DRUG PRICE CONTROL ORDER (DPCO)
Contents of this chapter
- Introduction
- History of Price regulation in India
- Objectives and Definition
Learning Objectives
- At the end of this lecture, student will be able to
– Define the terminologies of DPCO
– Describe the history of Price regulation in India
– Discuss the objectives of DPCO
History of Price regulation in India
Drug Price Control Order 1995
- The drug price control order (DPCO) is an order issued by the government under the Essential Commodities Act, 1955 which enables it to fix the prices of some essential bulk drugs and their formulations.
- The origin of this control dates back to 1970 when for the first time the government placed limits on profitability of pharmaceutical companies.
Why under Essential Commodities act????
- Since drugs are essential for the health of the society
Are all the drugs marketed under price control???
- Only 74 out of about 500 commonly used bulk drugs are kept under statutory price control
DPCO provides
- The list of price controlled drugs.
- Procedures for fixation of prices of drugs.
- Method of implementation of prices fixed by Government.
- Penalties for contravention of provisions
**All formulations containing the bulk drugs either in a single or combination form fall under the price control category.
Objectives of Drug Price Control Order
ü To achieve adequate production
ü To regulate equal distribution
ü To maintain and increase supply of bulk drugs
ü To make at fair prices.
ü To ensure availability, at reasonable prices of essential and life-saving and prophylactic medicines of good quality.
ü Promoting the rational use of drugs in the country
ü To encourage cost-effective production with economic sizes
National Pharmaceutical Pricing Authority (NPPA)
- Is an independent body of experts established on 29th August 1997 entrusted with
—- The task of fixation/ revision of prices of pharmaceutical products (bulk drugs and formulations)
—- Enforcement of provisions of the DPCO
—- Monitoring of the prices of controlled and decontrolled drugs in the country
DEFINITIONS
Bulk Drugs:-
It means any pharmaceutical, chemical and biological or plant product that conforms to Pharmacopoeial standards specified in D&Cact, 1940.
Ceiling Price:-
Price fixed by government for scheduled formulation.
A single maximum selling price that is applicable throughout the country
Drug:-
Substance intended to be used for or in the diagnosis, treatment, or prevention of any disease or disorder in human or animal.
Retail price :-
Retail price of drug fixed in accordance with provisions of DPCO 1995 and include ceiling price.
Scheduled bulk drug:-
It means bulk drug specified in first schedule.
DPCO 2013
The DPCO 2013 empowers the National Pharmaceutical Pricing Authority (NPPA) to regulate prices of 348 essential drugs along with their specified strengths and dosages under NLEM 2011.
Main Features of the DPCO 2013 IMP
1) The new order will bring 348 drugs & their 652 formulations under price control.
2) The new policy uses a market-based pricing mechanism against the earlier proposed cost-plus method. The ceiling price would be calculated by taking the simple average of prices of all brands of a drug with a market share of 1% or more.
3) All strengths and dosages specified in the NLEM (National list of Essential Medicines) will be under price control
4) Margins of wholesalers & retailers have been cut down to 8% & 16% respectively.
5) Companies selling medicines above the government-mandated ceiling rated would have to slash prices to meet the demands of new rules, but those selling drugs below the ceiling price wouldn’t be allowed to raise prices.
6) Firms that launch new medicines can sell them at or below government-set price caps.
7) Existing firms will not be allowed to stop production of any drug without permission from the government.
8) Drug producers will be permitted an annual increase in the retail price in sync with the wholesale price index.
Which drugs will come under price control?
- This order doesn’t cover patented drugs. Earlier in March this year the Department of pharmaceuticals (DOP) had issued a draft proposal on price negotiation of patented drugs.
- Prices of 652 formulations spanning over 27 therapeutic classes are regulated by DPCO 2013.
- Prices of some additional anti-cancer drugs including the much talked about Imatinib, Carboplatin, Dacarbazine, Daunorubicn, Chlorambucil, Oxaliplatin and some anti-retroviral cocktails like Zidovudine-Lamivudine-Nevirapine and Stavudine- Lamivudine will now be regulated by the current order.
- However in certain emergency case, the patents can be broken down and the drugs can be released into the market.
Prices of Bulk Drugs
- Government has power to fix the maximum sale price.
While fixing the sale price government shall take into following considerations:-
Ø Post-tax return of 14% on net worth.
Ø Return of 22% on capital employed.
Ø On the basic stage of production, post tax return of 18% on net worth or 26% on capital employed
Ø At the time of production of drug, manufacturer fill detail in form-1 and give necessary information to government within 15 days.
Ø Make necessary inquiry and then government fix maximum sale price if bulk drug and noted in official gazette.
Ø Govt. also fix or revise the price of non-scheduled bulk drugs.
Information Required from Manufacturer to Government
Ø For the both scheduled and non-scheduled bulk drugs
Ø List of drug produced with cost in form 1 and 2 resp.
Ø But for scheduled bulk drugs it should given by 30 september every year.
Ø RETAIL PRICE OF FORMULATION – DPCO 1995
Ø FORMULA FOR CALCULATION OF RETAIL PRICE:
Ø R.P. = ( M.C.+C.C.+P.M.+P.C. )X( 1+ MAPE / 100 ) + ED.
