Tracking Medicine Prices in the Supply Chain

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december 28, 2013 vol xlviiI no 52 EPW Economic & Political Weekly104

This study was funded by WHOs South-East Area Organisation, New Delhi. Acknowledgements are due to many government offi cials in procurement agencies for extending help for smooth conduct of the survey. I wish to thank all the pharmacists and wholesalers who gave their precious time to provide data. I express my gratitude to my excellent and diligent data collectors, whose sincerity was critical for the success of this project. I sincerely appreciate the technical advice extended by Margaret Ewen, Coordinator, Global Projects (Pricing), Health Action International, Global, Amsterdam, whenever required. I thank Kathleen Holloway for reading and providing constructive inputs to the draft manuscript.

Anita Kotwani ([email protected]) is with the Department of Pharmacology, V P Chest Institute, University of Delhi.

Tracking Medicine Prices in the Supply Chain Who Benefits from the Free Market in India?

Anita Kotwani

The National Pharmaceutical Pricing Policy brings all

medicines in the National List of Essential Medicines,

2011 under price control. In order to bring transparency

and to make medicines more affordable while providing

industry with enough incentives, we need to know the

manufacturers selling price and add-on costs as the

medicine moves along the supply chain till it reaches the

consumer. The findings of this paper indicate that the

patient does not benefit from trade schemes, marketing

strategies, or the free pharmaceutical market. Brand

loyalty and marketing strategies do not allow real

competition. The paper makes a number of

recommendations to make medicines affordable to

the common citizen.

High prices, low affordability and poor availability of essential medicines are key hindrances to access to treatment in many low- and middle-income countries (Cameron et al 2011). In low-income countries, including I ndia, where the majority of the population buys medicines out-of-pocket, the high cost of medicines (relative to the household budget) means that an illness in the family exposes it to the risk of economic ruin. Therefore, millions of people in India and across the globe go without the medical treatment they need. The issue of medicine prices is increasingly debated in the fi elds of public health and healthcare fi nancing, and it is believed that high prices reduce access to essential medicines (WHO 2004). However, limited data are available from the fi eld for the actual markups or add-on costs in the public and private sector supply chains, which make up the fi nal price of a medicine. This information will be useful in revising pharma-ceutical policy and enhancing awareness amongst stake-holders about cost-effective medicines.

The much-needed medicine price component studies have been done only in a few countries (Babar et al 2007; Ruso and McPake 2010) and with limited success, which indicates the diffi culty in collecting such information in not so transparent environments that allow for substantial and unjustifi ed mark-ups to some stakeholders. This paper presents a detailed anal-ysis of the tracking of price components of a few essential medicines along the supply chain till they reach the patient. The survey was conducted in September-October 2011 in the National Capital Territory (NCT) of Delhi, using the standard-ised methodology of the World Health Organisation and Health Action International (WHO/HAI 2008). The fi ndings have implications for the National Pharmaceutical Pricing P olicy, 2011 (NPPA-2011) drafted by the Department of Pharma-ceuticals, Government of India, which was notifi ed earlier this year.

India is well known for its large pharmaceutical industry that supplies low-cost generic medicines to the world. At home, however, India faces the challenge of equal access to a ffordable essential medicines for its own people. Despite the rapid growth of the pharmaceutical industry over the last two decades, access to essential medicines remains an issue for common citizens. A set of seven surveys conducted earlier to gauge medicine prices and availability in different states, u sing the WHO/HAI methodology, showed low availability of essential medicines in the public sector where poor patients are dependent on free medicines (Kotwani et al 2007, 2009a).

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Economic & Political Weekly EPW december 28, 2013 vol xlviiI no 52 105

The majority of the population thus have no other alternative but to purchase medicines from the private retail pharmacies and make out-of-pocket payments.

These surveys by Kotwani et al (2007, 2009a) also observed a huge variation in prices for a few medicines between the public and private sector as well as price variation among t herapeutic equivalents in the private sector. The price variation for the same medicine as between the market leader and other not-so-popular trade names is shown by Selvaraj and Farooqui (2012). Affordability continues to be an important barrier to access of medicines for the poor population (Kotwani 2009b). Despite the best efforts of the earlier survey teams, in some l ocations it was almost impossible to collect data on markups of the actors in the supply chain of medicines till it reaches the patient. This was explained as being due to lack of transpar-ency and lack of cooperation from retail pharmacists. This sur-vey on the price components of medicines was preceded by a detailed survey on medicine prices and availability in the pub-lic and private sectors in NCT, Delhi (not described here). The objectives of the present survey were to identify: (i) the differ-ent components that make up the fi nal price of the medicine; and (ii) the relationship between medicine prices, their com-ponents, and pharmaceutical pricing policy.

Section 1 provides the contextual information about the healthcare system, nomenclature and supply chain of medi-cines, pharmaceutical policy and medicine pricing in India. Section 2 deals with the methodology used for the survey and collection of data on price components for seven medicines in their branded and branded-generic versions along the supply chain. Section 3 explains the fi ndings on price components. Section 4 discusses the fi ndings with policy implications, and fi nally, we present the conclusions of the study.

1 Healthcare System, Pharmaceutical Supply Chain and Pricing

1.1 Healthcare System

In NCT, Delhi healthcare is provided by the public sector mainly through three agencies: central (federal) government, state govern ment and municipal corporation. Prescribed medicines are provided free to patients who visit these facilities. Central-ised procurement is done by each public sector agency. Tertiary care facilities also engage in procurement to augment the sup-ply or in case of non-availability of medicines through the cen-tralised procurement agencies. In India, only about 20% of the population access healthcare through the public sector. The r emaining 80% of the Indian healthcare system is characterised by high out-of-pocket payments by patients and their families and the major portion of this amount is for purchase of medi-cines (Creese et al 2004). Therefore, the price of medicines available at retail pharmacies to the population is very important.

