Billing for wallet shock

Indian generic drug makers might, if a proposed US law comes about, need to pay a rebate to the federal Medicaid programme there when prices of their medications outpace inflation.

A Bill is to be introduced in the US Senate by a member, aimed to cushion the impact on taxpayers in this manner when drug makers raise prices at a rate higher than inflation. At present, only branded drug manufacturers pay a rebate to Medicaid. 

If such a legislation is passed, it would impact all major Indian generic drug firms, which make at least half their revenue from generic drug sales in the US, the largest drug market in the world.

The move comes after two US legislators' move to probe steep price increases by generic drug makers, including Sun Pharma and Dr Reddy's, in the US. A hearing of a Senate panel subcommittee on primary health and ageing was called on Thursday this week after a member each of the Senate (Bernie Sanders) and of the other chamber, the House of Representatives (Elijah Cummings) announced were investigating why some generic drug prices had risen hundreds to thousands of percentage points in recent times.

Sanders also said he was introducing a Bill that would require generic drug makers to pay a rebate to Medicaid if their cost increased faster than inflation.

Usually, generic drugs are cheaper than patented ones but a price rise in the former of 390-8,200 per cent has brought the lens over the manufacturers.  

The probe panel in question said; "Some companies are exploiting monopolies and disruptions in supply to implement massive price increases in order to reap unconscionable profits."

The chief executives of three drug makers - Illinois-based Marathon Pharmaceuticals and the Pennsylvania-headquartered Lannett Co and Teva Pharmaceutical Industries - refused to testify at the hearing.

"Drug companies have seen the opportunity to make a whole lot of money and they are seizing that opportunity. This is greed at work in the pharmaceutical industry," said Senator Sanders.

Medicaid is a programme in the US specially focused on the poor, for access to medicines at a cheaper rate. The lower prices of generic drugs make these the first choice for both patients and insurers. Generic drugs account for roughly 85 per cent of all medicines dispensed in the US, according to IMS Health. Typically, generic drug prices fall as more companies begin offering competing versions of the same drug. 

In October, immediately after Prime Minister Narendra Modi's return from the US, the panel in question of the US Congress initiated its probe. It wrote letters to around 14 drug firms, including India's Sun Pharma and Dr. Reddy's, initiating investigation and seeking details about the extraordinary price increases in several generic products available in the US market.

The US drug regulator, the Food & Drug Administration (FDA), has also been tightening the noose over the quality of generic drugs being manufactured by domestic pharma companies in India, with a series of surprise inspections and import alerts. Several manufacturing plants of leading domestic companies, such as Ranbaxy, Sun Pharma, Wockhardt and Strides Arcolab, have come under the FDA scanner for compliance issues. 

These developments come at a time when there is conflict of opinion between India and the US over issues such as intellectual property and these increasing regulatory enforcements by the FDA on Indian companies. Issues entailing intellectual property rights, especially with reference to pharmaceuticals and information technology, were top on the list of Modi's agenda during his recent visit to the US.

  • Bill likely to come in US Senate for generic drug makers, such as India's, to pay rebates for federal Medicaid plan

  • At present, only branded drugs are mandated for this in US market

  • This would be applicable to generic drugs when prices of such medications outpace inflation

  • Major Indian generic drug firms make at least half their revenue from the US market

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