9. NATIONAL PHARMACEUTICAL PRICING AUTHORITY

NATIONAL PHARMACEUTICAL PRICING AUTHORITY AND DRUG PRICE CONTROL ORDER: A TEACHER’S COMPREHENSIVE GUIDE

Welcome, future pharmacists and healthcare professionals!

The regulation of drug prices is one of the most critical aspects of pharmaceutical governance in India. The National Pharmaceutical Pricing Authority (NPPA) and the Drug Price Control Order (DPCO) work together to ensure that essential medicines remain affordable and accessible to the common citizen. The NPPA was established in 1997 as an independent body regulated by the Department of Pharmaceuticals, Ministry of Chemicals and Fertilisers.

As a pharmacy educator with years of experience teaching Pharmaceutical Jurisprudence, I have observed that students often find drug pricing regulations complex and confusing. However, understanding the NPPA and DPCO is essential for every pharmacist—it governs how drug prices are fixed, revised, and enforced in India. In this comprehensive guide, I will break down these regulations into manageable sections, explaining the functions of NPPA, the provisions of DPCO 2013, the Pharmaceutical Policy 2002, and the National List of Essential Medicines (NLEM). Let us begin our journey.

Dpharmguru’s exam insights:

NPPA and DPCO are frequently tested in pharmacy law exams. Remember: NPPA was established in 1997; DPCO 2013 was issued on 15 May 2013; it covers 348 drugs and 652 formulations under price control. The National List of Essential Medicines (NLEM) 2011 was the basis for DPCO 2013. Pay special attention to the pricing formula and the definitions—these are almost always asked in exams!

NATIONAL PHARMACEUTICAL PRICING AUTHORITY (NPPA)

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. Its primary aim is 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. The regulator implements and applies the provisions of DPCO and recovers amounts overpriced by manufacturers for controlled drugs from consumers.

Functions of NPPA

• To implement and enforce the provisions of the Drugs (Prices Control) Order in accordance with the powers delegated to it.
• To deal with all legal matters arising out of the decisions of the Authority.
• To monitor the availability of drugs, identify shortages, and take remedial steps.
• To collect and maintain data on production, exports, imports, market share, and profitability of companies for bulk drugs and formulations.
• To undertake and/or sponsor relevant studies in respect of pricing of drugs and pharmaceuticals.
• To recruit and appoint the officers and staff of the Authority as per government rules.
• To render advice to the Central Government on changes/revisions in drug policy.
• To render assistance to the Central Government in parliamentary matters relating to drug pricing.

Dpharmguru’s exam insights:

The functions of NPPA are frequently tested. Remember: NPPA implements DPCO, monitors availability, collects data on production and market share, conducts studies, and advises the government. It was established in 1997 and works under the Department of Pharmaceuticals, Ministry of Chemicals and Fertilisers.

DRUG PRICE CONTROL ORDER (DPCO), 2013

The latest Drug Price Control Order (DPCO, 2013) was issued on 15 May, 2013 by the Ministry of Chemicals and Fertilisers based on the National Pharmaceutical Pricing Policy, 2012 (NPPP). The NPPP was issued on 7 December, 2012 with the main purpose to control the price of medicines listed under the National List of Essential Medicines, 2011 (NLEM, 2011), issued by the Ministry of Health and Family Welfare.

Under DPCO, 2013, the prices of 348 drugs listed in the NLEM, 2011 covering around 628 formulations have been brought under price control. The authority which controls and monitors drug prices is the National Pharmaceutical Pricing Authority (NPPA), which has all the delegated powers of pricing according to the Essential Commodities Act.

Objectives of DPCO, 2013

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

Features of DPCO, 2013

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

Dpharmguru’s exam insights:

DPCO 2013 features are frequently tested. Remember: 348 drugs and 652 formulations under price control; market-based pricing structure; retailer margin 16%, wholesaler margin 8%; tracks MRP of unscheduled formulations. The market-based pricing approach is a significant shift from the earlier cost-plus method!

DEFINITIONS UNDER DPCO, 2013

1. Bulk Drug / Active Pharmaceutical Ingredient (API)

Any pharmaceutical, chemical, biological, or plant product, including its salts, esters, stereo-isomers, and derivatives, that satisfies pharmacopoeial or other standards listed in the Second Schedule of the Drugs and Cosmetics Act, 1940, and is used as such or as an ingredient in any formulation.