1.2 Medicine Nomenclature and Supply Chain

Until 2005, India was exempted from implementing the TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement, which allowed the Indian generic pharmaceutical

industry to fl ourish. As product patent protection was not avail-able, most essential medicines manufactured in India can be described as generic medicines. Nevertheless, medicine man-ufacturers want to generate brand name recognition for their product, which allows for premium pricing. In India, all prod-ucts have trade names and medicines are not available with just their assigned pharmacological or INN name. Medicines in India are known as branded and branded-generics (Kotwani 2012a). Branded medicines are those manufactured by reputed Indian or multinational manufacturers. They are marketed by the manufacturers medical representatives to prescribers, often by means of incentives. Branded medicines are more popular, more costly, and are the most-sold medicines in India. Originators brands (OBs) in India are also considered in this branded category and have no extra recognition. Branded-generic medicines do not have the same recognition as their infl uential branded counterpart products; they are usu-ally less expensive and are marketed or promoted by retailers.

Most manufacturers of branded medicines choose to market or promote their products themselves. In such cases, the man-ufacturer supplies the medicine to a carrying and forwarding (C&F) agent. The C&F agent is licensed to sell the medicines in the manufacturers name and distributes the medicines to wholesalers, who in turn supply to retail pharmacies. The manufacturer handles the marketing, usually employing a cadre of medical representatives who promote medicines to doctors and pharmacists.

In case of branded-generic medicines, manufacturers do not market or promote their product themselves and supply the medicine to a super-stockist or wholesaler. A super-stockist is a distributor who markets medicines to retailers, who are then encouraged to promote branded-generics. Retailers have huge margins for branded-generic products. Often, doctors, unlicensed practitioners, and pharmacists directly dispense branded-generics to patients.

It is not uncommon that the same company manufactures both versions of the same medicines, i e, branded and branded-generic. These manufacturers promote their branded product through doctors and push their branded-generic product through wholesalers and retailers (Singal et al 2011a).

1.3 Pharmaceutical Policy and Medicine Pricing

Pharmaceutical pricing policy is the responsibility of the Department of Pharmaceuticals (DoP) which is under the Min-istry of Chemicals and Fertilisers. The department has estab-lished an independent body, the National Pharmaceutical Pric-ing Authority (NPPA) that monitors prices of medicines. The pharmaceutical policy of 1994 under the Drugs (Prices Control) Order (DPCO) 1995 is applicable till date, though many draft revisions were prepared but none was agreed upon and were never implemented. The DPCO, 1995 identifi es 74 active phar-maceutical ingredients (APIs) for which a pricing formula is used to set the maximum retail price (MRP) for the formula-tions. The medicines whose prices are set with this formula are called scheduled medicines. For scheduled medicines, the NPPA pricing formula sets the mark-ups for wholesalers at 8%

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and for retailers at 16%. These 74 molecules, classifi ed as scheduled medicines, include a few essential medicines.

For all other medicines, called non-scheduled medicines, government does not fi x the price; it is the manufacturer who sets it, prints the MRP and registers that price with the NPPA. For non-scheduled medicines, markups are not set, but several informants of the trade reported that for branded medicines the average mark-ups are around 10% for wholesalers and 20% for retailers. Legally, the NPPA monitors the prices of non-scheduled medicines to ensure the prices do not increase more than 10% in one year, contravention of which may result in a penalty for the concerned manufacturer. The C&F agents r eceive a margin of 2% to 4% depending on the quantum of business handled.

All manufacturers are legally bound to print the MRP on the medicine package as per the provision under paragraph 16 of the DPCO and medicines are generally sold at the printed price.

Theoretically, with over 20,000 generic manufacturers in I ndia, there should be suffi cient competition in the free market to keep the prices of medicines down.

2 Survey Methodology and Data

2.1 WHO/HAI Methodology

The recently revised methodology of WHO/HAI (2008) for sur-veying medicine price components has been used for this study. As medicines move along the supply chain, from the manufacturer to the patient, additional costs are added to the manufacturers selling price (MSP). The methodology uses the actual price components of selected medicines as they move along the supply chain. Medicine price tracking data needs to be collected along the supply chain and the investigators need to start at the end of the supply chain (public health centre or the retail pharmacy) and then move backwards (towards the manufacturer). As one moves through the supply chain, data for the same medicinal product and the pack size is collected.

The data collected on the components of medicine prices are analysed according to fi ve common stages of the supply chain that all medicines traverse as they move from manufacturer to patient: Stage 1: MSP/CIF (manufacturer selling price/cost, insur-ance and freight). Stage 2: Landed price port charges (mainly for imported medicines). Stage 3: Wholesale/Central Medical Store price wholesaler

markup and if any transport charges for public sector from the central medical store. Stage 4: Retail price retailer markup. Stage 5: Dispensed price if dispensing fee applicable/VAT/sales tax.

This methodology can be used in any country and region and this categorisation allows comparison both among health systems and between countries or states. This survey was con-ducted as per the detailed methodology mentioned in the manual of WHO/HAI (2008).

