9. NATIONAL PHARMACEUTICAL PRICING AUTHORITY

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. 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.

FUNCTIONS OF NPPA

1. To implement and enforce the provisions of the Drugs (Prices Control) Order.
2. To deal with all legal matters arising out of the decisions of the Authority.
3. To monitor the availability of drugs, identify shortages, and take remedial steps.
4. To collect and maintain data on production, exports, imports, market share, and profitability of companies.
5. To undertake and sponsor relevant studies on pricing of drugs and pharmaceuticals.
6. To recruit and appoint officers and other staff members of the Authority.
7. To render advice to the Central Government on changes/revisions in the drug policy.
8. To render assistance to the Central Government in parliamentary matters relating to drug pricing.

DRUG PRICE CONTROL ORDER (DPCO), 2013

The latest DPCO, 2013 was issued on 15th May 2013 by the Ministry of Chemicals and Fertilisers based on the National Pharmaceutical Pricing Policy (NPPP), 2012 (issued on 7th December 2012). Under DPCO, 2013, the prices of 348 drugs listed in the National List of Essential Medicines, 2011 covering around 628 formulations were brought under price control.

Objectives of DPCO

1. To ensure availability of all 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. Price controls on 348 medications and their 652 formulations.
2. Employs market-based pricing structure (not cost-plus approach).
3. Reduces profit margins: Wholesalers – 8%, Retailers – 6%.
4. Tracks MRP of formulations that are not scheduled.
5. 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

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&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&D intensive company: (i) ≥5% turnover in R&D; (ii) ≥₹10 crore/annum in innovative research; (iii) ≥100 research scientists; (iv) ≥10 patents; (v) 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)

Meaning of Essential Medicines List

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