2. Brand

A name, term, design, symbol, trademark, or any other feature that identifies one seller’s drug as distinct from those of other sellers.

3. Formulation

A medicine processed out of or containing one or more drugs with or without pharmaceutical aids, for internal or external use or in diagnosis, treatment, mitigation, or prevention of disease. It does not include:

• Any medicine included in Ayurvedic (including Siddha) or Unani (Tibb) systems.
• Any medicine included in the homeopathic system.
• Any substance to which the Drugs and Cosmetics Act, 1940 does not apply.

4. Market Share

The ratio of domestic sales value (on the basis of moving annual turnover) of a brand or generic version to the sum of total domestic sales value of all brands and generic versions of that medicine having the same strength and dosage form.

5. National List of Essential Medicines (NLEM)

The National List of Essential Medicines, 2011 published by the Ministry of Health and Family Welfare, as updated or revised, and included in the First Schedule of this order.

6. Scheduled Formulation

A formulation included in the First Schedule, whether referred to by generic versions or brand name.

7. Retail Price

The price fixed by the Government for a new drug under paragraph 5 of DPCO.

8. Selling Price

A price fixed by the Government for Scheduled formulations in accordance with the provisions of this order.

Dpharmguru’s exam insights:

Definitions are frequently tested. Remember: Bulk drug = API; Formulation excludes Ayurvedic, Unani, and Homeopathic medicines; Market share is based on moving annual turnover; NLEM is published by the Ministry of Health and Family Welfare; Scheduled formulation is included in the First Schedule.

SALE PRICES OF BULK DRUGS

The Government notifies the Official Gazette and at periodic intervals fixes a maximum sale price at which the bulk drug should be sold. This is done to control equitable distribution, increase supplies of bulk drugs given in the First Schedule, and make them available at a reasonable price.

Key Points:

• While fixing the maximum sale price, the Government considers a post-tax return of 14% on net worth or a return of 22% on capital employed.
• No person should sell a bulk drug at a price more than the maximum sale price plus local taxes.
• A manufacturer commencing production of a bulk drug given in the First Schedule must furnish particulars to the Government in Form I within 15 days.
• For revision of maximum sale price, an application must be made in Form I, and the Government decides within 4 months.

Dpharmguru’s exam insights:

Bulk drug pricing is frequently tested. Remember: 14% return on net worth or 22% on capital employed; Form I is used for furnishing particulars and revision applications; 15 days for new manufacturers to furnish particulars; 4 months for Government decision on revision.

RETAIL PRICE OF FORMULATIONS

The following formula is used to calculate the retail price of a formulation:

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

Where:

• RP = Retail price
• MC = Material cost (including cost of drugs and pharmaceutical aids)
• CC = Conversion cost (fixed as a norm every year by Official Gazette notification)
• PM = Cost of packing material (fixed as a norm every year)
• PC = Packing charges (fixed as a norm every year)
• MAPE = Maximum Allowable Post-manufacturing Expenses (shall not exceed 100% for indigenously manufactured Scheduled formulations)
• ED = Excise duty

Dpharmguru’s exam insights:

The pricing formula is frequently tested. Remember: MAPE cannot exceed 100% for indigenously manufactured Scheduled formulations; MC, CC, PM, PC are the cost components; ED is excise duty. This formula is used to calculate the retail price of formulations.

SELLING PRICE OF SCHEDULED FORMULATIONS

The selling price of a scheduled formulation is calculated in two steps:

STEP 1: Calculate Average Price to Retailer [P(s)]

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

STEP 2: Calculate Selling Price [P(c)]

P(c) = P(s) × (1 + M/100)

Where:

• P(s) = Average price to retailer for the same strength and dosage
• M = % Margin to retailer and its value = 16

Note: The retailer margin is 16%, and the wholesaler margin is 8% under DPCO 2013.

Dpharmguru’s exam insights:

The selling price calculation is frequently tested. Remember: Only brands with market share ≥ 1% are considered; retailer margin is 16%; wholesaler margin is 8%. This market-based pricing approach ensures that prices are determined by market forces rather than cost-plus formulas.

