When price caps on pharma drugs fail

**Akanksha** (0:04)
In today's episode of The Daily Brief, we will be breaking down two important stories. The first is about when should the prices of medicines go up? And the second one is how Indian hotels are performing financially. Welcome to The Daily Brief, where we cut through the noise and give you the real insights into the world of finance and business. I'm your host Akanksha, and today is Monday, 15th of June. So let's start with the first story. So when should one increase the price of medicine? The thing is, the government just did something that at first glance would seem inhumane. It agreed to let the prices of two cancer drugs rise by as much as 50 percent. The drugs are cisplatin and carboplatin. Both are made from platinum-based raw material. They are first-line chemotherapy drugs used to treat ovarian, cervical, lung, breast, head and neck, and testicular cancer. These drugs are also cheap. A 10-milligram vial of carboplatin is capped at 61.1 rupees.
In the last few months, though, they started disappearing from hospitals, including Ames, Delhi and Tata Memorial Center.
This is why the government invoked an emergency clause to let its manufacturers charge more. It was better to let a drug cost slightly more than to have none of it in pharmacy shelves. This tells you why a price cap can be a trade-off. On one hand, the cap did exactly what it was designed to do. It held the price flat.
Only that itself became the problem. To be perfectly honest with you, some of this is speculation. It isn't fully clear how much of this is caused by shortage or the price cap itself.
There are other things happening at the same time. Platinum has become scarce globally. The rupee is weak. Import permits are slow, and these drugs are hard to make and are produced only by a few companies. Manufacturers claim production has become unviable at capped prices, but it isn't entirely clear to us exactly where this chain breaks down. With that caveat aside, however, this episode is a demonstration of how India's drug pricing system works, where it breaks and the two very different problems it is trying to solve with one tool. There's a body called the National Pharmaceutical Pricing Authority, or NPPA. It was set up in 1997
It is usually described as the agency that caps drug prices. That is only half of its job. Its mandate is to keep essential medicines, both affordable and available. Its price regulation, as the government itself notes, should not make drugs disappear.
Those two goals, however, are in constant tension. That's where our story starts. A drug's price is determined by a rule book, the drugs price control order.
This was released in 2013
This order puts every medicine into one of the two buckets. One, there are scheduled drugs, which include 900 formulations on the national list of essential medicines, such as key antibiotics, insulin, hard drugs, and cancer drugs. These all have a fixed ceiling price. Everything else is non-scheduled. These are left to the market, but with a limit. A company cannot raise their price by more than 10% a year. So, how do we decide the price ceiling for scheduled drugs? Since 2013, India has used market-based formula. The NPPA takes every brand of a medicine with at least 1% market share, averages the price at which they are available to the retailer, and then adds a 16% margin. That average becomes the cap. Anyone priced above that must cut down within 45 days. Those already below the cap, however, cannot jump up. They keep their prices low. There's a strong case for this system. Indians still pay a large share of their health costs out of pocket. The picture is changing though. Out of pocket spending has fallen from over 64% of all health spending in 2013-2014, to roughly 43% in 2022-23. But it remains high. In a confusing market, where distressed and sick patients must choose between thousands of brand names with very different prices, completely free prices can hurt patients. A cap brings genuine savings with it. The government claims its essential medicine sealings saved consumers about 3,802 crore rupees by late 2025
Anti-cancer drugs alone account for around 295 crores a year. A clear example of these savings came in 2017, when NPPA put price caps on stents, the small mesh tubes used to open blocked arteries. Before that, hospitals were marking them up as much as 654 percent. After the cap kicked in, the prices fell up to 85 percent. The thing is, prices aren't static. With time, however, prices change. And with that, the ceiling moves as well. It is revised once a year in April in line with the wholesale price index. That's where the problem actually arises. The WPI measures how fast prices are rising across the whole economy, from steel to soap.