Challenges with Fixing the Ceiling Price Under the 2013 DPCO

Abstract

In the previous chapter, we elaborated on the design of the 2013 DPCO and the procedure used for fixing ceiling prices under the newly-adopted market-based approach. Although it may appear relatively simple, the determination of the ceiling prices is associated with multiple challenges related to data availability, data selection, data collection, and data analysis. The lack of sufficient data and the use of inaccurate data can result in a miscalculation of the ceiling prices and create confusion among pharmaceutical companies, NGOs, and consumers, and lead to several legal disputes. The effectiveness of the 2013 DPCO will be judged based not only on the extent to which prices of essential medicines decline but also by comparing the ceiling prices resulting from the market-based approach with those that would result from using a cost-based approach. Soon after the implementation of the 2013 DPCO, some industry observers argued that the ceiling prices set by the NPPA were much higher relative to those resulting from a cost-based pricing mechanism that was previously in place. They noted that the new policy “institutionalized the super profits” (Alexander 2013a). The profit margins under the new price ceilings were estimated to be over 1000% in some cases. Moreover, the NGOs blamed the government for not sharing the data it collects from IMS and for not collecting its own data and corroborating them with other alternative sources. Are the criticisms of the 2013 DPCO design and implementation valid? In this chapter, we take a quantitative approach to examining the challenges that arose in determining the ceiling prices based on the new design and in implementing the 2013 DPCO. We begin by documenting the cases in which the pharmaceutical firms contested the NPPA’s calculations and then present analyses to characterize the nature and extent of such disputes.