The World Medicine Report (2004) of World Health Organization is suggestive of the fact that India has the largest number of people (649 million) without having access to essential medicines. It has been found that the cost of medicines is a major constraint in health care in the country.

Despite being the 4th largest producer and a major exporter of drugs to around 200 countries, India is still struggling with the issue of making essential medicines available to the common masses. In the developing countries, affordability is the prime concern that handicaps people from getting the drugs needed and this has taken a heavy toll on their health. According to different sources, 50% to 80% of the Indian population is not able to get all the medicines. The World Medicine Report (2004) of World Health Organization is suggestive of the fact that India has the largest number of people (649 million) without having access to essential medicines. It has been found that the cost of medicines is a major constraint in health care in the country.

Studies also indicate that poorer populations spend a larger proportion of health care expenditure in buying medicines. Given, that a very large portion of this cost is borne by patients themselves, there is clear evidence that the cost of medicines is a major barrier to access to health care. A World Bank study suggests that out-of-pocket medical costs alone may push 2.2% of the population below the poverty line in one year (India - Raising the Sights: Better Health Systems for India’s Poor, World Bank, May, 2001). It has been found that in India, the proportion of private expenditure, of the total expenditure on health is one of the highest in the world – 84% as compared to just 16% public expenditure. It is clearly evident that local production or availability of medicines is not a problem and the problem actually lies in its poor pricing and inappropriate price control measures.

The NSS (National Sample Survey) 55th round on consumer expenditure shows that 77% of health expenses in rural areas and 70% in urban areas is on medicines alone. Poorer the people, the larger is the share of expense on medicines. At this point of time, the thought or idea of universalizing the accessibility of the essential drugs will have to take into consideration the economic constraints that compromise access. 20-35% of the Indian population live below the poverty line and they are the ones to bear the maximum brunt. It is estimated that the total expenditure on medicines in India is in excess of Rs.30,000 crore meaning Rs.1,500 for each family in the country.

There are several factors that ensure smooth access to medicines such as the affordable prices of drugs, their rational selection and usage, sustained financing, a good supply chain system and of course a responsive health system. The accessibility gets curtailed when the drugs are overpriced so much so that common men cannot afford to buy it or the drugs become unavailable and unsafe for use. Another common cause is the wrong prescription by the doctor. Thus, one can analyze that the problem lies in the inflated cost of medicines which makes it tough to procure them.

This document throws light on the varied economic constraints facing India in regard to the accessibility of the essential medicines. The paper features different sections covering the issue on a broader perspective giving an overview of the drug industry. Various aspects including how the pricing of drugs is done in India to what are the measures imposing price control to what is the criteria of choosing drugs for price control and other vital facets is covered in this paper. There is a separate section that discusses on the price control policies followed in other countries.

The aim of the paper is to analyze the changing approach towards drug pricing and price control measures with a view to study the impact of different policies on the access to drugs. The first section of the paper contains comprehensive information on drug pricing in India in respect of the evolution of price control mechanisms in the country and their impact on drug prices. Detailed examination of the pricing policy followed in the last 10 years has been done so as to develop an index that can be used as base for further computations.

The attempt has also been made to find out the price control mechanisms practiced in other countries with the objective of presenting a set of recommendations. Section by section, we have tried to form a clearer picture of the subject matter being discussed and the gravity of problem to make sure that this problem is taken care of in the right way through suitable remedial measures.

Section I talks about the different components determining the pricing of drugs and in light of this it discusses on how the drugs are distributed in India. The fact that irrational prescribing by the doctors has aggravated the problem by adding on to the medical expenses of patients and they are still not getting what is needed has become a cause of concern for the entire nation.

Section II gives an introduction about how the drug industry operates in India and how the drug policies are formulated. Different policies implemented over the past decades have been systematically analyzed to find out the flaws by closely examining the impact of each. What is the criteria of selecting drugs for price control and what are the gaps in the present price control mechanism have been carefully studied. Focus has also been made on understanding the role played by the National Pharmaceutical Pricing Authority (NPPA).

Subsequent sections cover the price control policies followed in different countries with special emphasis on the OECD countries and the scenario of drug pricing in South Asia. An elaborate analysis of the data has been done and based on findings and analysis, recommendations have been presented. To read the full version of the PDF, click here.