For a health system to be effective, access to medicines is a critical component. Hence, it is necessary that good quality medicines are available and affordable to the people. However, many countries and regions including India face several barriers in expanding access to medicines. According to WHO these include:
Inefficient and Iniquitous Financing Mechanisms
Over the years India’s public health system is found to be under funded. This has pushed several people to rely largely on OOP to meet their healthcare needs. Currently, the share of public to private health spending in India is found to be 1:4, in which drugs alone contribute with over 71% of all OOP expenditure of households.
Under-funded public health system resulted in acute shortages and chronic drug stock-outs at all levels of care making both poor and non-poor financially vulnerable. As a result of this, poor populations are pulled even deeper into poverty (poverty-deepening), while a large number of above-poverty line households are subsequently pulled below the poverty line every year. One can observe an extremely low public spending along with huge variation between states and across districts within a state. From the data of 2010-2011 it is evident that in the states of Tamil Nadu and Kerala about 10-12% of health spending is towards procuring drugs. Where-as in states like Jharkhand, Punjab and Rajasthan it is only 2-3% of health spending that goes into drugs. Though there is significant improvement in drug procurement in the state of Bihar due to steep rise in the allocated funds (NRHM) during the same period the per capita spending on the drugs is very less (Rs. 8 per capita).
High Drug Prices
From a state of very high drug prices due to heavy imports in the pre-1970 era, with the aid of effective drug policies there was a rapid growth of the indigenous drugs companies which resulted in increased production of drugs both the bulk drugs and the formulations. This has resulted in the improved local availability of drugs and relatively speaking with lowest drug prices in the world. But, due to the ineffective policy changes the coverage of drug price control has reduced from 90% of the market in 1970 to 10% of the market in 1995. Due to these relaxed regulations pharmaceutical industry took an advantage of reaping high profits through complex price setting activities. Research has shown that the price of a same pharmaceutical ingredient under a therapeutic category vary around 1000% between the most expensive and the cheapest brands. Further, the variation between the market price and procurement price of similar drugs could range anywhere between 100% and 5000%. Effectiveness of price control is clearly demonstrated by the studies done in the past few years. From the study done by Sengupta et al. (2008) between the period of 1996 and 2006 it was found that there was nearly 40% increase in all drug prices. During the same period, there was a 0.02% rise in the price of controlled drugs while the price of EDL (Essential Drug List) drugs rose by 15%. Whereas, the prices of those drugs which were not controlled and were not included in the EDL increased by 137%. Hence, it is evident that the price control policies of the 1990s have resulted in significant increase of drug prices during the last 15 years.
Defective and Incompetent Procurement and Distribution Systems
Availability of drugs in the public health system is vital element in enhancing the access to medicine in the country. Hence, along with adequate allocation of funds it is very important to have an efficient and reliable drug procurement system to maintain the availability and to avoid shortages and stock-outs. Several procurement mechanisms were identified in different states in India. The states of Tamil Nadu and Kerala adopted a pooled procurement model, Chattisgarh is following a decentralized procurement system, whereas Bihar adopted a blend of the two. Over the last two decades the pooled procurement model of the Tamil Nadu Medical Services Corporation (TNMSC) was found to be the most efficient, reliable and transparent model that was replicated in few other states. The different procurement models will be discussed in detail later in this section.

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Essential Drug List (EDL) also has its effect in enhancing the availability in the public health systems. It was found that the physicians prescribed and dispensed irrational drugs in the states where the procurement and distribution systems did not follow EDL. This resulted in compromising the cost-effectiveness of procurement system which in effect resulted in shortage of drugs. In the state of Bihar during the period of 2008-09, out of 239 drugs procured, only 82 drugs (34.89%) were found to be on the state EDL (both in-patient and out-patient). Procurement of these eighty two drugs consumed about 71% of the state’s budget allotted for drugs. Form the overall state’s drug budget 43% was spent on procuring rate contract*(Rate Contract is a contract for the supply of stores at specified rates during the period covered by the contract) drugs and the rest 57% was spent on procuring non-rate contract drugs. This showed that funds were not efficiently utilized in procurement of drugs which has its effect on the availability of the drugs in public health system.
Widespread use of Irrational Medicines
Indian Pharmaceutical market is flooded with about 90,000 formulations with different brand names with uncertain distinction. As per the estimates from the Drug Control General of India (DCGI) in 2007 about 46 banned Fixed Dose Combination (FDC) drugs were being sold in spite of the ban issued on them. It is the perquisite of DCGI to give the licensing approval for marketing of a drug, while the state drug controllers are only required to approve production and sale of these licensed drugs in the state. But the situation is different and the evidence shows that about 1067 FDCs are being freely marketed with the approval from the state drug controllers, but without the consensus of the DCGI. Most of the major drug manufacturers are involved in manufacturing and marketing the irrational medicines. For example, in the year 2004 alone around hundred new drug FDCs were introduced into the market which contributed to the market share of Rs. 130 crore. Drugs manufactured in this way are to be sold to the consumers. Hence, manufacturing companies spend a large amounts in promoting the irrational combinations which ad up to the cost of the drug. This results in the physician prescribing these irrational combination violating the standard treatment guide lines and thus increasing the cost of the prescription making dugs unaffordable and unapproachable. The evidence shows that during 2008-09 more than 25% of the industry’s annual turnover was spent on promoting the manufactured drugs when compared to meager 7% on research and development.