2.2 Medicines Surveyed

Medicines were chosen from the fi ndings of the prices and availability survey conducted just before this survey and ear-lier surveys conducted in India by Kotwani et al (2007, 2009a). As per the methodology, fi ve to seven medicines should be sur-veyed. We chose seven medicines based on the criteria men-

tioned in the methodology. The medicines chosen were those found to have huge varia-tion in public and private sector, huge price variation in the private sector, medicines in different dosage form, medicines for acute and chronic conditions, and medicines un-der drug price control or scheduled medi-cine, and non-scheduled medicines, adult and paediatric preparation (Table 1). One of the selected medicines, amoxicillin + clavulanic acid was part of the non-essen-

tial medicine list (NEML) as per the EMLs in place at the time of the survey, viz, National EML 2003 and Delhi State EML 2007.

Ethical clearance for the study was obtained from the V P Chest Institute, University of Delhi.

2.3 Sector Surveyed and Data Collection

Two sectors were surveyed public and private. For public sector, three public healthcare providers in Delhi were sur-veyed, Government of NCT (GNCT), Delhi, Municipal Corpora-tion of Delhi (MCD) and central government. Two r egions were surveyed for the private sector urban and peri-urban areas. Delhi does not have a typical rural area so peri-urban areas were selected.

2.3.1 Public Sector

A total of eight facilities, four under GNCT, Delhi and four u nder MCD (two dispensaries, one secondary care and one ter-tiary care hospital) were visited to fi nd the procurement price of the public facility and stage-5 charges (VAT/tax/dispensing fees); transport fee or any add-ons are paid by the facility; and source/supply of medicine. For all the seven medicines sur-veyed, only one generic version was available at all public sec-tor facilities. Medicines to dispensaries are supplied by central medical store and for hospitals, drug companies with whom the rate is fi xed by the respective agencies of GNCT, Delhi and MCD supplies directly to the hospital store.

The central medical store or the procurement agency of GNCT, Delhi, MCD, and central government was visited. Details

Table 1: List of Medicines Surveyed for Price Component Survey in Delhi, IndiaMedicine, Dosage form Strength Scheduled Therapeutic Chronic Price (Price Control) Class Disease Variation

Amlodipine tablet 50 mg No Antihypertensive Yes Yes

Erythromycin suspension 125 mg/5ml No Antibiotic; paediatric - -

Amoxicillin+clavulanic acid tablet 500 mg+ 125 mg No Antibiotic - Yes

Ceftriaxone injection 1 gm vial No Antibiotic - Yes

Diclofenac tablet 50 mg No Analgesic, Yes Public/ anti-inflammatory Private

Omeprazole tablet 20 mg No Anti-ulcer Yes -

Ranitidine tablet 150 mg Yes Anti-ulcer Yes No

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were inquired and invoices were checked for any transport cost, tax or any other add-ons that were charged by the supply-ing agency or procurement department to the primary care, secondary care or tertiary care facility on the rate fi xed by the procurement agency with the pharmaceutical company.

2.3.2 Private Sector

For each of the seven medicines, 2-4 branded and 2-3 branded-generic versions were surveyed for price compo-nents in the private sector. As per the methodology, private retail pharmacies were visited for collecting the fi nal price of the medicine available to patient. Four retail pharmacies (called chemist shops in Delhi) for each region (urban and peri-urban) were selected on the basis of availability of medicines, cooperative staff and feasibility. The pharmacies chosen for urban area were in central and south district whereas peri-urban pharmacies were in north-east and south-west d istrict of NCT, Delhi.

Data from retail pharmacies was collected for fi nal selling price of the medicine; any stage 5 charges (VAT/tax/dispensing fees); stage 4 charges (retailers markup or city tax); procurement price or price-to-retailer; and source of medicine, i e, wholesaler. After data was col-lected from all the retail pharmacies, wholesalers to interview for data collection were identifi ed. From wholesalers data was collected on selling price to retailer or price-to-retailer; any stage 3 charges (wholesaler markup); the purchase price to wholesaler (price-to-wholesaler); source of medicine (local manufacturer/C&F agents).

We could not interview C&F (carrying and forwarding) agents but the margins of C&F agents are 2-4% as informed by informants in the trade.

2.4 Data Entry and Analysis

The methodology has an Excel Workbook designed for entering data and analysis for the price components survey. The data col-lected on individual medicines was entered into the workbook on the price components. The workbook generates summary t ables that were used for analysis and contribution of each stage or the stakeholder was identifi ed in the fi nal price to the patient.

3 Findings

3.1 Public Sector

For public sector procurement, agencies fi x the price of medi-cines (rate control) with the pharmaceutical company. It is the responsibility of manufacturer to supply the medicines either to the central medical store or to the facility without any extra charge. Primary care facilities receive their supply from cen-tral medical store without any transport charge or any other add-on. Government (public) procurement agencies pay 5% VAT on the rate fi xed with the manufacturer. The procurement centres of all the public sector agencies, GNCT, Delhi, MCD, and of central government, and the independent procurement d epartment of tertiary care central government hospitals pay 5% VAT on the rate fi xed with the manufacturer responsible to

supply the medicines. Therefore, for the public sector, only stage 5 (VAT) is applicable.

3.2 Private Sector

Detailed break-up of the per cent contribution of each stage in making the fi nal price is shown in Tables 2-8 (Tables 3-5, p 108, Tables 6-8, p 109) for the seven medicines that have been sur-veyed, both in their branded and branded-generic versions. Findings on markups and contribution of each stage and stake-holder are described below from Stage 5 to Stage 1 so that it is

easy to understand the contribution of each stakeholder and, at the end, the contribution of manufacturer in the fi nal price of medicine to the patient.

