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Saturday, 09 April 2016 00:00
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Another study shows price controls hit sales


A recent study conducted by Arvind Sahay of IIM Ahmedabad and Saravana Jaikumar of IIM Udaipur confirms what other studies have shown, that the government’s Drug Price Control Order (DPCO) of May 2013—this extended the scope of the previous DPCO—has resulted in reducing the availability of essential drugs, especially in rural areas, with pharma firms unwilling to make the necessary expenditure to distribute in distant areas. An IMS Health study had found, for instance, that after DPCO 2013, the sales of price control drugs fell 7% in rural areas while those of non-control drugs rose 7%. The two IIM professors use a different methodology and find that while sales rose for 37 drugs and fell for 57, on average the sales of DPCO drugs fell by 3.4 crore units in the one year after DPCO 2013—those for paracetamol fell a whopping 101 crore. This is also evident from the fact that of the $25bn industry turnover, just $10bn comes from the local market and the rest from export markets where there are no price controls.

Though the IIM study doesn’t look at the number of manufacturers of each drug, it is estimated there are an average of 60 producers per drug, ranging from 20 in the case of the hypertension enalapril maleate to 124 in the case of the painkiller paracetamol—in a market that is hyper-competitive, it is next to impossible for producers to over-charge consumers. Indeed, the low prices also mean that R&D spending by Indian pharma firms remains very low and prevents any meaningful research on ailments that are primarily of interest to patients in countries like India—research in Europe also finds that since margins there are lower than in the US, spending on R&D tends to be lower. Since quality manufacturers tend to either lower production or quit certain markets due to low prices, this also leaves the rest of the market for producers whose drugs are either sub-standard or spurious. Apart from the fact that the costs of medicines comprise a much smaller share of medical costs than, say, diagnostics or hospitalisation, if the government is really keen on making medical care more affordable—drug prices in India are probably the lowest in the world—it would do well to try and whittle the margins in the pharmaceuticals market. While buying medicines online is reducing costs since it cuts the inefficiencies in the supply chain, bulk purchases for government hospitals and dispensaries also helps reduce prices—the danger here, as can be seen from the quality of medicines available in many such clinics, is that a higher proportion of medicines tends to be of lower quality or are spurious. The way to hell, as the old saw goes, is paved with good intentions.


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