Can you justify this loot, Hospitals cannot survive through dacoity! SC slams Centre over steep medicine markups
New Delhi: While reserving its verdict on a plea seeking stricter price controls on non-scheduled medicines and medicines, the Supreme Court on Tuesday slammed the Union Government and private hospitals over steep mark-ups on essential drugs.
Hospitals could not justify steep medicine markups by citing operational costs, remarking that they could not survive through "dacoity", the apex court observed, quotes ANI.
Expressing concern over the wide gap between the prices at which medicines are procured and the amounts charged to the patients, the apex court bench comprising Justices Vikram Nath and Sandeep Mehta described such excessive hospital margins as "loot" and "dacoity".
The Court also questioned why the Union Government was reluctant to bring a wider range of medicines under price control and observed that the Centre's reliance on market forces and concerns regarding the growth of the pharmaceutical industry cannot justify leaving the patients exposed to medicine prices that may be hundreds of times higher than the cost at which they were procured.
According to a Live Law report, Justice Sandeep Mehta asked the Additional Solicitor General Aishwarya Bhati, who was defending the pharmaceutical pricing policy of the Government, "You are dealing with the lives of people, Ms. Bhati. Don't take it as a commerce. Treat it as a life of the poorest person of this country. You are talking only in the terms of commerce, economic policy, this, that. Is this a matter in which economic policy will be supreme as compared to the life of the citizens at large?"
These observations were made by the bench while hearing a public interest litigation filed by advocate Kishan Chand Jain, who sought mandatory generic prescriptions, controls on the initial prices of non-scheduled medicines, and statutory limits on trade margins for medical devices under the Drugs (Prices Control) Order (DPCO).
Medical Dialogues had earlier reported that, noting the lack of adequate price controls on medicines, the Apex Court flagged the wide disparity between the Price to Retailer (PTR) and Maximum Retail Price (MRP) of life-saving drugs, particularly cancer medicines. The bench questioned how a 10-fold difference between the PTR and MRP could be permitted and whether there should be a fixed criterion to limit the disparity. Referring to the impact of such pricing on patients, Justice Mehta had described the practice as “absolute rampage and carnage and broad daylight dacoity with the patients.”
Previously, the Apex Court had criticised the commercialisation of private healthcare, observing that corporate hospitals operate as profit-driven industries rather than service providers, while common citizens and taxpayers foot the bill for exorbitant drug markups.
While reserving its order in the case, the bench questioned the Centre over the substantial difference between the maximum retail price (MRP) of medicines and the prices at which the retailers procure them. Further, the bench sought to know why a large proportion of medicines remained outside the stricter price-control regime under the Drugs (Prices Control) Order, 2013 (DPCO).
During the hearing of the matter, the bench repeatedly asked Additional Solicitor General Aishwarya Bhati to explain why the Government allowed manufacturers to print MRPs several times higher than the prices charged to the dealers and retailers.
Justice Mehta recounted an incident in which a medical dealer, whose wife was undergoing cancer treatment at a prominent hospital wished to procure a chemotherapy injection for her at the dealer price of Rs 11,000. However, the hospital refused administering the injection and charged Rs 1.3 lakh for it.
"Sir, I am myself a dealer and to me the (chemotherapy) injection comes at Rs 11,000 dealer price. The hospital refused to administer that injection and charged 1.30 lakh for that same injection. Can you show any justification for this loot, please? Why this difference? Where does the money go?" the Court observed, according to a Business Standard report.
"Can you show any justification for this loot, please?" Justice Mehta asked ASG Bhati.
After repeatedly asking the Centre to explain the rationale, Justice Mehta at one point remarked, "We again are at a loss to understand what is the justification for this difference. You are not coming out with the answer, please."
During the hearing, ASG Bhati argued that the government's policy sought to balance affordable medicines with innovation, competition, industrial growth, employment and economic well-being.
She contended that complete price control was not the answer and the government preferred selective interventions over controlling the entire market.
ASG Bhati submitted that under the existing framework, scheduled medicines are subject to ceiling prices under the DPCO, while manufacturers of non-scheduled medicines can determine their initial MRPs, subject to restrictions on further increases.
At the outset, the Government relied on the National Pharmaceutical Pricing Policy, 2012, which identifies four objectives- making sure that essential medicines are available at reasonable prices, providing ample opportunity for innovation and competition, supporting pharmaceutical-industry growth, and promoting employment and shared economic well-being.