Stringent Product Patent Regime
After the agreement on Trade Related Intellectual Property Rights (TRIPS) since 2005, India changed its pharmaceutical patent policy from process patent to product patent. This brought a lot of chaos in the price and access to medicine. The process patent enabled the manufacturing of most of the drugs and thus increasing the availability in the market at a very low prices. Change over to product patent has its own vested interests in creating a market monopoly for the manufacturers and giving them the whole and sole right to the manufacturer to sell the drug. This has created a barrier to access the drugs by making them unaffordable and unreachable to the common population. These patented medicines do not even have close substitutes to treat the condition and hence, the consumer is forced to buy these patented medicines which are of high cost to meet the health care needs. These patented medicines are priced so high that even middle class people are far away from reaching these medicines. TRIPS its self provides the rights to the nations to safeguard and protect the nations’ public health by providing flexibility in patent laws in the form of compulsory licensing. But India was not successful in utilizing the flexibility in the law until recently in 2012 where Natco pharma was given rights to manufacture the anti-cancer drug under the brand name Glievec patented by Bayers. Because of this the cost of the treatment has come down from lakhs to aroung nine thousand and later Cipla also started selling the product at a cost of about six thousand.
Insufficient Research & Development Focus
Under-funding of public health research institutions, alongside a general lack of focus on priority diseases by private sector, hinders current drug research efforts in the country. The evidence shows that during 2008-09 more than 25% of the industry’s annual turnover was spent on promoting the manufactured drugs when compared to meager 7% on research and development.
1.3 Price control in India
Price is an important component in determining the purchasing power of any good. This is true in case of most of the consumer goods. But, the prices of consumer goods like food, Pharmaceutical products (drugs), etc. with high public relevance are to be controlled in order to make them accessible to the general public. As mentioned earlier expenditure on drugs is the significant contributor to the total healthcare expenditure both in public and private healthcare. Studies also revealed high drug prices push households into poverty. Hence, drugs are one of the most important commodities whose prices are to be controlled in order to make them accessible.
Drug price control in India has a long history. The first price control order was issued in 1963 in the wake of Chinese aggression to control the rising prices of drugs under the Defense of India Act. Next in the year 1966 another order was issued by the government introducing a system of increasing prices making it mandatory for the manufacturers to obtain approvals before hiking the prices. Drug price control order 1970 was a mile stone in bringing down the price of essential drugs by curbing the excessive profits and safeguarding the interest of consumers. Simultaneously, the product patents in 1970 brought an era of cheaper drugs in India. Since then DPCO was amended four times the last being in 2013. In 1979 DPCO was issued to fix the maximum sale price of the pharmaceuticals based on the concept of Maximum Allowable Post manufacturing Expenses (MAPE). In this 347 drugs were under control which were categorized into four categories, lifesaving, essential, less essential and non-essential drugs respectively. Later, in the year 1987 another amendment was made in the wake of drug policy 1986 where the number of drugs control were cut down to 142 with reducing the categories into two and increasing the MAPE to 75% and 100% respectively. Later in 1995 the number of drugs under control were reduce to 74.
Due to the increase in the prices of medicines government took a decision of forming a body of experts to deal with the fixation of medicine prices which resulted in the National Pharmaceutical Pricing Authority (NPPA). This authority was also given the task of reviewing the list of essential medicines which should come under the price control and also monitor the prices of drugs which are not under control. NPPA came into effect and became fully functional with effect from 29th Aug. 1997. Last amendment DPCO 2013 was made after several hurdles when government of India notified the new National Pharmaceutical Pricing policy (NPPP) 2012 which is based on the concept of market based pricing. The main objective of the policy as stated in the gazette released is “….to put in place a regulatory framework for pricing of drugs so as to ensure availability of required medicines – “essential medicines” – at reasonable prices even while providing sufficient opportunity for innovation and competition to support the growth of industry, there by meeting the goals of employment and shred economic well-being for all.”
According to this, ceiling price of a drug would be determined by adopting the simple average price of all the brands having market share (on the basis of moving annual turnover) more than and equal to 1% of the total market of that medicine. Now the manufacturers would be free to fix any price below or equal to the ceiling price. This claims to reduce the prices of drugs and make the medicines available and affordable which may not be true in the practical sense.