India is the largest supplier of generic drugs in the world, and Indian pharmaceutical companies have famously succeeded in pushing down the cost of medication in many countries across the world. Yet, too many Indian citizens do not get access to medicines owing to high costs. The preferred solution of the government right now—price control—is suboptimal.
The problem starts with the thin insurance cover that leads to most patients paying for medical expenses out of their pockets after they have been diagnosed with an ailment. The latest National Sample Survey Office (NSSO) survey on healthcare, in 2014, shows that 86% of the rural population and 82% of the urban population were not covered under any scheme of health expenditure support, and that medicines are a major component of total health expenses—72% in rural areas and 68% in urban areas. Healthcare costs pushed 60 million Indians below the poverty line in 2011. Therefore, even a modest drop in drug prices will free hundreds of households from the widespread phenomenon of a medical poverty trap.
The government is aware of the problem, which is why it has been fixing the prices of “essential medicines” for some time, and even medical devices such as stents and knee replacement caps from this year. As this newspaper has argued, price controls have their costs. First, investment in price-controlled medicines has fallen vis-a-vis non-price-controlled ones. Second, while stent manufacturers like Abbott have been denied permission to withdraw their high-end stents from the market, it is also unlikely that high-end, innovative products will be introduced in the market if they’re commercially unviable.
Generic medicines are affordable versions of the drug, introduced after a company loses patent over a medicine. These medicines are sold either by their salt-name or by a brand (called branded generics). For example, Crocin is a branded generic whose active ingredient is paracetamol. A study by the Indian Journal Of Pharmacology in 2011 revealed that the price to the retailer for the branded product of cetirizine was 11 times the price of branded generics by the same company—the price of the generic was Rs2.24 per strip of 10 tablets and that of the branded medicine, Rs27.16. These costs reveal the markup that companies charge for the research, reputation and marketing costs of branded medicines. However, doctors continue to prescribe branded medicines for rational reasons.
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