WHERE, R.P. = RETAIL PRICE
M.C.= MATERIAL COST
C.C.= CONVERSION COST
P.M.= PACKAGING MATERIAL COST
P.C.= PACKING CHARGES
ED = EXCISE DUTY (Taxes )
MAPE= MAXIMUM ALLOWABLE POST MANUFACTURING EXPENSES
How Prices are Calculated & Fixed – DPCO 2013
The ceiling price of a scheduled formulation of specified strengths and dosages as specified under the first schedule shall be calculated as under:
Step1: First the Average Price to Retailer of the scheduled formulation i.e. P(s) shall be calculated as below:
Average Price to Retailer, P(s) = (Sum of prices to retailer of all the brands and generic versions of the medicine having market share more than or equal to one percent of the total market turnover) / (Total number of such brands and generic versions of the medicine having market share more than or equal to one percent of total market turnover on the basis of moving annual turnover for that medicine.)
Step2: Thereafter, the ceiling price of the scheduled formulation i.e. P(c) shall be calculated as below:
P(c) = P(s).(1+M/100), where
P(s) = Average Price to Retailer for the same strength and dosage of the medicine as calculated in step1 above.
M = % Margin to retailer and its value =16
DPCO 2013
Margin to retailer: While fixing a ceiling price of scheduled formulations and retail prices of new drugs, sixteen percent of price to retailer as a margin to retailer shall be allowed.
Maximum retail price:
(1) The maximum retail price of scheduled formulations shall be fixed by the manufacturers on the basis of ceiling price notified by the Government plus local taxes wherever applicable, as under:
Maximum Retail Price = Ceiling price + Local Taxes as applicable
(2) The maximum retail price of a new drug shall be fixed by the manufacturers on the basis of retail price determined by the Government plus local taxes wherever applicable, as under:
Maximum Retail Price = Retail Price + Local Taxes as applicable
What’s new in this DPCO?
- New Pricing methodology: Earlier method used manufacturing costs as a basis to calculate ceiling prices
- This DPCO 2013 excludes bulk drugs from price alterations but formulation prices will fall
What this means: API/Bulk Drug Manufacturing, which has seen declining trend for the past many years now will have an upsurge (hopefully)
- DPCO 2013 promotes R&D by excluding new drug, new process or NDDS from DPCO for 5 years
Power to Fix Retail Price of Scheduled Formulation
Ø Government fix the retail price of bulk drug.
Ø Manufacturer use drugs in scheduled formulation.
Ø For price revision of such formulation manufacturer should apply within 30 days.
Ø From date of receipt of complete information govt. Fix retail price within 2 months.
- Without approval of government,
- Manufacturer should not increase retail price of drug.
- Manufacturer should not marketed new formulation.
- No person shall sell imported scheduled formulation.
Power to Fix Ceiling Price of Scheduled Formulation
Ø Government fix the ceiling price of scheduled formulation.
Ø Ceiling price for formulation including those sold under generic name.
Ø Fixed revised ceiling price for schedule formulation either on it’s own motion or on application made in prescribed form.
Power to Revise Price of Bulk Drug and Formulation
Ø Government fix or revise retail price of one or more formulation.
Ø As the pre-tax return on sales turnover of formulation then the scheduled and non-scheduled formulation.
Fixation of Price Under Certain Circumstances
Ø If any manufacturer of bulk drug fails to submit the application for fixation or revision of price or fails to give information within specified time period.
Ø Then government fix price of the bulk drug.
Power to Recover Overcharged Amount
Ø If any manufacturer or importer charging higher price than the price fixed by government
Ø Then government may recover the overcharged amount.
Control of Sale Prices of Bulk Drug and Formulation
Ø No person or retailer shall sale the drug/ formulation
Ø To any customer at increasing price specified in current price list indicated on container label.
Sale of Split Quantity of Formulation
Ø No dealer shall sell the loose quantity of formulation
Ø At price exceeding pro-rata prices of formulation plus 5%.
Schedules Related to DPCO act, 1995
FIRST SCHEDULE
- First Schedule includes 76 bulk drugs.
- Eg. Penicillin, ranitidine, chloroquine etc
SECOND SCHEDULE
Different forms included :-
- Form- 1 :- application for fixation/ revision of price.
- Form- 2 :- information related with price of non-scheduled bulk drug.
- Form-3 :- application for approval/revision of price of scheduled formulation.
- Form-4 :- application for approval/revision of price of scheduled formulation imported in finished form.
- Form-5 :- form of price list
- Form- 6 :- yearly information on turnover and allocation of sales and expenses.
THIRD SCHEDULE
- Category A :- Large unit with turnover exceeding rs. 6 crores per annum.
- Category B :- Medium sized unit turnover between rs. 1 crore to 6 crore per annum.
- Category C :- Other units with turnover of less than rs. 1 crore per annum.
OFFENCES AND PENALTIES
Penalties—
- Shall be punishable with imprisonment for one year and also liable to fine.
- In the case of any other order, with imprisonment for not less than three months but which may extend to seven years and also be liable to fine.
What companies do to avoid getting into DPCO
- Changing the composition of the formulation by putting in ingredients (if possible) that are not subject to price control.
- Transferring the brand to a small–scale unit, which produces the product for a subsidiary.
- Case studies:
- Pfizer for instance did change the composition of its B–complex vitamin brand Becousules (which ranks second in branded sales in the country). However the DPCO clamped down on this move and brought the entire range of B–complex vitamins under its purview.
Summary
- Bulk drug means any pharmaceutical, chemical and biological or plant product conform to Pharmacopoeial standards specified in d & c act, 1940.
- Ceiling Price is Price fixed by government for scheduled formulation
- Drug is a Substance intended to be used for or in the diagnosis, treatment, or prevention of any disease or disorder in human or animal
- To achieve adequate production, regulate equal distribution, maintain and increase supply of bulk drugs and make at fair prices
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