"Therefore, to call out just one limb to have medicines at reasonable prices may not be the correct way to look at it. Our policy is based on these four limbs and maintaining a balance on all these four limbs is what we endeavour to do as regulators," ASG Bhati submitted.
"The decision is not to have a full control but to make only interventions from time to time rather than controlling the entire market," she further added, while mentioning that India had moved away from the "control Raj" and that policy of the government was aimed to allow market forces to operate.
Taking note of this, Justice Mehta asked whether the approach effectively allowed manufacturers to set arbitrarily high initial MRPs before relying on a 10% annual increase limit to restrain prices.
"You at the initial level fix the MRP right up to the moon. Then you increase by 10%. How does that make a difference?" he questioned.
In response, ASG Bhati contended that already India had among the lowest medicine prices globally. However, Justice Mehta observed in response, "Don't even start arguing this. India has the lowest price of medicines. There are so many other things also which India is unfortunately suffering. Then we'll go to per capita income. We'll go to so many other things. Please don't compel us to do that."
Pointing out that it was the lives of the patients that were at stake, he questioned whether the market-based reasoning was appropriate. "When you talk of patients and their lives, do we really think that kind of capitalistic thinking? Are we really going for that? This is not a country where we have that kind of social security, which we expect, or which we are trying to achieve," he questioned.
"Your calibration is too wayward. Rs 11,000 to Rs 1,30,000 is no calibration... When you talk of patients and life, should we have such capitalistic thinking?" questioned the Court, in response to ASG Bhati's argument that the government had been continuously reviewing and adjusting its pricing policies.
The bench raised the question again and again why the Government had chosen to stricter control over a much larger proportion of medicines.
Why most medicines outside DPCO, asks Court:
During the hearing, Justice Vikram Nath questioned ASG Bhati what was stopping the Government from taking control of the entire range of medicines and drugs.
In response, ASG Bhati said that while there was no legal impediment, the Government had taken a policy decision to adopt a calibrated approach.
At the outset, Justice Nath further sought to know from the Government why it had classified some medicines as essential and left others outside that category.
Justice Mehta questioned how the medicines wee selected to be included in the scheduled category and observed that the same active pharmaceutical ingredient could be covered under one name but excluded under another.
"That's where the game is. Which medicine to keep in the schedule and which not to keep. That's where the game is. The same salt may be under a particular name part of the scheduled drugs; same may be kept out," Justice Mehta said.
Meanwhile, the petitioner submitted before the Court that non-scheduled medicines accounted for approximately 83% of the pharmaceutical market by value. However, ASG Bhati submitted that scheduled medicines accounted for 35% by volume and 18% by price.
Taking note of the arguments, Justice Mehta noted that the central question was the extent of coverage under the scheduled-drug regime. He said, "The issue is what should be the extent of coverage under the scheduled drugs. That would take care of everything. You cover maximum drugs under the scheduled drugs."
Referring to the Centre's decision to cap trade margins on anti-cancer drugs on 30 per cent covered only a limited portion of the market and nearly 90 percent remained outside the price control mechanism, the bench asked, "Why is the DPCO in place at all? The government is allowing this to happen. There have been three parliamentary committees on this. And their outcome is not very convenient to people who pull the strings. Let us tell you."
Further, the bench questioned the National Pharmaceutical Pricing Authority (NPPA) over whether it actually made any regulatory interventions. The bench perused the affidavit filed by the Central Government and remarked, "Your body seems to be defunct with due respect."
Meanwhile, ASG Bhati referred to the interventions under Paragraph 19 of DPCO, which allows the Government, in extraordinary circumstances and in the public interest to fix the ceiling price or retaiil price of a drug.
She pointed out that MRPs for 106 non-scheduled formulations used to treat diabetes and cardiovascular diseases were capped in 2014, ceiling prices for coronary stents and knee implants were fixed in 2017, and trade margins on 42 selected non-scheduled anti-cancer medicines were capped in 2019. She also cited interventions concerning oxygen concentrators and medicine devices during the COVID-19 pandemic.
Taking note of this, the bench questioned whether these selective measures adequately addressed a system in which most mediicnes by market value were outside the scheduled category.
Further, Justice Mehta also questioned the delay to regulate cancer-medicine prices and asked why the government allowed such large price differences to persist for years.
"Why does it take six years to arrive at that decision, please? They are all experts. They need six years to take this decision that cancer medicines have to be kept at a reasonable price?" Justice Mehta asked.