3.2.1 Stage 5: Dispensing Fees/VAT

There are no dispensing fees applicable in India. A 5% VAT was applicable on all the seven medicines for both branded and branded-generic versions surveyed in NCT, Delhi. This tax was borne by the patient and was included in the MRP mentioned on the packing.

3.2.2 Stage 4: Per Cent Contribution and Markups of Retailers in the Final Price

For branded products, retailers profi t contributes between 13% and 19% in the total price of the product for all the seven medi-cines surveyed (Tables 2-8). The markup (% profi t) for retailers on branded products of the surveyed medicines were ~20% for both scheduled and non-scheduled medicines, though on certain medicines the profi t was as high as 36% (Table 9, p 111).

One very important and interesting fi nding was the trade schemes on certain branded products. Trade schemes run be-tween manufacturer, wholesaler and retailer. They take the form of buy 10 get 1 free (9.09% discount), buy 10 get 2 free (16.7% discount) or buy 6 get 1 free (14.3% discount). Trade schemes were found for 3 out of the 7 medicines sur-veyed: ceftriaxone injection, amoxicillin +clavulanic acid, and omeprazole. These schemes run for extended periods of time (Tables 2-4). Trade schemes or the free medicines are passed on to retailers. Trade schemes benefi t the retailer with larger profi t margins, as the medicines that they get free on schemes represent pure profi t. There is no evidence that p atients benefi t from the trade schemes: retailers do not discount the medicines for patients.

Table 2: Per Cent Contribution of Each Stage of the Supply Chain in the Private Sector to the Final Price the Patient Paid for Ceftriaxone 1 gm InjectionManufacturer Ranbaxy Alkem Aristo Wockhardt Alembic NicholasProduct Type Branded Branded Branded Branded- Branded- Branded- Generic Generic Generic

Manufacturer contribution with C&F agent mark up (Stage 1) 72.16 73.23 65.94 17.23 20.43 16.56

Stage 2 (not applicable)

Wholesaler mark up (Stage 3) 7.22 7.84 11.18 3.71 4.60 2.80

Retailer (Stage 4) 15.87 14.17 18.11 74.30 70.21 75.88

VAT (Stage 5) 4.76 4.76 4.76 4.76 4.76 4.76

Final unit Price (Rupees) 64.39 49.46 69.01 132.33 107.67 128.01

Scheme# (Purchase Qty+Free Qty) 10+2 10+2 # Scheme by manufacturer of buy 10 and get 2 free is given to retailer; this extra 16.67% is the additional profit for retailer.

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Of course, the margin or profi t for the retailer markedly increased if the manufacturer offered trade schemes the profi t for the retailer then became 40% and 37% on the two products of ceftriaxone; for amoxicillin+clavulanic acid the total profi t was 37%, and for omeprazole the profi t was 32% on the branded product with the scheme (Tables 2-4). The actual profi t in the local currency becomes huge for medicines which are expensive, e g, ceftriaxone injection and amoxicillin+ cla-vulanic acid tablets.

The retailers profi t for non-scheduled medicines contributes between 59.0% and 78.2% (except for erythromycin sus pen-sion) for branded-generic product in the fi nal price of medicine to the patient. The main profi t for retailers was seen for branded-generic version of medicines where the range of markups was 163% to 460%. There were two exceptions where

the profi t was 37% and 43%. For the price-controlled medicine, ranitidine, the profi t for the branded-generic was in the range of 45% to 90% (Table 9).

3.2.3 Stage 3: Per Cent Contribution and Markup of Wholesaler in the Final Price

For the branded products surveyed, most often the wholesaler margin contributed around 7% to 11% in the total price of medicines. But for branded-generics, the wholesaler margin

contributed 2% to 4% in the fi nal price of medicines (Tables 2-7). The actual markup for wholesaler or the profi t for wholesaler was around 10% for both the scheduled and non-scheduled medicines s urveyed (Table 9).

One interesting fi nding was seen for a product, amoxicillin+clavulanic acid manufactured by Cipla in two versions, branded and branded-generic. The MRP for both the products was almost not very different (unit price Rs 18.00 vs 20.07) but the market strategy was dif-ferent for each version. For the so-called branded version, the wholesaler had a good markup (48%) and for the branded-generic the retailer had a 163% profi t (Table 3 and Table 9).

3.2.4 Stage 2: Per Cent Contribution of Import DutyStage 2 markups are for import duty, port charges, etc, which are mainly for imported medicines. In India, most of the essential medicines are locally produced and all the seven medicines were locally manufactured. There-fore, Stage 2 contribution was not applicable.

3.2.5 Stage 1: Per Cent Contribution of the Manufacturer in the Final Price

For each medicine, the markup of the C&F agent could not be found, but it was believed to be in the range of 2% to 4%, and we have included this in manufacturers sell-ing price. The median per cent contribution of manufac-turer that includes the cost of manufacturing was found to be 72% (the range was 54% to 77%) for branded medicines (Tables 2-8). However, for the same medicines, the median per cent contribution of manufacturer for branded-generics was only 20% in the total price of medi-cines (the range was 15% to 58%).

3.2.6 MRP of Surveyed Medicine or Price-to-Patient

All the strips and containers of medicines are printed and labelled with MRP by the manufacturer. For scheduled medicines or the medicines whose price is fi xed by the government, the MRP should be same irrespective of the manufacturer and branded or branded-generic product. Ranitidine was one such medicine surveyed which is a

scheduled medicine. The MRP of ranitidine was found to be reasonable and unit price consistent, irrespective of the ver-sion, branded or branded-generic (Table 7).

