On October 24, 2018, the Competition Commission of India (CCI) released a policy note on"Making Markets Work for Affordable Healthcare"after observing information asymmetry in the pharmaceutical/healthcare sector which significantly restricts consumer choices3. Through the nine years of enforcement of the Competition Act, 2002 (the Act), the Competition Commission of India ('the Commission') has received 52 cases pertaining to the pharmaceutical and healthcare sector.

As the competition authority of the country, CCI felt the need for close examination and focused deliberations on these issues, which have implications on markets and on competition in this sector which is of critical importance. Now, the issues identified, and the recommendations suggested by the stakeholders have been documented in a Policy Note by the Commission titled 'Making Markets Work for Affordable Healthcare'. The key issues and recommendations are as under:

1. Role of intermediaries in drug price build-up:

One major issue that contributes to high drug prices in India is the unreasonably high trade margins. The high margins are 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 Commission's recommendations are as under –

  • Efficient and wider public procurement and distribution of essential drugs can circumvent the challenges arising from the distribution chain, supplant suboptimal regulatory instruments such as price control and allow for access to essential medicines at lower prices.
  • Electronic trading of drugs, with appropriate regulatory safeguards, could be another potent instrument for bringing in transparency and spurring price competition among platforms and among retailers, as has been witnessed in other product segments.

2. Quality perception behind proliferation of branded generics:

Worldwide, generic drugs are seen as a key competitive force against patent-expired brands marketed at monopoly prices. But in India, the pharmaceutical market is dominated by 'branded generics' which limit generic- induced price competition. The branded generic drugs enjoy a price premium owing to perceived quality assurance that comes with the brand name. Here the brand proliferation is to introduce artificial product differentiation in the market, offers no therapeutic difference, but allows firms to extract rents.

The Commission's recommendations on this are as under–

  • The regulatory apparatus must address the issue of quality perception by ensuring consistent application of statutory quality control measures and better regulatory compliance.
  • The practice of creating artificial product differentiation for exploitation of consumers may be addressed through a one-company-one drug-one brand name-one price policy.

3. Vertical arrangements in healthcare services:

In view of the incentive-based referral system that pervades the healthcare landscape, issuing of periodic validated data by hospitals relating to mortality rate, infection rate, number of procedures etc. could help patients make informed choice.

The Commission's recommendations on this are as under –

  • The regulation of in-house pharmacies of super-specialty hospitals that mandates hospitals to allow consumers to buy standardized consumables from the open market.
  • All accredited diagnostic labs should meet the same quality standards in terms of infrastructure, equipment, skilled manpower etc. for getting accreditation. This will ensure the same degree of reliability and accuracy of test results across labs.
  • Regulatory framework to ensure portability of patient data, treatment record and diagnostic reports between hospitals. 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.

4. Regulation and competition:

Another issue is the number of regulators governing the pharmaceutical sector at the center and state level, implementation of regulations is not uniform across the country. This has resulted in multiple standards of same products and also different levels of regulatory compliance requirements.

The Commission's recommendations on this are as under –

  • A mechanism may be devised under the aegis of the CDSCO to harmonize the criteria/processes followed by the state licensing authorities to ensure uniformity in interpretation and implementation.
  • It is also imperative to make the approval of new drugs time-bound along with publication of detailed guidelines governing each stage of new drug approval process.

Finally, two other major issues that affect the healthcare sector and thus warrant policy response are: (i) shortage of healthcare professionals in the country owing inter alia to high cost of medical education and (ii) inadequacy in health insurance.

Note - The Policy Note is being shared with Ministry of Corporate Affairs, Ministry of Health and Family Welfare, Department of Pharmaceuticals and NITI Aayog. The Commission decided to continue to enforce antitrust rules in the pharmaceutical and healthcare sector to ensure that effective competition is not undermined in these markets.

It's also appreciable for the Commission to delineate the issues that hamper competition and make healthcare unaffordable. With these fresh recommendations it can also makes a strong case for the government to act.

Footnote

3. https://www.cci.gov.in/sites/default/files/press_release/PressRelease.pdf

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