Abstract
The article is aimed to be an analysis of the Policy Note issued by the CCI on ‘Making Markets Work for Affordable healthcare.’ It introduces the role and importance of The Competition Act, 2002 in organizing and regulating the pharmaceutical industry and health care sector of India. The article will discuss about the objective of the Competition Act, the problems faced by the pharmaceutical sector in and suggest possible solutions to these problems. There are four major issues which are to be dealt they are- the role of intermediaries in drug price build-up; quality perceptions behind proliferation of branded generics; vertical arrangements in healthcare services and lack of transparency; and regulation of pharmaceutical sector and competition. The article will deal with all these issues in detail and give legal suggestions to solve these problems. For example – the hike in prices can be diminished by encouraging the e-pharmacy systems and public procurement and distribution of medicines by the government. The myth that branded medicines are of higher quality has to be replaced by the fact that both branded medicines and generic medicines are subject to same licensing policies and standardizations. And also the ‘one company-one drug-one brand name-one price policy’ can be implemented to ensure that there is no artificial differentiation of medicines. The lack of transparency can be removed by making sure that the hospitals post all vital details on their websites and brochures so that more people can be aware of the actual statistics. There are different levels of regulatory authorities which need to be governed by a single set of rules which are uniform for all irrespective of the name of the company. This will ensure that the anti-trust policies such as discrimination and delay are avoided.
Introduction
The term ‘competition’has been defined by The World Bank in 1999 as a situation in which the firms or sellers individually strive for the buyer’s patronage in order to achieve a particular business objective such as profit maximization or control over the market. The urge for competition regulation was felt due to the diverse nature of the markets having various sellers and buyers who have different objectives. The competition needs to be regulated in order to ensure free and fair trade practices which induce the overall growth of the country. And to keep a check on the economic system the Competition Act, 2002 (the Act) was implemented.
The Indian Pharmaceutical Industry began to grow after the encouraging steps taken by the Indian government in the year 1960. Up until 1970s the Indian drugs market was the mainly supported by imports and was supplied by the international companies. After the implementation of The Patents Act, 1970 the health care sector started to take face of what it is today. Thegovernment of Indiasupported the local manufacturers which helped in creating a self-reliant pharmaceutical sector. Today the Indian pharmaceutical industry is one of the leading industries in the country. It is self-reliant, a huge exporter, highly technical and has intensive research and development mechanism. India is among the top 10 drugs and medicine exporters of the world as per a survey for the year 2017. [1]
The present article is written with a view of analyzing the current health care regime alongside the Act. It deals in depth with the steps taken by the Competition Commission of India (CCI) to bring about the necessary changes in the pharmaceutical and health care system over the past two years. All these efforts of the CCI resulted in a Technical Workshop on ‘Competition Issues in the Healthcare and Pharmaceutical Sector in India’ organized on August 28-29, 2018 in New Delhi. The workshop had various representatives from many stakeholder groups, including pharmaceutical industry, healthcare service providers, civil society organizations, regulators, healthcare think tanks. The various issues and recommendations identified in the workshop were reduced in the form of a Policy Note named as ‘Making Markets Work for Affordable healthcare,’ which is discussed in depth in the article.
The Competition Act, 2002
After the implementation of The New Economic Policy, 1991 India was more globalized than ever and even the rules were more liberalized which resulted in high competition. Due to this cut throat competition,the need was felt to implement a regulatory and adjudicatory mechanism which would ensure fair and free trade practices in the country. With this objective the government of India appointed the Raghavan Committee in October 1999 to examine the existing MRTP Act, 1969 and also to suggest a modern competition law structure[2].