The other six medicines surveyed belonged to non-sched-uled medicines or those whose price is not fi xed by the govern-ment. The fi ndings revealed that there was no consistency in

Table 3: Per Cent Contribution of Each Stage of the Supply Chain in the Private Sector to the Final Price the Patient Paid for Amoxicillin+Clavulanic Acid (500 mg+125 mg)Manufacturer Ranbaxy Cipla GSK Elder Pharma Cipla IntasProduct Type Branded Branded Originator Branded- Branded- Branded- Brand* Generic Generic Generic

Manufacturer contribution with

C&F agent markup (Stage 1) 72.16 53.64 72.16 19.80 32.22 15.19


Wholesaler markup (Stage 3) 7.21 25.73 7.22 2.88 4.00 1.84

Retailer markup (Stage 4) 15.87 15.87 15.87 72.56 59.01 78.21

VAT (Stage 5) 4.76 4.76 4.76 4.76 4.76 4.76

Final price (unit price in Rupees) 402.96 107.99 241.17 252.03 120.41 275.22

(40.29) (18.00) (40.19) (42.00) (20.07) (45.87)

Scheme # (Purchase Qty.+ Free Qty.) 10+2 10+2 # Scheme by manufacturer of buy 10 and get 2 free is given to retailer; this extra 16.67% is the additional profit for retailer.

Table 4: Per Cent Contribution of Each Stage of the Supply Chain in the Private Sector to the Final Price the Patient Paid for Omeprazole 20 mgManufacturer Torrent Dr Reddy Zydus Alkem Ranbaxy CiplaProduct Type Branded Branded Branded Branded- Branded- Branded- Generic Generic Generic

Manufacturer contribution with C&F agent markup (Stage 1) 59.57 71.98 62.02 16.32 22.18 16.05




VAT (Stage 5) 4.76 4.76 4.76 4.76 4.76 4.76

Final price (unit price in Rupees) 82.31 81.61 87.63 62.50 22.00 36.70

(5.487) (5.441) (5.842) (4.1666) (2.200) (3.670)

Scheme# (Purchase Qty.+ Free Qty.) 6+1 6+1 # Scheme by manufacturer of buy 6 and get 1 free is given to retailer; this extra 14.28% is the additional profit for retailer.

Table 5: Per Cent Contribution of Each Stage of the Supply Chain in the Private Sector to the Final Price the Patient Paid for Amlodipine 5 mgManufacturer Pfizer Mankind Zydus Cadila Cipla AlembicProduct Type Originator Branded Branded Branded Branded- Branded- Brand* Generic Generic

Manufacturer contribution

with C&F agent markup (Stage 1) 74.11 67.57 70.61 73.62 16.97 18.30




VAT (Stage 5) 4.76 4.76 4.76 4.76 4.76 4.76

Final price (unit price in Rupees) 82.50 9.90 27.80 38.86 27.70 26.50 (8.25) (0.990) (2.780) (2.59) (2.770) (2.650)* Originator brand is also a type of branded medicine.

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the fi nal price to patient for various versions of the same thera-peutic molecule available in the market. The difference be-tween originator brand (OB) and other popular brands is sometimes very high, as seen for amlodipine and diclofenac (Tables 5, 6). But there was no difference in OB and other branded product for amoxicillin+clavulanic acid where the OB

and one other branded product was being offered with a 10+2 scheme to the retailer (Table 3). In case of erythromycin sus-pension, the price of OB was less as compared to other branded, popular products and was usually available with retail phar-macies (Table 8). For omeprazole, OB is not available in India and the three so-called branded versions surveyed had almost the same price, though the one with the highest MRP had a trade scheme available for the retailer. It is the popularity or the promotion by the pharmaceutical company which is r esponsible for higher prices for particular brand names.

Generally, the price of the branded-generic was less than the branded version as seen for amlodipine, diclofenac, ome-prazole (Tables 4-6) and one version of amoxicillin+clavulanic

acid. But there was no difference in the fi nal price to the p atient between branded and branded-generic as found for few versions of amoxicillin+clavulanic acid and erythromycin suspension. The one exception was the price for the branded-generic of ceftriaxone injection which was higher than the branded product (Table 2).

A huge price variation was seen for the fi nal price that the patient pays for these medicines: for amlodipine, the lowest available tablet was for Re 0.99 by Mankind versus the high-est-priced by Pfi zer at Rs 8.25. The lowest-priced tablet for di-clofenac was by Biochem for Re 0.70 versus the highest-priced by Novartis for Rs 3.17. For amoxicillin+clavulanic acid, the lowest price was Rs 18.00 by Cipla versus the highest-price by Ranbaxy and GSK at Rs 40.20. The ratio of highest priced to lowest unit price-to-patient for amlodipine, diclofenac, ceftri-axone, omeprazole, amoxicillin+clavulanic acid, erythromy-cin, ranitidine was 8.3, 4.5, 2.7, 2.6, 2.3, 1.5, and 1.1 indicating huge price variation in the medicine price for most of the medicines surveyed.

