. These are subject to government price controls.
  • Non-scheduled formulations: Medicines not on this list — not subject to price ceilings.
• The current NLEM contains 384 medicines, accounting for only 20% of total drug market turnover. This means 80% of the market operates largely outside direct price control.

How Ceiling Prices Are Calculated

• A ceiling price is the highest price at which a scheduled formulation can be sold, before taxes. The NPPA calculates it through a specific method:
  • It identifies every version (brand and generic) of a formulation sharing the same active ingredient.
  • It excludes versions accounting for less than 1% of total market sales, measured via Moving Annual Turnover (MAT) — a product’s sales popularity over the previous year, sourced from market research firms.
  • For each remaining version, it takes the Price to Retailer (PTR) — what the manufacturer/distributor charges the chemist or hospital pharmacy.
  • It averages these PTRs, then adds a 16% retailer margin.
  • The result is the ceiling price — the MRP cannot legally exceed this, apart from local taxes or GST.
• Example: If three versions hold ≥1% market share with PTRs of ₹8, ₹10, and ₹12, the average is ₹10. Adding the 16% margin gives a ceiling price of ₹11.60.
• Annual Revision: Ceiling prices are revised every April 1, based on the Wholesale Price Index (WPI). Manufacturers may raise prices in line with the preceding year’s WPI change without separate approval; if WPI falls, they must cut prices within 45 days.

The Loophole: Non-Scheduled Medicines

• Medicines outside the NLEM face no price ceiling. Manufacturers can freely set the initial MRP. The only restriction: the MRP cannot rise by more than 10% in 12 months thereafter.
• This is precisely what’s being challenged. Petitioners argue that since the DPCO never regulates the launch price of non-scheduled drugs, manufacturers can set inflated prices from day one — making the 10% annual cap meaningless, since it only limits growth from an already-inflated base.

The Constitutional Argument

• The PILs invoke Article 21 — the right to life, which includes the right to health — as the constitutional basis for regulating medicine pricing. 
• One petition argues that allowing manufacturers to freely set the initial MRP gives them arbitrary, unrestricted power to set any MRP, regardless of the actual cost of manufacturing the medicine.
• Hospital pharmacy influence: The petition claims retail price or MRP of medicines by companies are decided according to inputs of corporate hospitals, and that pharmacy expenses constitute 30–40% of a critically ill patient’s total bill in corporate hospitals.
• Generic vs branded pricing: Citing Lok Sabha statements, the petition notes medicines sold under generic names (their composition names) are 50% to 90% cheaper than their branded counterparts — pointing to prescribing practices as another lever for reducing patient costs.

Conclusion

• The Supreme Court’s blunt language captures a system where regulation exists on paper but bites only a fifth of the market. 
• A 16% margin cap means little when 80% of drugs can launch at any price a company chooses, and even “controlled” medicines can be marked up far beyond legal limits in hospital pharmacies. 
• Fixing this requires closing the launch-price loophole, not just capping future hikes.

Source: IE | HT