Competition can be regarded as a rivalry between various sellers to attract more customers or to make more profits or to ensure the growth of their organization. When the competition is healthy it ensures maximum utilization of the resources at the most effective cost possible but certain unfair practices can also result in the exploitation of consumers and create a bad impact on the society. In order to keep a check on the unfair practices it is essential to implement a regulatory law and hence The Competition Act, 2002 was implemented.It came into effect on 13th January 2003 with the following objective as mentioned in the preamble of the Act:
“An Act to provide keeping in view the economic development of the country for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of the consumers and to ensure freedom of trade carried on by other participants in markets, in India and for matter connected therewith or incidental thereto.”[3]
The Act has various functions like formulation and implementation of policies; setting up of a competition commission; prevent anti-competitive practices and to ensure free and fair-trade policies. The Act also ensures the elimination of unfair and monopolistic trade practices in the country. It ensures that the suppliers or sellers do not dominate the market by suppressing the wants and needs of the consumer thereby ensuring consumer welfare. The CCI has been given adequate powers to ensure that any industry or company indulging in anti-competitive trade practices suffers serious consequences.
Indian Pharmaceutical Industry and Health Care Sector
The Indian pharmaceutical industry is highly regulated. It is an intensive knowledge and research based industry which is one of the major exporters of the country. This industry is regulated by various laws which monitor the entire process of research, production, marketing, supplying and selling of drugs. It also monitors the manufacturers, wholesalers, retailers, pharmacists and doctors. The steps taken by the Indian government in 1960 promoted the local manufactures and made India a less favorable market for foreign companies which resulted in their return.
The process of development of any new drug or medicine involves extensive research and involves huge risks. It also requires investment of huge amount of funds. The process of manufacturing a new drug in lengthy and requires the protection of intellectual property rights. The Indian pharmaceutical industry owes it development to The Patents Act, 1970 which brought in the protection of intellectual property rights. The 2005 amendment of The Patents Act, 1970 came with the following benefits:
- License fee was reduced which resulted in lower manufacturing fees.
- Lowered the costs of Research and Development.
- Reverse Engineering which brought in distribution of knowledge and technology.
The health care sector has been facing some issues since the implementation of the amendment to in patents law in the year 2005. ‘The legislation took effect on the deadline set by the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which mandated patent protection on both products and processes for a period of 20 years.’[4]Though India has an extensive health sector but still it is not able to fulfill the needs of the country’s population. There are five major aspects in pharmaceuticals and health care industry, they are:
- Availability of supply
- Price
- Quality
- Ability to pay
- Access to proper and affordable consultations.
These aspects are affected adversely by a number of other factors such as lack of infrastructure, outdated technology, lack of professionals, lack of awareness, insufficiency of funds, unfair trade practices, brand-based sales of medicines, price competition, lack of choices to the consumer, etc. These are some of the hundred problems faced by the consumers of the pharmaceutical industry. In order to regulate these anti-competitive practices The Competition Act, 2002 comes into picture with an intention to implement healthy competitive policies which will ensure the welfare of the consumer.
Anti-Competitive Practices in Pharmaceutical Industry
Each and every stage of the pharmaceutical industry has loads of anti-competitive practices. It involves everyone from manufacturers to doctors, pharmacists to lab technicians. Every individual has its own role to play in these practices. There are many anti-competitive practices carried on in the market some of which are discussed below:
- Regulation of Combination
The medicine market is growing and huge mergers are taking place in it. Many times the mergers are carried out with an intention to cut down competition which restricts the choices available to the customer thereby resulting in anti-competitive practices.
- Anti-competitive Agreements
As per the Act anti-competitive agreements are those agreements which have high adverse appreciable effect on the markets. They can be of two type’s horizontal and vertical agreements. Horizontal agreements are between competitors at same stage of production, supply or distribution such as cartels. While vertical agreements are between competitors who are at different stages of production, supply or distribution such as exclusive supply.
- Abuse of Dominance
When any industry gets a product or production process patented they consider themselves to be more powerful over the others in the market. They are chances that they may abuse this patent to dominate the market and impose unnecessary restriction on the other suppliers or producers. They may create barriers by increasing the prices, hoarding the goods or even by imposing unfair terms and conditions.
- Enticement to doctors and pharmacists
Companies who have a good share in the market are often seen to offer incentives and perks to doctors and pharmacists in terms of money or goods. These perks often become a driving force due to which the prescribing physicians tend to prescribe those branded medicines only. They do not consider the generic drugs and even do not try to find out a cheaper alternative of a high ended medicine. They also advise the patients to get tested from a particular lab only which is another anti-competitive practice.
