FAQs on drug pricing

Drug Pricing and Objectives

What are the Objectives of the Drug Policy?

As per the Modifications in Drug Policy, 1986 announced in September, 1994, the main objectives of the Drug Policy are as under :

• ensuring abundant availability, at reasonable prices of essential and life saving and prophylactic medicines of good quality;
• strengthening the system of quality control over drug production and promoting the rational use of drugs in the country;
• creating an environment conducive to channelising new investment into the pharmaceutical industry with a view to encourage cost-effective production with economic sizes and introducing new technologies and new drugs; and
• strengthening the indigenous capability for production of drugs.

What is the "Drugs (Prices Control) Order (DPCO)" ?

The Drugs Prices Control Order, 1995 is an order issued by the Government of India under Sec. 3 of Essential Commodities Act, 1955 to regulate the prices of drugs. The Order interalia provides the list of price controlled drugs, procedures for fixation of prices of drugs, method of implementation of prices fixed by Govt., penalties for contravention of provisions etc. For the purpose of implementing provisions of DPCO, powers of Govt. have been vested in NPPA. Later, the Drugs (Prices Control) Order (DPCO) 2013 was notified.

Why the DPCO is issued under Essential Commodities (EC) Act ?

Drugs are essential for health of the society. Drugs have been declared as Essential and accordingly put under the Essential Commodities Act.

Are all the drugs marketed in the country under price control ?

No. The National List of Essential Medicines (NLEM) 2011 is adopted as the primary basis for determining essentiality, which constitutes the list of scheduled medicines for the purpose of price control. The DPCO 2013 contains 680 scheduled drug formulations spread across 27 therapeutic groups. However, the prices of other drugs can be regulated, if warranted in public interest.

What is NPPA and its role ?

National Pharmaceutical Pricing Authority (NPPA), was established on 29th August 1997 as an independent body of experts as per the decision taken by the Cabinet committee in September 1994 while reviewing Drug Policy. The Authority, interalia, has been entrusted with the task of fixation/revision of prices of pharmaceutical products (bulk drugs and formulations), enforcement of provisions of the Drugs (Prices Control) Order and monitoring of the prices of controlled and decontrolled drugs in the country.

Features of DPCO

How are the prices of drugs in the controlled category regulated ?

As per the provisions of DPCO, NPPA fixes the Ceiling price for medicines in the controlled category.

What is "Ceiling Price" ?

Ceiling price means a price fixed by the Government for Scheduled formulations in accordance with the provisions of DPCO 2013.

The ceiling price of a scheduled drug is determined by first working out the simple average of price to retailer (PTR) in respect of all branded-generic and generic versions of that particular drug formulation having a market share of 1 percent and above, and then adding a notional retailer margin of 16 percent to it. The ceiling price fixed/revised by NPPA are notified in the Gazette of India (Extraordinary) from time to time. The ceiling prices are usually notified as exclusive of excise duty, local tax, etc.

Whether NPPA has any role to regulate prices of non-scheduled drugs ?

The manufacturer of a non-scheduled drugs (drugs not under direct price control) is not required to take price approvals from NPPA for such drugs. However, NPPA is required to monitor the prices of such drugs and take corrective measures where warranted and their includes the power to fix and regulate such prices.

What margins are allowed to a Wholesaler and a Retailer as per DPCO, 2013 ?

For scheduled (controlled) drugs the margin is fixed at 16%. For non-scheduled formulations the companies are at liberty to decide the margin.

Punishment for Violation

What are the punishments for violating the DPCO, 2013 ?

Non-compliance of price notification issued by NPPA, depending upon the gravity of the offence, could attract prosecution under the Essential Commodities Act (ECA), 1955.

• Section 7 of the ECA 1955 provides for imprisonment for a term which shall not be less than 3 months, but which may extend to seven years and shall also be liable for fine.
• Section 9 of the ECA, 1955 makes false statements/ information also punishable with imprisonment for a term which may extend to five years or with fine or with both.
• Under section 10 of the ECA, 1955, offences committed by companies are punishable, and shall apply to every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.
• Every offence committed under the Essential Commodities Act, 1955 is a cognizable offence.

What happens if a manufacturer sells a medicine above the price approved by the Government ?

Enforcement Agencies

Who are the national level, state level and district level authorities that are responsible for enforcement of fixed prices?

