High trade margins pushing drug prices higher, says CCI policy note

Unreasonably high trade margins contributes towards high drug prices and electronic trading of drugs could be an option to spur competitive pricing ways, according to a policy note issued by fair trade watchdog CCI.

In a policy note titled 'Making Markets Work for Affordable Healthcare', the regulator also said that in-house pharmacies of super specialty hospitals are "completely insulated from competition" as in-patients are not allowed to buy any product from outside pharmacies.

"This calls for regulation that mandates hospitals to allow consumers to buy standardised consumables from the open market," it noted.

The Competition Commission of India (CCI) has been clamping down on unfair business practices in the healthcare space. The government has also been taking measures to ensure good practices in the sector.

The watchdog's policy note said that one major factor that contributes to high drug prices in India is the unreasonably high trade margins.

"The high margins are a form of incentive and an indirect marketing tool employed by drug companies," an official release quoting the policy note said.

Further, the policy note said that self regulation by trade associations contributes towards high margins as they control the entire drug distribution system in a manner that reduces competition.

"Electronic trading of drugs, with appropriate regulatory safeguards, could be another potent instrument for bringing in transparency and spurring price competition among platforms and among retailers, as has been witnessed in other product segments," it added.

Touching upon generic drugs, the CCI's policy note said there are branded generic drugs that enjoy a price premium owing to perceived quality assurance that comes with the brand name.

"Quality consideration may be a reason behind the prescription of branded generics by doctors. However, it is also equally possible that the brand proliferation is to introduce artificial product differentiation in the market, offering no therapeutic difference but allowing firms to extract rents," it said.

Suggesting ways to address the issues in the healthcare sector, the policy note said the regulatory apparatus must address the issue of quality perception by ensuring consistent application of statutory quality control measures and better compliance.

"The practice of creating artificial product differentiation for exploitation of consumers may be addressed through a one-company-one drug-one brand name-one price policy," it added.

Another suggestion is to have portability in terms of patient data. Currently, there is no regulatory framework for portability of patient data, treatment record and diagnostic reports between hospitals.

"It is also imperative to make the approval of new drugs time-bound along with publication of detailed guidelines governing each stage of new drug approval process," as per the policy note.

Besides, the regulator has flagged about multiplicity of regulators governing the pharmaceutical sector at the centre and state levels.

The policy note has been shared with the Ministries of Corporate Affairs, Health and Family Welfare as well as Department of Pharmaceuticals and NITI Aayog.

The policy note documents the issues identified and recommendations suggested by stakeholders, the release said.

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