9. National Pharmaceutical Pricing Authority: A Complete Guide to NPPA, DPCO, and NLEM

NATIONAL PHARMACEUTICAL PRICING AUTHORITY (NPPA): A TEACHER’S COMPREHENSIVE GUIDE TO DRUG PRICING, DPCO, AND NLEM

Welcome, future pharmacists and healthcare professionals!

As a pharmacy law and ethics educator with years of experience teaching pharmaceutical regulations, I have observed that understanding drug pricing mechanisms is essential for anyone entering the pharmaceutical industry. The National Pharmaceutical Pricing Authority (NPPA) was established in 1997. It is an independent body regulated by the Department of Pharmaceuticals, Ministry of Chemicals and Fertilisers. It aims to fix and revise the prices and formulations of controlled bulk drugs, and enforce prices and availability of medicines under DPCO, 2013. It also regulates the prices of decontrolled drugs to keep them at reasonable levels.

In this comprehensive guide, I will take you through the functions of NPPA, the Drug Price Control Order (DPCO), 2013, its objectives, features, key definitions, pricing formulas, the Pharmaceutical Policy, 2002, and the National List of Essential Medicines (NLEM). By the end of this article, you will have a thorough understanding of the drug pricing framework in India. Let us begin.

FUNCTIONS OF NPPA

The National Pharmaceutical Pricing Authority performs several important functions to regulate drug prices in India:

1. To implement and enforce the provisions of the Drugs (Prices Control) Order in accordance with the powers delegated to it.
2. To deal with all legal matters arising out of the decisions of the Authority.
3. To monitor the availability of drugs, identify shortages, if any, and to take remedial steps.
4. To collect and maintain data on production, exports and imports, market share of individual companies, profitability of companies etc, for bulk drugs and formulations.
5. To undertake and or sponsor relevant studies in respect of pricing of drugs pharmaceuticals.
6. To recruit and appoint the officers and other staff members of the Authority, as per rules and procedures laid down by the Government.
7. To render advice to the Central Government on changes/revisions in the drug policy.
8. To render assistance to the Central Government in the parliamentary matters relating to the drug pricing.

DRUG PRICE CONTROL ORDER (DPCO), 2013

The latest Drug Price Control Order (DPCO, 2013) was issued on 15th May 2013 by the Ministry of Chemicals and Fertilisers based on the basis of National Pharmaceutical Pricing Policy, 2012 (NPPP). The NPPP was issued on 7th December 2012 with the main purpose to control the price of the medicines listed under National List of Essential Medicines, 2011 (NLEM, 2011), issued by the ministry of Health and Family welfare. Under the latest DPCO, 2013, the prices of 348 drugs listed in the National List of Essential Medicines, 2011 covering around 628 formulations have been brought in the section of price control by the latest DPCO, 2013.

The authority which controls and monitors the drug prices is National Pharmaceutical Pricing Authority (NPPA). It has all the delegate powers of Government of pricing according to the Essential Commodities Act.

Objectives of DPCO

1. To ensure the availability of all the essential drugs at a reasonable price.
2. To confirm that the quality of drugs does not decline with price fixation.
3. To promote the rational use of prescribed drugs in a cost-effective manner.

Features of DPCO

1. It placed price controls on 348 medications and their 652 formulations.
2. It employs a market-based pricing structure rather than the previously suggested cost-plus approach.
3. It reduces the profit margins for retailers and wholesalers to 6% and 8%, respectively.
4. It tracks the MRP of formulations that are not scheduled.
5. It holds authority over bulk producers of formulations and drugs.

Key Definitions under DPCO

• Bulk Drug / Active Pharmaceutical Ingredient (API): Pharmaceutical, chemical, biological, or plant product (including salts, esters, isomers, analogues, derivatives) conforming to Drugs and Cosmetics Act standards.
• Brand: Name, term, design, symbol, trademark identifying one seller’s drug as distinct.
• Formulation: Medicine processed out of or containing one or more drugs (excluding Ayurvedic, Siddha, Unani, Homeopathic medicines).
• Market Share: Ratio of domestic sales value of a brand to total domestic sales value of all brands of that medicine (same strength and dosage form).
• Maximum Retail Price (MRP): Selling price/retail price plus taxes at which drug shall be sold to ultimate consumer.
• National List of Essential Medicines (NLEM): NLEM, 2011 published by Ministry of Health and Family Welfare.
• Scheduled Formulation: Formulation included in the First Schedule.
• Wholesaler: Dealer/agent/stockist engaged in sale of drugs to retailer, hospital, dispensary, or research institution.

Sale Prices of Bulk Drugs

• Government notifies maximum sale price for bulk drugs in First Schedule.
• While fixing price, Government considers post-tax return of 14% on net worth OR 22% on capital employed.
• No person shall sell bulk drug at price more than maximum sale price plus local taxes.
• New manufacturers must furnish particulars to Government in Form I within 15 days of commencement.
• Price revision applications submitted in Form I; Government decides within 4 months.

