Patients Unable To Bargain With Hospitals Selling Medicines At 700% Margins: Centre Flags Malpractice Before Supreme Court

The Supreme Court has been informed of the “malpractice” of hospitals charging high MRPs for medicines and consumables from a patient who has a “very low bargaining position vis-a-vis the hospital, and the patient’s knowledge of drugs, their substitutes and their prices is also very limited”.

An affidavit has been filed in a case pending before supreme court on the issue of capping prices of all medicines and medical consumables. Filed by Ministry of Chemicals and Fertilizers, the response states, "The Indian drug market is fairly competitive, with a large number of pharmaceutical companies in every drug segment, resulting in one of the lowest prices in the world. Ordinarily, where there is substantial competition, there is no need to regulate prices. However, by their very nature, health treatment and pharmaceutical products involve information and bargaining asymmetries between patients on the one hand, and retail pharmacies, hospital pharmacies, hospitals providing treatment and doctors on the other".

Court has been informed that hospitals buy medicines from manufacturers who provide highest trade margin and then sell those medicines to patients at MRP, with margins ranging from 170% to 700% or more in the case of anti-cancer drugs.

“That another area of concern in the sector is the supply of consumables in hospitals, where margins of 100% to 1000% or more are prevalent, along with a tendency of hospitals to purchase consumables that have a high MRP and margin, with a low price to the distributor/hospital. Ordinarily, hospital supplies are included in the package cost for treatment of major diseases/procedures under govt schemes/insurance, and govt/insurance agencies negotiate and fix the lowest rate for such packages. However, for patients making direct payment to the hospital, hospital supplies are billed separately at MRP,” it said.

Recently, the Union Government informed court that it had decided to regulate trade margins on anti-cancer medicines and will cap them at 30 per cent. The Centre said the measure is intended to prevent excessive markups on cancer drugs while ensuring that reasonable margins remain available in the supply chain.

The submission was made during the hearing of a petition concerning the sale of essential medicines at inflated prices before a Bench of Justices Vikram Nath and Sandeep Mehta.

The Solicitor General told the Bench that the Centre would notify a list of cancer drugs to be covered by the 30 per cent trade margin cap. The list, he said, would not be static. It would be updated periodically to include additional medicines on the basis of market developments and public health needs. Inexpensive drugs, the Solicitor General told the Court, would be kept out of the list.

Court had asked the Government why price-control measures were being restricted to anti-cancer medicines, and why similar measures were not being considered for other drugs. The Court also asked how patients would benefit if pharmaceutical manufacturers were allowed to fix drug prices, and questioned the justification for higher medicine prices. It further called for broader scrutiny of drug pricing. The bench stressed that the exercise should not end with anti-cancer medicines and should extend to the pharmaceutical market as a whole.

It is to be noted that the Drug prices in India are regulated under the Drugs (Prices Control) Order, 2013, issued under the Essential Commodities Act, 1955. Ceiling prices fixed under the Order apply to scheduled formulations, that is, medicines listed in its First Schedule. For non-scheduled formulations, the manufacturer sets the launch price, and the Order restricts only the annual increase in the maximum retail price.

Notably, on September 22, the Bench had flagged massive price disparity in essential cancer medicines, where a drug sold to retailers for ₹2,700 carries an MRP of ₹27,000. Justice Mehta had said, “How can a patient be cheated?”, questioning authorities’ silence over the pricing disparity. “It’s Ultimately Taxpayers’ Money”, he had said. The bench had also noted that hospitals purchase medicines at these prices and seek government reimbursement for patients treated under the AYUSH scheme. “It’s ultimately tax payer’s money. There is a clear cut case of fraud," the bench had remarked.