PHARMACEUTICAL POLICY, 2002

The Indian government published a policy paper in 2002 called the Pharmaceutical Policy 2002, which describes how the government plans to handle the country’s pharmaceutical industry. It offers directives for the growth and control of India’s pharmaceutical industry.

Objectives of Pharmaceutical Policy, 2002

• To ensure abundant availability at reasonable prices of good quality essential pharmaceuticals of mass consumption.
• To strengthen indigenous capability for cost-effective quality production and exports.
• To strengthen the system of quality control over drug and pharmaceutical production.
• To encourage R&D in the pharmaceutical sector with focus on diseases endemic to India.
• To create an incentive framework for new investment and new technologies.
• To encourage export by reducing barriers to trade.
• To promote rational use of pharmaceuticals.

Salient Features of Pharmaceutical Policy, 2002

• Industrial Licensing: Abolished for all bulk drugs cleared by DCGI, except for recombinant DNA technology, in-vivo nucleic acids, and specific cell/tissue targeted formulations.
• Foreign Technology Agreements: Automatic approval available for all bulk drugs.
• Foreign Investment: Up to 100% permitted through automatic route.
• Imports: As per EXIM policy; centralised registration system introduced.
• R&D Encouragement: Pharmaceutical Research and Development Support Fund (PRDSF) and Drug Development Promotion Board (DDPB) established.
• MAPE: 100% for indigenously manufactured formulations.
• Scheduled Bulk Drugs: Rate of return 4% higher (i.e., 18% on net worth or 26% on capital employed).

Dpharmguru’s exam insights:

The Pharmaceutical Policy 2002 is frequently tested. Remember: Industrial licensing abolished except for three categories; 100% foreign investment allowed; MAPE is 100%; rate of return for scheduled bulk drugs is 18% on net worth (4% higher than earlier 14%). The PRDSF and DDPB were established under this policy.

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, in appropriate dosage forms and strengths, with assured quality, at a price that individuals and communities can afford.

The WHO developed the Model List of Essential Medicines in 1977, updated every 2 years. India maintains its own NLEM, which was reviewed and updated in 2011, 2015, and 2021.

Key Updates in NLEM 2021

• 39 drugs added, including anti-cancer, anti-diabetes, and antiretroviral medicines.
• 16 drugs removed from NLEM 2015, including erythromycin.
• Ivermectin and nicotine replacement therapy added.
• Bleaching powder and pegylated interferon Alfa 2a removed.

Purpose of NLEM

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

Criteria for Inclusion in NLEM

• The medicine should be approved/licensed in India.
• The medicine should be useful in a disease that is a public health problem in India.
• The medicine should have proven efficacy and safety based on valid scientific evidence.
• The medicine should be cost-effective.
• The medicine should be aligned with current treatment guidelines.
• The medicine should be stable under storage conditions in India.
• Fixed Dose Combinations (FDCs) are generally not included unless they have a proven advantage.
• Listing is based according to the level of health care: Primary (P), Secondary (S), and Tertiary (T).

Criteria for Deletion from NLEM

• The medicine has been banned in India.
• There are reports of safety concerns.
• A better medicine with improved efficacy or safety profile is now available.
• The disease burden is no longer a national health concern.
• In case of antimicrobials, the resistance pattern has rendered the medicine ineffective.

Dpharmguru’s exam insights:

NLEM is frequently tested. Remember: WHO Model List was created in 1977; updated every 2 years; NLEM 2011 had 348 medicines; NLEM 2021 added 39 and removed 16 drugs; FDCs are generally not included unless they have proven advantage; Listing is based on Primary, Secondary, and Tertiary care levels. The deletion criteria are also important—especially safety concerns and resistance patterns.

COMPARISON: DPCO 2013 VS EARLIER DPCO

FREQUENTLY ASKED QUESTIONS (FAQs)

1. When was NPPA established?

NPPA was established in 1997. It is an independent body regulated by the Department of Pharmaceuticals, Ministry of Chemicals and Fertilisers.

2. When was DPCO 2013 issued?

DPCO 2013 was issued on 15 May, 2013 based on the National Pharmaceutical Pricing Policy, 2012.

3. How many drugs are under price control under DPCO 2013?

Under DPCO 2013, prices of 348 drugs listed in NLEM 2011 covering around 628 formulations are under price control.

