DRUG PRICE CONTROL ORDER (DPCO)

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

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

Ø  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.

v  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)      4)
Margins of wholesalers & retailers have been cut down to 8% & 16%
respectively.

5)      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)      6)
Firms that launch new medicines can sell them at or below government-set price
caps.

7)      7)
Existing firms will not be allowed to stop production of any drug without
permission from the government.

8)      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

q  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.

Ø  WHERE,  R.P. = RETAIL PRICE

Ø                   M.C.= MATERIAL COST

Ø                   C.C.= CONVERSION COST

Ø                   P.M.= PACKAGING MATERIAL COST

Ø                   P.C.= PACKING CHARGES

Ø                   ED = EXCISE DUTY (Taxes )

Ø                   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

v  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—

q  Shall
be punishable with imprisonment for one year and also liable to fine.

q  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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