In today’s Finshots, we tell you why certain medicines have suddenly become costlier
The Story
Your medicines just got 12% more expensive!
Yup, starting from 1st April, the government gave the green signal to pharma companies to raise the prices of certain drugs. And by ‘certain’ drugs, we mean a whole bunch of essential ones. From the ubiquitous paracetamol to ones that are used to treat diabetes and cancer.
Now, this isn’t the first time we’re seeing such a steep hike. It happened last year too when the government allowed prices to rise by nearly 11%!
And this is all thanks to rampant global inflation. Pharma companies use a lot of imported raw materials from China and the prices for those have shot up. Not to forget that logistics costs and packaging have also gotten more expensive. So they need to pass it along to people like us.
But here’s the thing. They can’t raise prices as per their whims and fancies. At least not for a certain section of drugs. They actually need the government’s permission to do so.
Why’s that, you ask?
Well, to understand why the government is involved in drug pricing, we need to backtrack a bit.
See, free markets and capitalism is great for a lot of industries. It spurs innovation. It could lead to the creation of a multitude of jobs. It even drives competition that can nudge prices lower.
But sometimes, private players can still run amok in their quest to make a ton of money. They may be selfish and not care about all their stakeholders. And in some industries such as healthcare, letting private players operate as per their whims and fancies can be a bit of a problem. Such as healthcare. After all, the Right to Health is even a fundamental right in the World Health Organization’s Constitution.
So you still need to have some government control. Ensure that private players toe the line. That their charges aren’t exorbitant. Or maybe even have the infrastructure in place that the vast majority of citizens can use and afford. That’s why governments run hospitals and clinics.
But it’s a tad bit more difficult for governments to actually get into the drug business. You can’t expect them to spend lots of time and effort in research to produce drugs. And then manufacture and sell them. Now even if they indulge in the manufacture and distribution, it’s not going to be easy to meet the needs of the entire population. Especially in a country as large and diverse as India. So one way out is to let the private sector manufacture the drugs, look at those that are essential or used by a large number of people and then put a cap on their prices. Don’t let the private sector control it.
Enter the National List of Essential Medicines (NLEM).
Its purpose is simple. Back in 1996, the government decided that it needs to look at what drugs are commonly used by Indians. Which are the life-saving ones that need to be affordable. And it created a list that included a bunch of these drugs. It then set up the National Pharmaceutical Pricing Authority (NPPA) to monitor this list every 3 years. And it would add or delete drugs depending on things like the prevalence of a disease in the country, the public health programmes run by the government, or even if a disease has become particularly resistant to a drug. Even things like coronary stents have been included in the list. Because you know — India’s heart disease problem is massive.
Also, India has one of the highest Out-of-Pocket Expenditures (OOPE) on healthcare anywhere in the world. 50% of healthcare expenses in India are paid out of one’s own pocket!!! And two-thirds of the expenses probably go towards just buying medicines.
So yeah, you can see why the list with over 350 drugs is so important for the public good. Nearly 25% of the drugs sold by volume come under the NLEM and price controls.
But does the NLEM really help the common person? Does it make the drugs affordable and available?
Well, the answer is a bit complicated.
Back in the 1990s, Delhi was facing a problem with deciding how to allocate its healthcare budget. While a third of the monies were spent on drugs, the ones that were most needed were always out of stock. The planning was haphazard.
And then, a committee developed a list of 250 essential medicines. All government hospitals used the same medicines. The government’s buying programme suddenly achieved clarity and they could source these specific drugs in bulk. They managed to cut costs and between 1996 and 2000, managed to trim 30% of its annual drug bills. This massive savings meant that they could then buy more drugs for the people.
Availability of drugs improved. And when doctors wrote prescriptions, 80% of the time it was for drugs from this list.
Now that sounds like a great thing. But on the other hand, some cracks emerged too.
You see, in 2013, we shifted from cost-based pricing to market-based pricing. This meant that we simply looked at the prevailing prices of brands in the market and fixed the price based on that. We weren’t looking at how much it actually cost a company to make the drug.
And as per the Economic Survey in 2019–20, things got worse in some cases. They took the prices of two diabetes drugs. One that came under price controls and one that did not. And found that the one under price control saw a higher uptick in its prices. The drug became less affordable. And the price control had the opposite effect.
In fact, when they look at a whole host of drugs in this pricing control list, they found that the prices increased by ₹71 per mg for the active ingredient. And the others only increased by ₹13. That’s a whopping 450% difference.
Even the Supreme Court called this pricing policy “absurd, irrational” and said that the “policy is not pro-poor but pro-companies.”
So yeah, while the NLEM is definitely something that lends direction to the healthcare efforts of the country, maybe the chosen pricing mechanism, hasn’t quite had the desired effect of making essential drugs affordable in India. Maybe that’s something we still need to fix in the midst of all these price hikes.
Until then…
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Ditto Insights: Why Millennials should buy a term plan
According to a survey, only 17% of Indian millennials (25–35 yrs) have bought term insurance. The actual numbers are likely even lower.
And the more worrying fact is that 55% hadn’t even heard of term insurance!
So why is this happening?
One common misconception is the dependent conundrum. Most millennials we spoke to want to buy a term policy because they want to cover their spouse and kids. And this makes perfect sense. After all, in your absence you want your term policy to pay out a large sum of money to cover your family’s needs for the future. But these very same people don’t think of their parents as dependents even though they support them extensively. I remember the moment it hit me. I routinely send money back home, but I had never considered my parents as my dependents. And when a colleague spoke about his experience, I immediately put two and two together. They were dependent on my income and my absence would most certainly affect them financially. So a term plan was a no-brainer for me.
There’s another reason why millennials should probably consider looking at a term plan — Debt. Most people we spoke to have home loans, education loans and other personal loans with a considerable interest burden. In their absence, this burden would shift to their dependents. It’s not something most people think of, but it happens all the time.
Finally, you actually get a pretty good bargain on term insurance prices when you’re younger. The idea is to pay a nominal sum every year (something that won’t burn your pocket) to protect your dependents in the event of your untimely demise. And this fee is lowest when you’re young.
So if you’re a millennial and you’re reading this, maybe you should reconsider buying a term plan. And don’t forget to talk to us at Ditto while you’re at it. We only have a limited number of slots everyday, so make sure you book your appointment at the earliest:
1. Just head to our website by clicking on the link here
2. Click on “Book a FREE call”
3. Select Term Insurance
4. Choose the date & time as per your convenience and RELAX!