4. What is the retailer margin under DPCO 2013?

The retailer margin under DPCO 2013 is 16%, and the wholesaler margin is 8%.

5. What is NLEM and who publishes it?

NLEM stands for National List of Essential Medicines. It is published by the Ministry of Health and Family Welfare. The latest version is NLEM 2021.

6. What is MAPE?

MAPE stands for Maximum Allowable Post-manufacturing Expenses. It includes all costs incurred by a manufacturer from ex-factory cost to retailing. It shall not exceed 100% for indigenously manufactured Scheduled formulations.

7. What is the formula for calculating retail price?

The formula is: RP = (MC + CC + PM + PC) × (1 + MAPE/100) + ED, where MC = Material cost, CC = Conversion cost, PM = Packing material cost, PC = Packing charges, MAPE = Maximum Allowable Post-manufacturing Expenses, and ED = Excise duty.

8. What is the rate of return for bulk drugs under DPCO?

For scheduled bulk drugs, the rate of return is 14% on net worth or 22% on capital employed. Under the Pharmaceutical Policy 2002, it was increased by 4% to 18% on net worth or 26% on capital employed.

SUMMARY

The National Pharmaceutical Pricing Authority (NPPA) and the Drug Price Control Order (DPCO), 2013 form the core regulatory framework for drug pricing in India. NPPA, established in 1997, implements and enforces the provisions of DPCO, monitors drug availability, collects data on production and market share, and advises the government on drug pricing matters.

DPCO 2013 introduced a market-based pricing mechanism for scheduled formulations, covering 348 drugs and 652 formulations listed in the National List of Essential Medicines (NLEM) 2011. It fixed the retailer margin at 16% and wholesaler margin at 8%, and set MAPE at 100% for indigenously manufactured scheduled formulations.

The Pharmaceutical Policy 2002 provides the overarching framework for the pharmaceutical industry, addressing industrial licensing, foreign investment, imports, R&D, and pricing. The NLEM is updated periodically (2011, 2015, 2021) based on disease burden, efficacy, safety, and cost-effectiveness, with medicines categorized for Primary (P), Secondary (S), and Tertiary (T) levels of healthcare.

As I always tell my students: “Understanding drug pricing is not just about numbers—it is about ensuring that every citizen has access to life-saving medicines at affordable prices. As pharmacists, we are the bridge between pharmaceutical companies and patients, and we must advocate for rational pricing.”

REFERENCES AND FURTHER READING

• National Pharmaceutical Pricing Authority (NPPA). (2022). Guidelines on Drug Pricing. Retrieved from https://www.nppa.gov.in.
• Drug Price Control Order (DPCO), 2013. Ministry of Chemicals and Fertilisers. Government of India.
• Pharmaceutical Policy, 2002. Department of Pharmaceuticals. Government of India.
• National Pharmaceutical Pricing Policy (NPPP), 2012. Ministry of Chemicals and Fertilisers.
• National List of Essential Medicines (NLEM), 2021. Ministry of Health and Family Welfare. Government of India.
• World Health Organization (WHO). (2022). Model List of Essential Medicines. Retrieved from https://www.who.int.

Disclaimer: This article is for educational purposes only and does not constitute legal advice. Drug pricing laws and regulations may change over time—always refer to the latest official gazette notifications and consult qualified legal professionals for specific legal matters.

written by:
Dr. N. Sujith Kumar

Dr. N. Sujith Kumar is a pharmacy educator, Pharm.D graduate, and academic content creator from Jawaharlal Nehru Technological University Kakinada (JNTUK), where he completed his Doctor of Pharmacy (Pharm.D) degree between 2015 and 2021. He has more than 7 years of experience creating pharmacy educational content, writing study materials, and reviewing academic articles for pharmacy students. He has also contributed guest articles to pharmacy education platforms, including PharmD Guru. At D.PharmGuru, his work focuses on simplifying complex Diploma in Pharmacy (D.Pharmacy) subjects into easy-to-understand notes, practical explanations, and exam-oriented educational resources for students across India. His areas of focus include Human Anatomy and Physiology, Pharmaceutics, Pharmacology, Pharmaceutical Chemistry, Hospital and Clinical Pharmacy, and other core D.Pharmacy subjects.

For More Study Materials, Visit: www.dpharmguru.com