4.1 Discussion

The price paid for a medicine is made up of a number of price components, including the MSP and all costs for freight, tariff and taxes, storage, distribution, wholesale and retail markups (Levison and Laing 2003). Medicinal price components are a concern for all those involved in public health and access to medicines, whether the government, non-governmental or-ganisations (NGO), a social insurance plan, the prescribers or the patients. The add-on costs could be more than double or many times the manufacturers cost. In order to reduce costs, all the stakeholders in the health sector need to understand what these costs are and how they affect the fi nal price of medicines to the government or to patients. On the basis of the evidence from the fi eld, suitable amendments can be sought in that particular region to make medicines affordable.

Cameron et al (2009) have reported that medicine prices in India are relatively less expensive than many other low- income and middle-income countries. However, it is not the absolute price but the affordability to citizens that is an impor-tant criterion for access to medicines in a particular country. In spite of a fl ourishing pharmaceutical industry, affordability is an issue for the majority of the population in India (Kotwani 2009b, 2012a). Selvaraj and Karan (2009) have also pointed out that policymakers must safeguard the interest of 40 mil-lion people who are pushed below the poverty line and an equal number who bear the risk of economic ruin due to high medicine prices. Price component data must be collected and pharmaceutical policy must be amended in order to improve access to essential medicines.

The present study has given an insight into the supply chain and shown how all the actors in the chain are benefi ted without any consideration for the patient. A clear picture of how the fi nal price (MRP) of medicines in the private sector is reached was determined by collecting data for both branded and branded-generic versions of each medicine surveyed. The study has revealed that the main profi t is for the actor who

Table 6: Per Cent Contribution of Each Stage of the Supply Chain in the Private Sector to the Final Price the Patient Paid for Diclofenac 50 mgManufacturer Biochem German Systopic Novartis Blue cross CiplaProduct Type Branded Remedies Branded Originator Branded- Branded- Branded Brand* Generic Generic

Manufacturer contribution with C&F agent markup (Stage 1) 72.21 68.88 72.46 70.91 22.73 19.75


Wholesaler markup Stage 3) 7.25 10.29 6.51 5.29 11.82 3.69


VAT (Stage 5) 4.76 4.76 4.76 4.76 4.76 4.76

Final price (unit price in Rupees) 7.04 8.84 15.50 47.59 8.80 19.50 (0.704) (0.884) (1.550) (3.172) (0.880) (1.950)

Table 7: Per Cent Contribution of Each Stage of the Supply Chain in the Private Sector to the Final Price the Patient Paid for Ranitidine 150 mgManufacturer Cadila JB Chemical GSK Cyber Pharma Panm Product Type Branded Branded Originator Branded- Pharma Brand* Generic Branded- Generic

Manufacturer contribution with C&F agent markup (Stage 1) 72.12 72.17 71.03 54.53 39.32


Wholesaler markup (Stage 3) 7.26 7.22 9.36 11.09 10.80

Retailer markup (Stage 4) 15.85 15.84 14.85 29.62 45.12

VAT (Stage 5) 4.76 4.76 4.76 4.76 4.76

Final price (unit price in Rupees) 7.57 10.10 15.29 5.50 15.00 (0.504) (0.505) (0.51) (0.550) (0.500)* Originator brand is also a type of branded medicine.

Table 8: Per Cent Contribution of Each Stage of the Supply Chain in the Private Sector to the Final Price the Patient Paid for Erythromycin Suspension 125 mg/5 mlManufacturer IPCA Abbott Alembic BiochemProduct Type Branded Originator Branded Branded- Brand* Generic

Manufacturer contribution with C&F agent markup (Stage 1) 72.01 77.28 77.23 58.02


Wholesaler markup (Stage 3) 6.37 8.25 6.74 8.44

Retailer markup (Stage 4) 16.86 9.70 11.26 28.77

VAT (Stage 5) 4.76 4.76 4.76 4.76

Final price (unit price in Rupees) 22.30 20.10 30.10 21.20

(0.3716) (0.3352) (0.5017) (0.3333)*Originator brand is also a type of branded medicine.

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is pushing and is responsible for promoting the sale of a medi-cine, i e, the pharmaceutical company for branded products and the retailer for branded-generics. Another important fi nd-ing is that in spite of huge profi ts for retailers on branded- generic medicines, the fi nal price (MRP) of a branded-generic medicine is usually less than the branded product. This again shows that the manufacturer derives enormous profi ts from branded products.

In India a few essential medicines are under price control; for most of the medicines government does not fi x the price. It is believed that free market forces will keep the prices of medi-cines in-check. It is the manufacturer who decides the fi nal price, prints the MRP on the medicine package and decides the price-to-wholesaler, price-to-retailer, and offer-trade schemes. For branded medicines, pharmaceutical companies play an a ctive role to push sales through their medical representatives and it was observed that the manufacturers selling price con-stituted the major component (54% to 77%) in the fi nal price. For branded-generic medicines, mainly it is the retailer who is pushing the sales in the market and the retailer mark-ups con-stituted the major component (59% to 78%, exception one product, erythromycin suspension) in the fi nal price with markups as high as 460%.

A comparatively very low MSP (manufacturers selling price) or price-to-wholesaler of a branded-generic compared to a branded product clearly indicates the cost of manufacturing is very low. A high MSP of branded product is the profi t of the company and the incentives they offer to prescribers to push the product to make it a popular branded product. Babar et al (2007) have shown a similar high MSP for certain branded products in Malaysia.

