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CCI recommends measures to curb anti-competition practices in pharma sector

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The Commission will continue to enforce antitrust rules in the pharma and healthcare sector to ensure that effective competition is not undermined in these markets

The Competition Commission of India (CCI) has released a set of recommendations, observing that the information asymmetry in the pharmaceutical/healthcare sector restricts consumer choice and results in industry practices which choke competition and are detrimental to consumer interest. Over the nine years of enforcement of the Competition Act, 2002 (the Act), CCI has received 52 cases pertaining to the pharma and healthcare sector.

CCI’s policy note on ‘Making Markets Work for Affordable Healthcare’ focusses on the role of intermediaries in drug price build-up, the quality perception behind proliferation of branded generics, vertical arrangements in healthcare services, and the impact of multiplicity of regulation on competition. The competition watch dog has also flagged two other major issues that affect the healthcare sector and thus warrant policy response: the shortage of healthcare professionals in the country owing inter alia to high cost of medical education and secondly, the inadequacy in health insurance.

Commenting on the policy note, Dhruv Gupta, Partner, Lakshmikumaran & Sridharan Attorneys says that it is a stepping stone towards a better regulatory compliance in the healthcare industry, with the objective of curbing artificial product differentiation, retention of unreasonably high margins and brand proliferation prevailing in the market. The healthcare industry has been ridden with unregulated pricing since time immemorial and it is high time that strict quality control measures and pricing standards are imposed on intermediaries, pharmaceutical brands and trade associations.

While the CCI is empowered to question trading practices which contravene the provisions of the Competition Act, 2002, he points out that by way of the policy note, it goes one step further and highlights even such trading practices which do not directly fall within the purview of the Competition Act, 2002 but are capable of influencing the pricing standards prevailing in the market and can potentially restrict consumer choices and choke competition.
The policy note is being shared with Ministry of Corporate Affairs, Ministry of Health and Family Welfare, Department of Pharmaceuticals and NITI Aayog and Gupta hopes that it may play a pivotal role in shaping future healthcare policies and implementation mechanisms under other statutes which might eventually lead to pro-competition conditions.

Commenting on the role of intermediaries in drug price build-up, the CCI finds that one major factor 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.

Secondly, efficient and wider public procurement and distribution of essential drugs can 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 CCI suggests that 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.

Examining the issue of proliferation of branded generics, the CCI notes that worldwide, generic drugs are seen as a key competitive force against the patent-expired brand name drugs marketed at monopoly prices. In India, the pharma 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. 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 strongly recommends that unless the regulatory apparatus addresses the issue of quality perception by ensuring consistent application of statutory quality control measures and better regulatory compliance, generic competition in the true sense of the term cannot take off. Its recommendation to address the practice of creating artificial product differentiation for exploitation of consumers is through a one-company-one drug-one brand name-one price policy.

Moving to the healthcare services space, the CCI recommends that 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.

It has also called for a regulation that mandates hospitals to allow consumers to buy standardised consumables from the open market, unlike the present practice of inpatients not being allowed to purchase any product from outside pharmacies. Similarly, it recommends that all accredited diagnostic labs should meet the same quality standards in terms of infrastructure, equipment, skilled manpower etc. for getting accreditation which will ensure the same degree of reliability and accuracy of test results across labs.

Noting that there is no regulatory framework that ensures and governs portability of patient data, treatment record, diagnostic reports between hospitals, the CCI says that this acts as a constraint for 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 the data silos and do not bear additional cost for switching medical services and that doctors/hospitals can have timely access to patient data.

The CCI also recommends that a mechanism may be devised under the aegis of the CDSCO to harmonise the criteria/processes followed by the state licensing authorities to ensure uniformity in interpretation and implementation. This will prevent multiple standards of same products and also different levels of regulatory compliance requirements. 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.

Noting that public health delivery is a complicated policy matter and that the focus of the policy note does not lose sight of legitimate public policy objectives, but endeavours to determine the extent to which choice and competition can improve outcomes consistent with those objectives, the CII has shared the note with concerned ministries.
The Commission will continue to enforce antitrust rules in the pharma and healthcare sector to ensure that effective competition is not undermined in these markets. However, since enforcement cannot address all competition issues in the sector, the CII recommends that the instrument of competition advocacy is employed with more vigour to facilitate discussions and make policy changes that are necessary to address the conditions triggering non-competitive market outcomes.

 

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