Earlier this week, the Competition Commission of India (CCI) released a first of its kind policy note on “Making Markets Work for Affordable Healthcare”. The statutory body, which has so far received 52 cases about anti-competitive practices in pharmaceuticals and the healthcare sector, has prescribed some policy and regulatory action to address the issues.
Here are some of the key recommendations made by the CCI:
Role of intermediaries in drug price build-up
One major factor that contributes to high drug prices in India is the unreasonably high trade margin, which is a form of incentive and an indirect marketing tool employed by drug companies. Trade associations contribute towards high margins as they control the entire drug distribution system to reduce competition.
CCI suggests that efficient and wider public procurement and distribution of essential drugs to circumvent the challenges arising from the distribution chain, supplant sub-optimal regulatory instruments such as price control and allow for access to essential medicines at lower prices.
The competition watch dog also suggests electronic trading of drugs, with appropriate regulatory safeguards, can bring transparency and spur price competition.
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. In India, the pharmaceutical market is dominated by “branded generics” that limit generic-induced price competition. The branded generic drugs enjoy a price premium owing to perceived quality assurance that comes with the brand.
However, CCI observes that the brand proliferation is to introduce artificial product differentiation in the market, offering no therapeutic difference, but allows firms to extract rents.
The competition watchdog suggests a regulatory apparatus to address the issue of quality perception by ensuring consistent application of statutory quality control measures and better regulatory compliance.
Regulation and competition
Due to multiple regulators governing the pharmaceutical sector at the state and centre levels, implementation of regulations is not uniform across the country. This has resulted in multiple standards of the same product and different levels of regulatory compliance requirements.
The CCI has called for a mechanism to be devised by CDSCO to harmonise the processes followed by state licencing authorities to ensure uniformity in interpretation and implementation. The commission has asked for making approvals of new drugs time-bound along with publication of detailed guidelines governing each stage of the approval process.
The body advocates one-company, one-drug, one-brand name price policy.
Vertical arrangements in healthcare services
In view of the incentive-based referral system that pervades the healthcare landscape, CCI recommends issuing of periodic validated data by hospitals relating to mortality rate, infection rate, number of procedures etc, which could help patients make informed choice.
It has also recommended regulation of in-house pharmacies of super specialty hospitals, which are completely insulated from competition as inpatients are typically not allowed to purchase any product from outside pharmacies.
The competition body has recommended the government to ensure all accredited diagnostic labs meet the same quality standards in terms of infrastructure, equipment and skilled manpower to ensure the same degree of reliability and accuracy of test results across labs.
It has recommended regulatory framework to ensure portability of patient data, treatment record and diagnostic reports between hospitals.
It has said that lack of portability constrains patients in switching from one hospital to another and creates a lock-in effect. Portability of patient data can help ensure that a patient is no longer locked into data silos and do not bear additional cost for switching medical services and that doctors and hospitals can have timely access to patient data.
Will they be ever implemented?
It’s commendable for India’s competition watchdog to come up with a set of policy prescriptions that impede competition and thereby make healthcare expensive. It makes a strong case for the government to act.
But most of these recommendations are anything but new, healthcare policy makers and activists have been raising these issues of information asymmetry, market distortion and profiteering in healthcare for years.
To be sure, there were some well-meaning efforts in the past to regulate the exploitative practices, but these attempts were diluted or nipped in the bud by well entrenched lobbies.
An overwhelming 62 percent of healthcare expenses in India are met by out of pocket expenditure by the individual, and healthcare expenses are cited as one of the primary reasons in India for families falling into debt traps and poverty. India needs not piecemeal but structural reforms in healthcare.