4.2 Trade Schemes

Another very important fi nding, indicative of the fact that manufacturers have huge profi ts and that the prices of medi-cines can be lowered, is the presence of trade schemes. Trade schemes were available on three branded medicines out of the seven medicines. These trade schemes were in the form of buy 10 get 2 free or buy 6 and get 1 free. These trade schemes run between manufacturer, wholesaler and retailer and often run for extended periods of time so such schemes are almost always available. Trade schemes benefi t the retailer with larger profi t margins, as the medicines that they get for free represent pure profi t. There is a benefi t to the wholesaler as well, as they have increased volume of sales for those prod-ucts with trade schemes. There is no benefi t to patients from trade schemes: retailers do not discount the medicines for p atients, patients are not even aware that there are such schemes on medicines. The fact that manufacturers can offer trade schemes on branded medicine for an entire year indi-cates that the manufacturer has a huge profi t margin. A trade scheme of 10+2 means that there is enough profi t in the standard manufacturer margin on fi ve packs of the medicine to cover the manufacturers costs and profi t for six packages. The earlier survey conducted in New Delhi by Kotwani and Levison in 2007 to confi rm the appropriateness of the methodology

also found a scheme of 2+1 on branded ceftriaxone injection indicating 33.33% extra profi t to the retailer.

Price components for ceftriaxone injection reveal how phar-maceutical manufacturers in the free market push their prod-ucts, not by bringing down the price of medicines for patients but by giving more profi ts to middlemen. We found that two manufacturers of branded versions of ceftriaxone injection were offering 10+2 schemes but one particular brand which was a little more expensive was the most popular and was a lmost always available on the pharmacies. This particular most-popular branded medicine of ceftriaxone injection that was usually available in retail shops with 10+2 scheme was also offering a higher markup to the wholesaler (17% vs 10%) and retailer (40% vs 37%) than the other branded product with 10+2 scheme.

4.3 Branded and Branded-Generic

Another surprising fi nding for ceftriaxone injection was that the branded-generic product was printed with a higher MRP than the branded product. This fi nding was also observed by Kotwani and Levison in 2007. These high-priced branded-ge-neric injections are generally stored by pharmacies near terti-ary care hospitals. The probable reason for branded-generic injections being more costly than branded products (unlike for other branded-generic medicines) is that injections are usually prescribed for inpatients or for critically ill patients and the pharmacies near big hospitals can easily sell these products at a higher rate to patients relatives. These pharmacies near ter-tiary care hospitals sometimes offer 5% to 10% discount on MRP printed on such products and themselves make enormous profi ts. Such branded-generics allow huge markups for retail-ers; and, for expensive medicines, the actual profi t for the r etailer is massive.

A very different marketing strategy, probably unique to I ndia, is that one manufacturer markets both the branded and the branded-generic product. In this survey, it was found that one of the manufacturers, Cipla, was making two v ersions of the product, amoxicillin+clavulanic acid with almost similar MRP or price-to-patient. However, the market-ing strategy was different for both the products, one was like the branded product but with a huge margin to the whole-saler (48%) and the other was the branded-generic with good amount of margin (163%) to the retailer. Singal et al (2011a) have earlier reported that the same company is man-ufacturing two versions for cetirizine, lansoprazole, and a lprazolam and for the branded-generic versions of these products the retailer margin was 1,016%, 201%, and 415%, res pectively. In India, many other reputed pharmaceutical companies manufacture two versions of the same medicines with different price structures and two different marketing strategies (Singal et al 2011a).

Regarding the margins for the scheduled medicines (raniti-dine), the DPCO established margins for wholesalers of 8% and for retailers of 16%. This should be true whether the medicine is branded or branded-generic. The survey found that though the fi nal price to patient was consistent but margins were

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not as established. For branded ranitidine, the margins were around 10% for the wholesaler and about 20% for the retailer but for the branded-generic the margins were in the range of 20% to 27% and 45% to 90% (Table 9).

For non-scheduled medicines, margins for the wholesaler were around their established values of 10% though there were few exceptions. The markups for retailers for some medicines were high, in the range of 25-36%, and the margins increased if the trade schemes were available (Table 9). For branded- generic versions, the margins were very high, up to 460% for retailers as mentioned above. The MSP has a cumulative effect on the margins of the wholesaler and the retailer as the p ercentage of markup is calculated on MSP. For the branded version, the MSP is high; therefore, on the higher MSP wholesaler and retailer margins are high in terms of actual value. For branded-generics, the MSP is lower but the margin for the wholesaler is higher and the margins or profi ts for the retailers are huge.

Government charged 5% VAT on the surveyed medicines apart from the other taxes levied on active pharmaceutical i ngredients (APIs). The 5% VAT is directly paid by the consumer and by the government procurement agencies. Very few medi-cines are exempted from VAT, which is a state subject. A few states, like Haryana, in addition to VAT, also have CST (central service tax), levied on medicines manufactured outside the state. There is a strong rationale for exempting medicines from tax as it is essentially a tax on the sick. Government can easily remove these taxes on medicines to make medicines more affordable.

A huge price variation was seen for the fi nal price that the patient pays for these medicines as mentioned in the results section for amlodipine, diclofenac, and amoxicillin+clavulanic acid. Generally, the most expensive medicines are the most sold and the more popular medicines and the former two m edicines are used for chronic diseases, so if the patient is pre-scribed the cost-effective medicines, a huge saving can be made. Affordability and adherence to therapy can also be i ncreased. The lowest-priced medicines found during this s urvey were all from reputed pharmaceutical companies which were manufacturing branded-generic versions. Generally,

p rescribers or the consumer have doubts about the quality of low-priced branded-generics manufactured by a not so well-known company. These doubts can easily be removed by in-creasing the awareness of the stakeholders about prices and conducting quality testing of low-cost branded-generic medi-cines (Singal et al 2011 and Singhal et al 2011).

