How government regulate prices of drugs

• The Supreme Court flagged the issue of differential pricing for vaccines among States and the Centre and directed the central government to clarify it in an affidavit.
• To ensure accessibility, the pricing of essential drugs is regulated centrally through The Essential Commodities Act, 1955.
• Under Section 3 of the Act, the government has enacted the Drugs (Prices Control) Order (DPCO).
• The DPCO lists over 800 drugs as “essential” in its schedule, and has capped their prices.
• The capping of prices is done based on a formula that is worked out in each case by the National Pharmaceutical Pricing Authority (NPPA), which was set up in 1997.

So, why the government is not regulating price of vaccines through DPCO

• This is because the regulation through DPCO is not applicable for patented drugs or fixed-dose combination (FDC) drugs.
• This is why the price of the antiviral drug remdesivir, which is currently in great demand, is not regulated by the government.
• To bring vaccines or drugs used in the treatment of Covid-19 such as remdesivir under the DPCO policy, an amendment can be brought.

What other options government can explore to deal with the vaccine price issue

1) Patent Act 1970

• The Patent Act 1970 has two key provisions that could be potentially invoked to regulate the pricing of the vaccine.
• Section 100 of the Patents Act gives the central government the power to authorise anyone (a pharma company) to use the invention for the “purposes of the government”.
• It enables the government to license the patents of the vaccine to specific companies to speed up manufacturing and ensure equitable pricing.
•  Under Section 92 of the Act, which deals with compulsory licensing, the government can, without the permission of the patent holder, license the patent under specific circumstances prescribed in the Act.
• Section 92 can be invoked in case of circumstances of national emergency or in circumstances of extreme urgency or in case of public non-commercial use.
• After the government issues a notification under Section 92, pharma companies can approach the government for a licence to start manufacturing by reverse engineering the product.
• However, in the case of biological vaccines like Covid-19, even though ingredients and processes are well known, it is difficult to duplicate the process from scratch.
• The process will also entail new clinical trials to establish safety and efficacy, which makes compulsory licensing less attractive.

2) The Epidemic Diseases Act, 1897

• Section 2 of this law gives the government “power to take special measures and prescribe regulations as to dangerous epidemic disease”.
• These broad, undefined powers can be used to take measures to regulate pricing.
• However, the law lacks the teeth to implement such an important policy framework.
• Violation of the Act is penalised under Section 188 of the Indian Penal Code, which deals with “disobedience to order duly promulgated by (a) public servant”.

3) Direct procurement by the Centre

• Apart from these legislative options, experts suggest that the central government procuring directly from the manufacturers could be the most beneficial route to ensure equitable pricing.
• As the sole purchaser, it will have greater bargaining power.

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