Retail Price of Formulations – Formula

The retail price of formulations is calculated using the following formula:

RP = (MC + CC + PM + PC) × (1 + MAPE/100) + ED

• RP = Retail Price
• MC = Material cost (drugs, pharmaceutical aids, process loss)
• CC = Conversion cost
• PM = Packing material cost
• PC = Packing charges
• MAPE = Maximum Allowable Post-manufacturing Expenses (≤100% for indigenously manufactured Scheduled formulations)
• ED = Excise duty

Selling Price of Scheduled Formulations – Formula

Step 1 – Average Price to Retailer P(s):

P(s) = (Sum of prices to retailer of all brands with market share ≥1%) / (Total number of such brands)

Step 2 – Selling Price P(c):

P(c) = P(s) / (1 + M/100)

Where M = % Margin to retailer = 16

PHARMACEUTICAL POLICY, 2002

Objectives of Policy

1. Abundant availability at reasonable prices of good quality essential pharmaceuticals.
2. Strengthen indigenous capability for cost-effective quality production and exports.
3. Strengthen quality control over drug and pharmaceutical production.
4. Encourage R and D in pharmaceutical sector, especially for diseases endemic to India.
5. Create incentive framework to promote new investment and new technologies.
6. Encourage export of drugs/drug formulations by reducing trade barriers.
7. Promote rational use of pharmaceuticals.

Salient Features of Policy

• Pharmaceutical Research and Development Committee (PRDC): Set up in 1999 under DG of CSIR. Gold standards for R and D intensive company: at least 5% turnover in R and D; at least ₹10 crore/annum in innovative research; at least 100 research scientists; at least 10 patents; Own manufacturing facilities in India.
• Industrial Licensing: Abolished for all bulk drugs cleared by DCGI, except r-DNA technology drugs, in-vivo nucleic acid drugs, and specific cell/targeted formulations.
• Foreign Technology Agreements: Automatic approval available.
• Foreign Investment: Up to 100% permitted through automatic route.
• Imports: As per EXIM policy; centralised registration under Drugs and Cosmetics Act.
• MAPE: 100% for indigenously manufactured formulations.
• Pricing of Formulations: Time frame for price approvals – 2 months.
• Selling Prices: Can be fixed for any formulation; obligatory for all to follow.
• Pricing of Scheduled Bulk Drugs: Rate of return 4% higher (18% on net worth or 26% on capital employed); time frame – 4 months.

NATIONAL LIST OF ESSENTIAL MEDICINES (NLEM)

As per WHO, Essential Medicines are those that satisfy the priority health care needs of the population. The list is made with consideration to disease prevalence, efficacy, safety, and comparative cost-effectiveness. Such medicines are intended to be available in adequate amounts, appropriate dosage forms, and strengths with assured quality at affordable prices.

The WHO Model List of Essential Medicines was first developed in 1977 and updated every 2 years. India’s NLEM 2011 contained 348 medicines. NLEM 2021 added 39 drugs (anti-cancer, anti-diabetes, anti-retrovirals, ivermectin, nicotine replacement therapy) and removed 16 drugs (including erythromycin, pegylated interferon Alfa 2a).

Purposes of NLEM

• Guide safe and effective treatment of priority disease conditions
• Promote rational use of medicines
• Optimize health resources
• Guide State governments to prepare their list of essential medicines
• Guide procurement and supply of medicines in the public sector
• Guide reimbursement of medicine costs by organizations and insurance companies
• Identify ‘MUST KNOW’ domain for teaching and training of healthcare professionals

Considerations for Framing NLEM, 2015

1. Essentiality: Medicine essential considering population at large; critical for specific condition may not be listed if disease has low prevalence.
2. Changing Disease Burden: Medicines for highly prevalent or emerging diseases qualify for inclusion (e.g., MDR tuberculosis, resistant malaria).
3. Efficacy and Safety: Unequivocal evidence of efficacy; acceptable safety profile (risk-benefit assessment).
4. Comparative Cost-effectiveness: Total price of treatment schedule to be considered, not unit price alone.
5. Feasibility: Adequate quality throughout shelf-life under recommended storage conditions.
6. Fixed Dose Combinations (FDCs): Included only if rational and has proven advantage (e.g., levodopa+carbidopa, amoxicillin+clavulanic acid).
7. Sales Turnover (MAT): Not a criterion for essentiality.
8. Hierarchy of Health Care Structure: Essentiality classified as Primary (P), Secondary (S), or Tertiary (T) care facility.