4.4 Ineffective Competition

The fi ndings of the survey clearly show that market competi-tion does not seem to be driving medicine prices in the down-ward direction to a level that is as low as is possible. The fi ndings revealed a huge price difference in MSP for branded and branded-generic versions of the same molecule, either by a different manufacturer or by the same manufacturer. The presence of trade schemes also reveals that there is scope to decrease the price of medicines. The fi ndings r eveal that there is no transparency in the fi xing of the MRP by the manufac-turer. Medicines or drugs are unlike other commodities where people can visit different shops, search for various products and brands, ask for discounts and then take their decision on the best buy. Moreover, the patient/ consumer is dependent on the trade name of the medicine the doctor has prescribed. In India or other developing countries many-a-time retail pharmacists are prescribing and dispensing as well (Kamat and Nichter 1998; Kotwani et al 2012b) and often branded- generic medicines are dispensed by dispensing GPs (general practitioners), unqualifi ed doctors or by pharmacists them-selves. Therefore, the policymakers need to ensure good governance and amend the pharmaceutical pricing policy, bring about transparency in the markups of the various stakeholders in the supply chain (WHO 2006), awareness of patients/consumers about medicine pricing and quality of branded-generics as well as insist on accountability in the healthcare system.

The government has notifi ed a new National Pharmaceuti-cal Pricing Policy (NPPP) 2012 after discussion and debates with various stakeholders. The new pharmaceutical policy has some provisions and measures that ensure affordable and reasonably priced medicines to consumers as well as en-suring a healthy and transparent industry. The NPPP has pro-posed to bring all the medicines mentioned in the National Essential Medicine List (EML) 2011, in the strength mentioned, under price control, but i nstead of a cost-based-pricing system, the new policy has market-based-pricing (MBP).

Under this system, the weighted average price of the three top selling branded medicines will be the benchmark for price fi xation. The top-selling brands are usually the more expen-sive as this survey has also shown. Thus under the policy the price of most medicines will increase and the manufacturers of the cheaper equivalent products will push up the prices to take advantage of government price control. Selvaraj et al (2012) have also shown for a few therapeutically similar medicines that the prices of the leading market player or the top three players put together are the highest. The new policy also takes into consideration the strength and dosage form of the molecule mentioned in the National EML for price

Table 9: Per Cent Markup for Wholesaler and Retailer for Each Medicine Surveyed in the Private SectorMedicines Branded Branded-Generic

Wholesaler Retailer Wholesaler Retailer

Ranitidine (price-controlled) ~10 ~20 20-27 45-90

Ceftriaxone injection 10-17 17-23# 17-22 280-392

Amoxicillin+clavulanic ~10 * ~20# 12-14 163-460

Amlodipine 10-12 16-25 11-17 37-378

Diclofenac 7-15 20-25 19-52 176-306

Omeprazole 11-14 18-36# 15-19 260-418

Erythromycin Syrup 9-11 11-21 14 43* Branded product of amoxicillin+clavulanic acid of Cipla had 48 markup for wholesaler and branded-generic product of Cipla had 163 profit for retailer.# Trade schemes were available on ceftriaxone injection, amoxicillin+clavulanic acid and omeprazole and on these products the retailer margins were 40%, 37%, 32%.Note for Tables 2-9: Medicines in India are known as branded and branded-generics but both describe generic medicines. All products carry a brand (trade) name. Branded medicines are manufactured by reputed companies and are marketed by the manufacturers medical representatives to prescribers. They are more popular and are the most-sold medicines. Branded-generics more closely resemble what are globally referred to as generics. Branded-generic medicines have less name recognition, and it falls on the retail pharmacy to promote the medicine.

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control. However, a slight change in the composition or strength of the molecule will take the medicine out of the price ceiling. Another important point about the NPPP is that it says that medicines sold for Rs 3 or less per unit will not be regu-lated. This may lead to a manyfold i ncrease in the price of many medicines which are priced much below Rs 3. One ex-ample is ranitidine, which has a unit price of around Rs 0.50, as our survey has shown.

Therefore, the DoP needs to modify the NPPP and, instead of taking the prices of top-selling brands, the lowest procure-ment price (tender price) of three states can be used as a base price and manufacturers may be permitted to sell their prod-ucts at up to three or four times the average tender prices. The pharmaceutical pricing policy should bring about transpar-ency in the markups all along the supply chain. Government should ensure transparency in how the manufacturers set the MRP. All the changes in distribution lines require re-evaluation of pricing structures and strict monitoring of medicine prices at the point of delivery.

5 Conclusions Price variations in the manufacturers selling price between branded and branded-generic equivalents suggest that some branded medicines are priced well above their true manufac-turing cost. Prices are set at what the market will bear. The presence of trade schemes suggests that medicine prices for these products could be lowered. Trade schemes side step pharmaceutical pricing and give incentives to retailers to stock and dispense these medicines. High levels of competition for medicines do not guarantee lower prices and brand loyalty and marketing strategies do not allow real price competition in the market. Moreover, printing MRP on the package locks the price at the higher level. It is suggested that the national pharmaceutical pricing policy should ensure transparency with regard to how manufacturers set MRP and what markups occur in the supply chain. Furthermore, VAT on medicines should be removed. And lastly, consumer awareness about medicine prices and the availability of cost-effective generic equivalents should be enhanced through various media.

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Tracking Medicine Prices in the Supply Chain

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