The National Pharmaceutical Pricing Authority, the FDA/ Drugs Controller of the State, and Drugs Inspector of the District are the enforcing authorities at National / State/ District Levels.

Who are the local level authorities to whom the compliant can be made ?

The area State Drug Controller/Joint Drug Controller/ Deputy Drug Controller/Assistant Drug Controller / Drugs Inspector etc. of the state concerned. Complaints can be lodged with anyone of these.

Where can a consumer lodge a complaint regarding overcharging and quality of drugs sold ?

Charging more than printed MRP of a medicine attracts the penal provisions of Drugs Price Control Order, 2013. Quality aspects of a medicine attract the provisions of Drugs and Cosmetic Act, 1940. The FDA/ Drugs Control Organisation of the State is the enforcing agency of Drugs and Cosmetics Act and DPCO at state level. Therefore, all complaints on prices as well as quality of medicines can be lodged with the Drugs Inspector of the District or the State Drug Controller. Complaints regarding violation of prices can be lodged with NPPA directly also. To lodge an online complaint, click here.

Retail price and labeling requirements

What is a retail price ?

A retail price is a price at which a formulation / medicine is sold to a consumer/user. The manufacturer of the formulation is required to print such a price on the label of the product. In case of controlled formulations, the retail price is the price fixed by the Government for a new drug under paragraph 5 of Drugs (Prices Control) Order, 2013.

What is Maximum retail price?

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. 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.

What is the essential/ mandatory information that is required to be printed on the label of the medicine pack ?

The following information is required to be printed on the label of a medicine under the Drugs and Cosmetics Act and DPCO, 2013.

• Name of the formulation
• Composition of the formulation
• Pack Size
• Address of the manufacturer
• Manufacturing License Number
• Date of manufacture
• Expiry Date
• Maximum Retail Price (inclusive of all taxes) etc.

What is the total amount required to be paid for a medicine ?

The printed MRP (Maximum Retail Price) is the maximum payable amount. However, a medicine can be sold below this price.

If a retailer sells medicines by breaking packing, what price can he charge ?

If a retailer sells loose quantity (unpacked) the price of such medicine should not exceed pro-rata amount of the price printed on the label of the container.

Can consumer ask for the price list of medicines being sold by a chemist/retailer ?

Yes. Every retailer is required to display the price list and the supplementary price list furnished by the manufacturer/ importer on a conspicuous part of the premises where he carries on business in a manner so as to be easily accessible to any person wishing to consult the same.

Is it mandatory for a chemist/ retailer to issue cash receipt for sale of medicines ?

Yes. Every chemist/ retailer is required to issue a receipt for sale of medicines and maintain the copies of cash/ credit memos.

General reasons for price increases in medicines

Why are the prices of medicines rising ?

The reasons for rise in the prices of medicines are :

• rise in the price of bulk drugs;
• rise in the cost of excipients used in the production of medicines like Lactose, Starch, sugar, glycerine, solvent, gelatine capsules etc.;
• rise in the cost of transport, freight rates;
• rise in the cost of utilities like fuel, power, diesel, etc.;
• for imported medicines, rise in the c.i.f. price and depreciation of the Rupee;
• changes in taxes and duties.

Price Fixation procedures

What is the methodology for fixation of ceiling price of a scheduled formulation ?

The ceiling price of a scheduled formulation of specified strengths and dosages as specified under the first schedule shall be calculated as under:

• 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 on the basis of moving annual turnover of that medicine) / (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.)
• 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 step 1 above; M = % Margin to retailer and its value =16
• Notification of the ceiling price in official Gazette.

What is the methodology for fixation of retail price for existing manufacturers of scheduled formulations of new drugs ?

• First the Average Price to Retailer of the scheduled formulation is to be calculated
• The price to retailer of a new drug, not available in domestic market, shall be fixed by the Government on the principles of “Pharmacoeconomics” of the new drug, on the recommendation of a Standing Committee of Experts. The retail price of such new drug shall be fixed by adding sixteen percent margin to retailer on the price to retailer.

Source : National Pharmaceutical Pricing Authority

Related resources

1. Drug Policy 1986
2. Drugs (Prices Control) Order, 2013
3. Compendium of Notified Ceiling Prices of Scheduled Drugs
4. Search For Medicine Price Fixed by National Pharmaceutical Pricing Authority (NPPA) Government of India (as per DPCO 2013)