- Tried-selling
Tried-selling is a concept which basically reduces and restricts the number of choices available to a consumer. When a doctor strongly recommends that the tests should be performed by a particular laboratory only then this indicates the existence of anti-competitive practices only. It is generally driven by the forces of commissions and other incentives.
In order to curb these practices and to ensure that the consumers are not exploited there is a dire need of regulation and adjudication. The Act of 2002 is one such law which will help in controlling the anti-competitive practices by encouraging sale of generic medicines, watching the process of mergers and acquisitions and by ensuring that the consumer has various choices available to him and is not a prey to monopoly.
Issues and Recommendations of the Policy Note
Issue-I : Role of Intermediaries in Drug Price Build-Up.
The Indian Pharmaceutical industry currently produces around US $33 Billion worth medicines out of which 40% are exported.[5] But around 55-60% of the population of India does not have regular access to essential drugs and medicines. This is mainly because of the high prices of the medicines which are a result of unreasonably high trade margins. The two major reasons for high prices are- margins being used as a tool of pecuniary motivation and the self regulatory powers of the trade associations. The manufacturers and sellers try to increase the gap between the production price and selling price so that this amount can be used to give incentives to doctors and pharmacists. This results in a huge price hike which makes the drugs unaffordable to a huge portion of the country. The trade associations of stockists, pharmacists, and chemists have their own rules and regulations. This brings down the competition which could otherwise be a key aspect in bringing down the prices of the drugs.
In a country like India, the focus of the government should be towards making the patented medicines available to the public at large at a reasonable price. This was held in the case of Novartis vs. Union of India and others[6]. These medicines in spite of being cheap should adhere to the quality guidelines as set by the government at all times.
Recommendation
Steps should be taken to encourage public procurement and distribution of medicines and drugs. The government should ensure that essential medicines are available to the general public free of cost or at the cheapest rates possible. The government can directly buy from the manufacturers and ensure public distribution of the medicines as done by the Rajasthan and Tamil Nadu state governments. Another good option to ensure fair prices is E-Pharmacy. Online sales of medicines would make its regulation much easier and will keep a check on all deceptive practices. This will also ensure that the medicines are not sub-standardized thus ensuring its quality.
Issue-II : Quality Perceptions behind Proliferation of Branded Generics.
Branded drugs and medicines are proliferating in the Indian market more than even because of two reasons, they are: the conception that branded medicines are of the assured quality as they are promoted by the MNC’s; and the support they receive from the doctors and pharmacists makes the customers believe that they are more regulated. The actual reason why the branded medicines get prescribed is because of the incentive value they hold and not because they are better from the generic medicines on any front. All kinds of medicines have same regulations applied to them and are inspected in the same manner. Infact in a recent survey it was found that many branded manufacturers had more than 5 sub-standard drugs being produced and sold.[7]Thus the ideology that branded medicines are of higher quality is a misconception, both the branded and generic medicines are subject to same regulations.
Recommendation
Both the branded and generic medicines should be subject to same regulatory obligations. In order to ensure the stands are maintained there should be consistent application of statutory quality measures. The rules of licensing and inspection need to be implemented thoroughly which will ensure trust of the consumers on the generic medicines. Steps should be taken to ensure that the goods are assessed at every step of the manufacturing process rather than random sampling. The CCI recommended the formulation of a ‘one company-one drug-one brand name-one price policy’ this will ensure that there is no artificial differentiation of drugs. Many times the companies manufacture same salts but market them by different names creating an artificial differentiation which is unnecessary. This anti-competitive practice leads to price hike.
Issue-III : Vertical Arrangements and Lack of Transparency in Healthcare System
The pharmaceutical industry is hugely driven by information asymmetry and lack of knowledge. The patients are unaware of various important aspects of a hospital. About 60% of the in-patient services are provided by the private sector only. The hospitals have tie ups with diagnostic centers, pharmacies and compel the patient to go to those centers only. The patients are compelled to purchase from the in house pharmacy only which sells the goods at MRP but many times these goods are available at a cheaper rate in other pharmacies. Certain diagnostic centers are also recommended by the doctors stating that their quality is better than the others which is just a commercial step. Consumers select the hospitals based on the doctors and not actual statistics. This is because the crucial information such as mortality rate, infection rate, and comparison of cost of procedures is not easily available. Hence, the patients have to trust the doctor only and go with his prescription only.
