June 14, 2011

India Proposes New Pricing System for Patented Drugs; RSBY Insurance Scheme Extends Coverage to "Beedi" Workers

Published: 6/13/2011

India's drug pricing regulator the National Pharmaceutical Pricing Authority has set out proposals to control patented product prices. The health insurance scheme for the poor is to extend coverage to "Beedi" workers as the Indian government looks to improve its healthcare indicators and outcomes including affordability and accessibility.

IHS Global Insight Perspective

Significance

After more than five years of deliberations, India's Drug Pricing regulator the National Pharmaceutical Pricing Authority has set out proposals including central procurement and price negotiation based on market potential, in tandem with reference pricing using other countries with comparable per capita incomes or purchasing power parity to control the pricing of patented drugs in the Indian market. In other news, the Indian government's health insurance scheme for the poor will extend coverage to 5.5 million "Beedi" workers.

Implications

The changes are expected to lower the prices of patented products, causing more discontent among multinationals, compounding patent law issues. The move will see the Indian government control the prices of more than 50% of its market, and reduce drug prices by over 30%. The inclusion of the "Beedi" workers will see the Indian government marginally surpass the half way mark in its goal of increasing health insurance to 60 million people.

Outlook

In the short-to-medium term, the Indian government will continue to find ways to increase affordability and accessibility of healthcare services and products, in order to increase healthcare coverage in a quest to improve its health indicators and outcomes.

New Pricing System Proposed for Patented Products

With the majority of patented drugs being out of reach for most patients in India, the country's drug price regulator the National Pharmaceutical Pricing Authority (NPPA) has set out proposals to control the pricing of patented products in the market, including the set up of a centralised agency to negotiate prices, Business Standard reports. Under the proposal, the central agency would negotiate prices based on market potential and a reference-pricing system. As per NPPA suggestions, the reference pricing would be calculated by comparing prices of the same products in other countries with comparable per capita incomes or purchasing-power parity. The reference prices will be the lowest of the group or the average of the most common prices in the comparable markets.

Other proposals include the central procurement of patented medicines to ensure supplies are provided to the current distribution networks at the negotiated price; tax and duty exemptions for all patented drugs; and aligning market approval to negotiated prices, which will see import licences issued upon price approval. The proposals are currently under review by an official committee.

RSBY Extends Coverage to "Beedi" Workers

The Indian government's health insurance scheme for the poor—Rashtriya Swasthya Bima Yojana (RSBY)—is to be extended to cover "Beedi" workers, to bring an additional 5.5 million people under the scheme by 2013–14, the Economic Times reports. The central government has set aside 3.11 billion Indian rupees (USD69.3 million) for the scheme, with "Beedi" workers having to contribute INR30 for the smart card. The annual premium will be INR750 per annum, of which the central government will shoulder 75%, and 25% will be covered by state governments. Some 1 million workers will be covered in the current financial year, and 100% of workers will be covered by 2013–14; all will be issued with smart cards to obtain cashless benefits from any of the Employee State Insurance or government hospitals throughout the country. Under the RSBY, the government provides free treatment worth up to INR30, 000 per year for a family of five for most diseases at government and private hospitals, through a smart-card-based cashless health insurance scheme.

Outlook and Implications

The suggested proposals to change patented drug pricing come after more than five years of deliberations by the NPPA. The changes are expected to cause more discontent among multinationals, compounding the patent law issue, which is seen as a hindrance by major pharma to gaining entry into the Indian patented product market, and comes at a time when the Indian Patent Office has refused to include any Trade-Related Aspects of Intellectual Property Rights (TRIPS)-plus measures and make any changes to the patent law (see India: 18 May 2011: India Rejects Any TRIPS-Plus Measures). The move will, however, bring patented products under some kind of price control, which could see the Indian government control the prices of more than 50% of its market. The Indian government's proposals would reduce drug prices by over 30%, as they would be exempt from tax and duties, thus cutting patient out-of-pocket and co-payment drug costs; this would increase medicine access to its population, which in turn would drive up demand, negating the effects of lower pricing. With the use of reference pricing, prices of patented drugs would come into line with those in other middle-income countries. Controlled pricing and a centralised procurement system could see patented products extend their reach beyond the current private market and include more rural areas. These changes all come at a time when the government is looking to attract more innovative products onto its market, while at the same time trying to boost its healthcare service provision to its population.

The inclusion of the "Beedi" workers will increase the number of beneficiaries under the scheme to approximately 36 million people, or 2.5% of the population, which will see the Indian government marginally surpass the half way mark in its goal of increasing health insurance to 60 million people (see India: 13 September 2010: Indian Government Aims to Increase Health Insurance Cover to 60 Mil. People). This is in line with the Indian government's continued initiative to increase affordable healthcare coverage and access across the country, as well as its pro-poor stance. The increased insurance coverage will help reduce out-of-pocket expenditure for beneficiaries. Furthermore, the increased coverage of the scheme will lead to increased demand for low-cost pharmaceuticals, as more people gain healthcare access and hence boost local pharmaceutical revenues, to the benefit of the government's low-cost pharmacy scheme, Jan Aushadhi (see India: 9 December 2010: India's Central Procurement Agency Given Go-Ahead; Jan Aushadhi Stores Set to Expand).

In the short-to-medium term, the Indian government will continue to find ways to increase affordability and accessibility of healthcare services and products in order to increase healthcare coverage in a quest to improve its health indicators and outcomes.

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