Supreme Court call to reduce drug prices puts focus on scope and extent of mark ups

NEW DELHI: The Supreme Court’s call for a cap on trade margins, after flagging huge mark-ups on essential medicines, has brought into focus the scope of such a move and what constitutes a reasonable mark-up across the distribution and trade channels. The pharma industry, while broadly supportive of rationalising margins, is of the view that they be imposed only on medicines priced at Rs 100 or more per unit, sources told TOI.Labelling it as "carnage", the apex court recently said the gap between price to retailer (PTR) and MRP of medicines billed to patients is 10x, particularly on cancer medicines. The SC bench was hearing petitions concerning regulation of medicine prices, generic prescriptions and controls on medical devices under the Drugs (Prices Control) Order (DPCO), 2013."Industry is in favour of rationalising trade margins, but the framework has to recognise the different costs at each stage of the distribution chain, especially for cancer and hospital injectables. We had communicated that margins should not be imposed on low priced medicines, particularly those under Rs 100 per unit. Capping trade margins has been under discussion for a long time, with multiple rounds of consultations earlier", an industry expert said.Another issue which has wide ramifications for industry is SC’s urge that trade margins be capped at 16% on all medicines, and not just on scheduled or essential drugs.At present, ceiling prices are fixed by the drug price regulator, NPPA, on 3,482 medicines, with a built-in 16% retailer margin, but this is only on scheduled drugs. These represent roughly about 18% of the Rs 3 lakh crore domestic pharma retail market.The balance-- non-scheduled formulations-- face no caps, with companies free to decide the mark up. This category of drugs is allowed a 10% price increase as per policy."It has been noticed that some of the launch prices of new drugs are completely unjustified, and this is where trade margins need to be brought in”, an industry observer said.Further, the chemist body, AIOCD says a rational trade margin of 10% for wholesalers/stockists and 20% for retailers should be in place for all medicines, "to prevent artificial MRP inflation and unfair discounting.""A moderately high MRP is not necessarily unreasonable, as manufacturers have legitimate costs to consider. However, if MRP is deliberately kept high to facilitate large discounts or deep discounting, it can mislead consumers and distort competition," Rajiv Singhal, general secretary AIOCD, told TOI.He added that NPPA should therefore examine the entire distribution chain to see where the issue lies.Further, for cancer and high-priced medicines which have been under the spotlight, a section of the industry feels that these may need cold-chain storage, specialised handling and trained administration, and therefore, any assessment should consider the entire transaction chain.This comes even as recently the Kerala high court expressed concern on exorbitantly priced patented cancer medicines, and Karnataka also flagged the 10 to 52x markup on cancer drugs and consumables, seeking the Centre’s intervention.You use AI every day. Now get your AI Quotient. Take the AIQ test.