Context
- National Pharmaceutical Pricing Authority (NPPA): Brought 137 non-scheduled anti-cancer drugs under Trade Margin Rationalisation (TMR), effective November 9.
- Key provision: Trade margins capped at 30% of Maximum Retail Price (MRP), excluding Goods and Services Tax (GST), with MRPs expected to decline by up to 70%.
- Issue: NPPA found trade mark-ups of up to 700%, making cancer medicines unaffordable despite their availability.
Trade Margin Rationalisation (TMR)
- Meaning: A regulatory mechanism that limits the margins earned by intermediaries such as stockists, distributors and retailers in the pharmaceutical supply chain.
- Objective: Reduce excessive mark-ups and make medicines affordable without directly reducing manufacturers' realisations.
- Pricing mechanism: TMR recalculates the permissible MRP by reducing intermediary margins while retaining the manufacturer's price realisation.
Why is TMR Important for Cancer Treatment?
- Excessive Price Variation: NPPA found substantial price differences across brands:
- Pemetrexed: ₹546 to over ₹72,000 per dose.
- Bevacizumab: Approximately ₹6,900 to ₹1.18 lakh per dose.
- Expensive Immunotherapy: Even patented biologics such as pembrolizumab and durvalumab have been brought under TMR despite generally not being subject to direct price regulation.
- Treatment Costs: Pembrolizumab costs approximately ₹2.06 lakh per dose, and multiple treatment cycles multiply the financial burden.
- Patient Affordability: Patients often pay the full MRP, although some pharmacies offer discounts. TMR aims to reduce this burden.
Impact and Concerns
- Impact on Pharmaceutical Manufacturers
- Innovation Concerns: Lower medicine prices may raise concerns about reduced investment in research and development.
- Manufacturer Realisations: TMR primarily reduces intermediary margins rather than manufacturers' earnings, limiting its direct impact on innovation incentives.
- Small Manufacturers: Industry associations fear possible job losses and reduced medicine availability, particularly in remote areas.
- Impact on Medicine Availability
- Previous Experience: NPPA's 2019 pilot covering 42 drugs reduced MRPs of 526 brands by up to 90%, generating estimated annual savings of ₹984 crore.
- Supply-chain Risk: Lower margins could affect the distribution of low-cost, older medicines, potentially causing stock-outs.
- Existing Inventory: Medicines carrying older, higher MRPs require clear guidelines for relabelling, inventory reconciliation and transition to revised prices.
- Industry Response: The All-India Organisation of Chemists and Druggists welcomed the move, arguing that manufacturers determine MRPs upstream.
- Impact on Hospitals
- Reduced Profitability: Hospitals depend partly on medicine mark-ups; TMR may reduce their revenue.
- Estimated Impact: Nuvama estimates an impact of around 4% for Max Healthcare and 1–2% for other large hospital chains, with overall EBITDA potentially declining by 1–5%.
- Indirect Cost Escalation: Hospitals may compensate through higher consultation, diagnostic, consumable or bundled treatment charges, diluting actual patient savings.
- Assessment: Share-price movements alone cannot establish the policy's impact; operating margins, earnings, patient volumes and total treatment costs are more meaningful indicators.
Way Forward
- Post-Implementation Assessment: Conduct periodic studies to measure actual reductions in patient expenditure and improvements in affordability.
- Supply-chain Monitoring: Track medicine availability and stock-outs, particularly for low-cost and older cancer drugs.
- Transparent Billing: Mandate itemised hospital bills and periodic audits to ensure medicine price reductions translate into lower out-of-pocket expenditure.
- Stakeholder Coordination: NPPA should establish a monitoring framework involving manufacturers, distributors, chemists and hospitals to track patient bills, medicine availability, hospital billing and treatment access.
- Clear Compliance Framework: Provide predictable guidelines for revised pricing, existing inventory, relabelling and reporting supply disruptions.
- Protect Innovation: Ensure that pricing reforms preserve manufacturers' incentives for pharmaceutical research and development.
Institutional Framework: NPPA
- Establishment: Constituted in 1997 under the Department of Pharmaceuticals, Ministry of Chemicals and Fertilisers.
- Nature: Independent regulatory body responsible for implementing and enforcing pharmaceutical price controls.
- Key Functions: Fixes and revises prices of scheduled formulations under the Drug Price Control Order (DPCO), monitors medicine prices and availability, and recovers overcharged amounts.
Conclusion: The success of TMR must be measured through actual reductions in patients' out-of-pocket expenditure, not merely lower MRPs. India must balance affordable cancer treatment, uninterrupted medicine supplies and incentives for pharmaceutical innovation.