Recommendation
In order to resolve the problem of unavailability of data the government can make update of vital data such as infection rate, mortality rate, health care costs compulsory for all the hospitals. A regulation should be implemented which monitors the open market of pharmacies. The consumer shall be given various options to choose from and the restriction to buy from the in house pharmacies should be removed. This can be done by implementing a proper policy on this aspect. All accredited diagnostic centers should be subject to same regulations and should be standardized in terms of infrastructure, procedure, costs, equipment and skills of personnel etc. An option to transfer from one hospital to another should be made available to the patient at the least possible cost and without any complex procedure to ensure that he has an option to switch where he feels he is being deceived.
Issue-IV :Regulation of Pharmaceutical Sector and Competition Law
There are various rules and regulations which govern the health care sector. These rules are neither nationalized nor standard. Different policies are followed by the Central government while the State has a completely different strategy. In India, regulatory control over the quality, safety and efficacy of drugs is exercised through a central legislation called the ‘Drugs and Cosmetics Act, 1940’ (DCA) and a large body of rules, the ‘Drugs and Cosmetics Rules 1945’ (Rules) framed under it.[8] There is a dual monitory process in India the CDSCO[9] at the central level to monitor and license the production of certain drugs and the state level authority to monitor the licensing, production and sale of other drugs. Another important problem is the new drug approval procedure. This procedure has not been given any time barrier within which it needs to be complied with this makes its regulation even tough. The new drugs should be subject to uniform regulations irrespective of the name of the applicant. It so happens that there is discrimination based on the party who is applying for the drug approval. This is another anti-competitive practice which needs to be monitored.
Recommendation
The CDSCO should devise a plan to monitor both the central and state level licensing authorities. Certain training programs can also be conducted to give proper training and knowledge to the inspectors, licensors and other personnel of this industry. There should be proper regulation of policies to monitor the process of new drug approval. It should be time barred which will increase its efficiency and ensure quick solutions. The policy should be non-discriminatory and impose restrictions on all the deceptive practices. A databank should be created which will record the number of drugs under test, number of clinical trials under test, the approvals and rejections of any drug or industry. This will help the growth of the pharmaceutical industry and ensure that there is free and fair competition
Apart from these major issues the MCA[10] in its press release added the following two issues to the others as given by the CCI. They are:
- Shortage of healthcare professionals in the country owing inter alia to high cost of medical education
- Inadequacy in health insurance.
Conclusion
The Policy Note of the CCI on ‘Making Markets Work for Affordable healthcare’ is a step forward towards a better tomorrow for the Indian pharmaceutical industry. The CCI has shared this note with the Ministry of Corporate Affairs, Ministry of Health and Family Welfare, Department of Pharmaceuticals and NITI Aayog with a view of obtaining a potential Policy Response. The Policy Note of the CCI is not in any way binding on the government to make a law on the subject but it has been seen in the past that such recommendations of the CCI have resulted in major changes in the laws of the country. Hence, we can expect a bill being passed in the parliament on these grounds.
The MCA has already issued a press release addressing the policy note of the CCI. In the press release the MCA further gave two other issues which it regards as contemporary to the topic. This is a positive step and it indicates that there are huge chances of a new law coming into force on these grounds.
[2]A high Level Committee on Competition Policy and Law, October 1999, available at http://planningcommission.nic.in/aboutus/committee/wrkgrp11/wg11_cpolicy.pdf
[3] The Competition Act, 2002; www.cci.gov.in
[4]“Pharmaceuticals in India” available on http://en.wikipedia.org/wiki/Pharmaceuticals_in_India
[5] IBEF– India Brand Equity Foundation
[6] Civil Appeal No. 2706-2716 of 2013
[7] National Drug Survey, 2014-2016
[8] Policy note by the Competition Commission of India
[9] Central Drugs Standard Control Organization
[10] Ministry of Corporate Affair; www.pib.nic.in/PressReleaseIframePage.aspx?PRID=1550527