Criteria for Inclusion in NLEM

1. Medicine should be approved/licensed in India.
2. Useful in disease which is a public health problem in India.
3. Proven efficacy and safety profile based on valid scientific evidence.
4. Cost-effective.
5. Aligned with current treatment guidelines for the disease.
6. Stable under storage conditions in India.
7. When multiple medicines from same class, preferably one prototype/medically best suited medicine.
8. Price of total treatment to be considered, not unit price.
9. FDCs generally not included unless unequivocal proven advantage.
10. Listing based on level of health care – Primary (P), Secondary (S), Tertiary (T).

Criteria for Deletion from NLEM

1. Medicine has been banned in India.
2. Reports of concerns on safety profile.
3. Medicine with better efficacy, favorable safety profile, and better cost-effectiveness is now available.
4. Disease burden is no longer a national health concern in India.
5. For antimicrobials, resistance pattern has rendered medicine ineffective in Indian context.

SUMMARY TABLE

Particular	Details
NPPA Established	1997
DPCO, 2013 Issued	15th May 2013
NPPP, 2012 Issued	7th December 2012
NLEM 2011	348 medicines
NLEM 2021	Added 39 drugs; removed 16 drugs
Trade Margins under DPCO	Wholesalers: 8%; Retailers: 6%
MAPE for Scheduled Formulations	Maximum 100%
Time frame for price approval (Formulations)	2 months

A TEACHER’S REGULATORY INSIGHTS

Over my years of teaching pharmaceutical regulations, I have developed a few key insights that I always share with my students:

• The NPPA plays a crucial role in ensuring that essential medicines remain affordable for the general public. Understanding its functions is essential for anyone working in the pharmaceutical industry.
• The DPCO, 2013, introduced a market-based pricing mechanism, which is a significant shift from the earlier cost-plus approach. This has made drug pricing more competitive and consumer-friendly.
• The National List of Essential Medicines (NLEM) is the foundation for drug price control. Medicines listed in NLEM are subject to price regulation under DPCO.
• Understanding the pricing formulas for formulations and bulk drugs is essential for pharmacy professionals involved in manufacturing, procurement, or dispensing.

FREQUENTLY ASKED QUESTIONS (FAQs)

1. What is NPPA?

NPPA is the National Pharmaceutical Pricing Authority, established in 1997 to fix and revise prices of controlled bulk drugs and formulations, and enforce prices and availability of medicines under DPCO.

2. What is DPCO, 2013?

DPCO, 2013 is the Drug Price Control Order issued on 15th May 2013, bringing 348 drugs listed in NLEM, 2011 under price control.

3. What is the formula for retail price of formulations?

RP = (MC + CC + PM + PC) × (1 + MAPE/100) + ED, where MC is material cost, CC is conversion cost, PM is packing material cost, PC is packing charges, MAPE is Maximum Allowable Post-manufacturing Expenses, and ED is excise duty.

4. What are the trade margins under DPCO?

Under DPCO, the profit margins are 8% for wholesalers and 6% for retailers.

5. What is NLEM?

NLEM is the National List of Essential Medicines, which lists medicines that satisfy the priority health care needs of the population and are subject to price control under DPCO.

6. What is the time frame for price approval of formulations?

The time frame for price approval of formulations is 2 months.

7. What is the time frame for price revision of bulk drugs?

The time frame for price revision of bulk drugs is 4 months.

SUMMARY

The National Pharmaceutical Pricing Authority (NPPA) plays a crucial role in regulating drug prices in India, ensuring the availability of essential medicines at affordable prices. The Drug Price Control Order (DPCO), 2013, brought 348 drugs from NLEM, 2011 under price control, using a market-based pricing mechanism. The Pharmaceutical Policy, 2002, provides the framework for drug pricing, industrial licensing, foreign investment, and R&D incentives. The National List of Essential Medicines (NLEM) guides the selection of medicines for price control based on disease prevalence, efficacy, safety, and cost-effectiveness. Understanding these regulatory mechanisms is essential for pharmacy professionals and pharmaceutical industry stakeholders.

As I always tell my students: “Drug pricing is not just about numbers—it is about ensuring that every patient has access to life-saving medicines at affordable prices.”

REFERENCES AND FURTHER READING

• National Pharmaceutical Pricing Authority (NPPA). (2022). Drug Price Control Orders and Guidelines. Retrieved from https://nppa.gov.in.
• Drug Price Control Order (DPCO), 2013. Ministry of Chemicals and Fertilisers, Government of India.
• National Pharmaceutical Pricing Policy (NPPP), 2012. Ministry of Chemicals and Fertilisers, Government of India.
• National List of Essential Medicines (NLEM), 2015 and 2021. Ministry of Health and Family Welfare, Government of India.
• Pharmaceutical Policy, 2002. Ministry of Chemicals and Fertilisers, Government of India.

Disclaimer: This article is for educational purposes only and does not constitute legal advice. Always refer to the latest regulatory guidelines and consult legal experts for compliance matters.