Lok Sabha Question No. 5879 (UNSTARRED), answered on 2018-04-03
Subject: Price Fixation under DPCO
Ministry: CHEMICALS AND FERTILIZERS
Asked by: M. B. RAJESH

## GOVERNMENT OF INDIA MINISTRY OF CHEMICALS & FERTILIZERS DEPARTMENT OF PHARMACEUTICALS

LOK SABHA UNSTARRED QUESTION NO. 5879 TO BE ANSWERED ON 03 rd  April, 2018

## Price Fixation under DPCO

5879. SHRI M.B. RAJESH:

Will the Minister of CHEMICALS AND FERTILIZERS be pleased to state:

- (a) the basis for fixing the ceiling price of medicines and medical devices under the Drug Price Control Order (DPCO);
- (b) whether  the  Government  proposes  to  fix  the  prices  on  the  basis  of  cost  of manufacturing; and
- (c) if not, the reasons therefor?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF ROAD TRANSPORT AND HIGHWAYS; MINISTRY  OF  SHIPPING  AND  MINISTRY  OF  CHEMICALS  AND  FERTILIZERS (SHRI MANSUKH L. MANDAVIYA)

(a) to (c): Pursuant to the announcement of National Pharmaceutical Pricing Policy, 2012  (NPPP,  2012),  Government  notified  the  Drugs  (Prices  Control)  Order,  2013 (DPCO, 2013) on 15 th May,  2013.  All  the  medicines  specified  in  the  National  List  of Essential Medicines 2011 (NLEM, 2011) prepared by the Ministry of Health and Family Welfare  were  included  in  the  Schedule  -  I  of  DPCO,  2013  and  brought  under  price control. The National List of Essential Medicines 2015 (NLEM 2015) has been included in  the  DPCO, 2013 as Revised Schedule - I replacing the Original Schedule - I vide S.O.  701(E)  dated  10.03.2016.  National  Pharmaceutical  Pricing  Authority  (NPPA) follows the methodology defined in the para 4 and 6 of DPCO, 2013 for fixation of the ceiling  prices  of  essential  drugs,  whereby  ceiling  price  is  fixed  on  the  basis  of  the average 'price to retailer' plus sixteen percent of retailer margin.

There  is  no  proposal  to  fix  the  prices  on  the  basis  of  cost  of  manufacturing. Under NPPP, 2012, the regulation of prices of drugs is on the basis of regulating the prices  of  formulations through  Market  Based Pricing (MBP). This  is different from the earlier  principle  of  regulating  the  prices  through  Cost  Based  Pricing  (CBP)  under  the Drug Policy, 1994; wherein ceiling prices of drugs were fixed through a cost-plus-margin method using cost data provided by individual drug manufacturers.

The reasons for the shift in the methodology for price fixation from cost based to market  based  are  as  follows:  Unlike  cost  based  method,  it  is  based  on  reliable  and authentic  data  set  available  on  regular  intervals,  hence  accuracy  and  validity  is maintained in the process. Also the entire procedure of ceiling price fixation is available in  the  public  domain  which  ensures  transparency  and  accountability  of  the  process. Further, under Market Based Pricing, the interests of both consumers and producers/suppliers are protected by keeping a wider price band in comparison to cost based method. Not only that, the ceiling price fixed is subjected to annual revision on the  basis  of  Wholesale  price  index  (WPI)  thereby  maintaining  price  stability  and ensuring  un-interrupted  supply  of  essential  medicines.  The  new  principle  of  price fixation has resulted in enormous amount of savings to the general public in terms of reduction in out - of - pocket health expenditure.

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