Pharma Counters India Competition Commission On ‘Market-Distorting’ Practices
Executive Summary
A note by the Competition Commission of India has put the spotlight back on certain pharma industry practices that are seen as triggering non-competitive market outcomes. Pharma has called into question certain claims of the CCI, with some experts suggesting that the regulator may have also exceeded its remit.
The Competition Commission of India’s (CCI) recent prescription to ensure that markets work towards affordable healthcare may have stirred the pot, reigniting debate around certain staple industry practices that the regulator believes could “choke” competition and are detrimental to consumer interest.
Some pharmaceutical industry experts, at the outset, say that the CCI may have overstepped its brief, getting into policy- and quality-related territory.
The CCI’s competition advocacy effort, styled as a “policy note”, touches upon certain prickly issues, including that branded generics, which enjoy a price premium in India given the perceived quality assurance associated with the brand name, may limit “generic-induced” price competition.
“Quality consideration may be a reason behind the prescription of branded generics by doctors. However, it is also equally possible that the brand proliferation is to introduce artificial product differentiation in the market, offering no therapeutic difference but allowing firms to extract rents,” the CCI said in its note.
The commission suggested that the regulatory apparatus must address the issue of quality perception by ensuring “consistent” application of statutory quality control measures and “better” regulatory compliance.
“Unless the quality of drugs sold in markets can be taken to be in conformance of the statutory standards regardless of their brand names, generic competition in the true sense of the term cannot take off,” the CCI warned.
The competition regulator also backed the “one company-one drug, one brand name-one price policy” approach - essentially seen as aimed at putting the lid on industry’s “generic-generic” strategy. “Generic-generics” are typically medicines sold under the active ingredient name, for example as paracetamol without a brand name, and some Indian firms tend to offer both a “generic-generic” of a drug in addition to a branded version of the product, at different price points.
Pharma Concerns
The pharmaceutical industry, however, doesn’t seem to have taken too kindly to the CCI’s note and its interest beyond its normal area of core expertise.
Dilip Shah, secretary general of the Indian Pharmaceutical Alliance (IPA), which represents leading domestic firms, said that a company launching more than one brand of the same drug only enhances competition and offers an option to a doctor to choose a lower priced drug for the benefit of the patient.
“The CCI note is against its basic philosophy of minimal market intervention and [to] let competition thrive for benefit of the patient,” Shah told Scrip.
He believes that not only has the CCI exceeded its remit, but its suggestions are “anti-competitive” and will hamper competition.
Ranjit Shahani, ex-vice chair and managing director of Novartis India, says that the need of the hour is that policy discourses by different agencies of the government must be “in sync and not in silos”.
“Ideas like one company-one drug, one brand-one price have ramifications of several aspects that are beyond the realms of competition. Making a recommendation on such an issue with the sole lens of competition may not be the best approach,” Shahani told Scrip, adding that while the CCI can definitely opine on measures to ensure competition in the market, in this case it may be overstepping its remit.
The one company-one drug, one brand name-one price approach had earlier found mention in India’s draft pharmaceutical policy in 2017, which included a raft of other equally contentious proposals, including plans to rein in loan licensed manufacturing. (Also see "OPPI Chief Vaidheesh On Burning Industry Issues In India" - Scrip, 4 Dec, 2017.)
The draft policy, at the time, noted that there were an estimated 2,500 pharmacopeial salts manufactured in India, but over 60,000 brand names with varying prices.
Some experts had earlier argued that it was the idea of a branded generics market that keeps prices of medicines in India among the lowest in the world, and that the government must rather ensure that it keeps the market free and fair and not allow cartels to form that can adversely fix prices, instead of worrying about the number of salts and associated brands.
It is, however, not immediately clear how far the 2017 policy draft has since progressed or whether it has been put in cold storage.
'Unreasonably' High Trade Margins
The competition regulator’s note also touches on another prickly area - the “unreasonably” high trade margins in the pharma sector that it sees as a “form of incentive and an indirect marketing tool” employed by drug companies. Further, self-regulation by trade associations also contributes towards high margins, as these associations control the entire drug distribution system in a manner that reduces competition, the CCI policy note added. (Also see "Regulator Warns Of Tougher Pricing Regime In India Amid ‘Market Failure’" - Pink Sheet, 23 Jan, 2018.)
IPA’s Shah countered that the CCI’s observations are not borne out by any evidence and that the competition regulator had relied mainly on “perceptions and some anecdotal evidence”.
“For instance, the statement such as 'one major factor that contributes to high drug prices in India is the unreasonably high trade margins' - how does the CCI conclude that drug prices in India are high?” Shah countered.
Shah referred to a PharmaTrac (an online database) study in 2016, which showed that trade generics (unbranded generic versions) constituted only 4% of the Indian market and had average trade margins of 71%, though there may be some instances of much higher margins being offered by a few companies.
Hospital Switching Constraints?
There are other well-meaning suggestions put forth by the CCI, though implementation, experts say, is unlikely to be simple and could require more wide-ranging reform.
Among a string of observations, the CCI’s note refers to the absence of a regulatory framework that ensures and governs portability of patient data, treatment records and diagnostic reports between hospitals. This, the competition regulator argued, acts as a constraint for patients in switching from one hospital to another, creating a “lock-in” effect.
“Portability of patient data can help ensure that a patient is no longer locked into the data silos and does not bear additional cost for switching medical services and that doctors/hospitals can have timely access to patient data,” the CCI said. It also called for the issue of “periodic validated data” by hospitals relating to mortality rate, infection rate, number of procedures etc. could help patients make informed choices.
Uncharted Territory?
Experts say that some of these areas are “uncharted territory”, more so against the backdrop of general complexities around the privacy of patient data .
“In the absence of any strong and effective means for ensuring privacy of data etc, it is best recommendations like these are kept at bay. This in fact is one more example where the non-synergistic form of policy deliberations is evident. Such approaches may best be avoided,” ex-Novartis India boss Shahani added.
The CCI also indicated that its policy note is being shared with India’s Ministry of Corporate Affairs, Ministry of Health and Family Welfare, Department of Pharmaceuticals and NITI Aayog, possibly hoping that it triggers policy measures, though industry observers don’t rule out turf issues within the various regulatory and government units and questions around the remit of the competition regulator.
NITI Aayog is the premier policy think tank of the Government of India, providing both directional and policy inputs.The CCI maintained that since enforcement cannot address all competition issues in the pharma and healthcare sector, the instrument of competition advocacy is being used with “more vigor” to facilitate discussions and make policy changes that are necessary to address the conditions triggering non-competitive market outcomes.