Centre, in its affidavit, has acknowledged that patients have limited bargaining power and knowledge of medicines, their substitutes and prices, creating information and bargaining asymmetries with pharmacies, hospitals and doctors. Further, the affidavit states that hospitals may purchase medicines from manufacturers offering the highest trade margins and then sell them to patients at MRP.
However, observing that patients generally could not negotiate prices or verify the procurement costs, Justice Mehta sought to know why the government continued relying on market forces.
"In your government pharmacies sell the same medicine for 6 rupees which is having an MRP of 270 rupees. We'll give you 100 examples," said Justice Mehta, while referring to a saline drip line mentioning an MRP of Rs 15, however, being sold for Rs 270.
Meanwhile, the Centre has stated in its affidavit that trade margins may vary because low-value products require higher margins for encouraging retailers to stock them. Further, it mentioned that rural areas with low sales may require higher margins for ensuring availability, and medicines requiring cold-chain maintenance, sterilisation or special packaging may entail higher distribution costs. Low turnover and arrangements to return expired or spoiled products may also affect margins, it added.
ASG Bhati also relied on the Government's position that a competitive pharmaceutical market helped keep medicine prices low and that higher trade margins could be justified by product characteristics, costs of distribution and market conditions.
Further, the Court sought to know whether these considerations justified MRPs hundreds of times higher than procurement prices. Justice Mehta questioned. "How does keeping MRP 400 times help competition?"
The bench also questioned the government's reliance on innovation as a justification to allow market forces to operate. Justice Bhati asked Bhati to name a few molecules developed by the Indian Pharmaceutical industry in the preceding 30 years. ASG BHati, however, said that she was not sufficiently familiar with the subject to answer.
Meanwhile, the petitioner pointed out that the dispute concerned non-scheduled, off-patent medicines and that the innovation argument did not justify the existing pricing framework for those medicines.
Taking note, the bench continued questioning why the government was unwilling to impose a broader cap on margins. In response, Bhati argued that the Government did not intend to promote excessive margins and it believed that stricter controls could be injurious to the development of the pharmaceutical industry.
The Court also questioned the decision of the Government to cap trade margins on selected non-scheduled anti-cancer medicines at 30% of MRP. It sought to know whether the measure would make a meaningful difference if the MRP is already inflated
In this regard, the petitioner submitted that a 30% margin on MRP translated into a markup on approximately 42.86% on the underlying purchase price. He also highlighted that the DPCO's formula for scheduled medicines allowed a retailer's margin of 16% on the price to retailer, not on MRP.
Taking note of this, Justice Mehta questioned, "The deduction you have brought in on the MRP. So MRP was already 400 times. On that, you give a reduction of 30%. How does that make a difference?"
Further, Justice Mehta questioned the practical value of the government monitoring drug prices without there being a wider regulatory solution.
Hospitals Express opposition to broader restrictions on medicine margins:
Meanwhile, the counsel for the hospitals, Senior Advocate Mukul Rohtagi, argued that the hospitals relied on medicine margins to meet operating costs, including maintaining operating theatres, diagnostic equipment and medical staff around the clock. He further submitted that reimbursements under government health schemes and health insurance are lower than the amounts billed.
Advocate Rohtagi further argued that the hospitals would have to increase charges for other services if they lost revenue from medicine margins. Ultimately, the treatment could become more expensive, he argued.
Advocate Rohtagi further argued that the hospital required funds for maintaining the infrastructure and upgrading equipment.
"Hospitals will collapse. We cannot trust patients to bring medicine from outside. Half of the medicines in the market are anyway spurious. If I reduce drug prices, prices across the board will increase, won't make any difference. I have to keep all my facilities functioning 24X7. I have to bear costs to keep the infrastructure ready," submitted Advocate Rohtagi.
Taking note of this, Justice Vikram Nath questioned why the costs of infrastructure could not be recovered through other service charges. He also sought to know why patients should be charged the full MRP when the hospitals procured those medicines at substantially lower charges.
Justice Mehta sought to know why patients buying medicines directly from the pharmacies should have to bear inflated prices when they have no access to the procurement price of the retailer.
In response, Advocate Rohtagi suggested setting up an expert committee that could examine the issue and determine an appropriate solution.
Ultimately, the bench reserved its order on the matter and allowed all the parties to file written brief submissions within two weeks.
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