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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.

This study was funded by WHOs South-East Area Organisation, New Delhi. Acknowledgements are due to many government ofcials 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 (anitakotwani@gmail.com) is with the Department of Pharmacology, V P Chest Institute, University of Delhi.

igh 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 India, where the majority of the population buys medicines out-ofpocket, 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 elds of public health and healthcare nancing, and it is believed that high prices reduce access to essential medicines (WHO 2004). However, limited data are available from the eld for the actual markups or add-on costs in the public and private sector supply chains, which make up the nal price of a medicine. This information will be useful in revising pharmaceutical policy and enhancing awareness amongst stakeholders 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 difculty in collecting such information in not so transparent environments that allow for substantial and unjustied markups to some stakeholders. This paper presents a detailed analysis 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 standardised methodology of the World Health Organisation and Health Action International (WHO/HAI 2008). The ndings have implications for the National Pharmaceutical Pricing Policy, 2011 (NPPA-2011) drafted by the Department of Pharmaceuticals, Government of India, which was notied 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 affordable 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, using 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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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 therapeutic 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 locations 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 transparency and lack of cooperation from retail pharmacists. This survey on the price components of medicines was preceded by a detailed survey on medicine prices and availability in the public and private sectors in NCT, Delhi (not described here). The objectives of the present survey were to identify: (i) the different components that make up the nal price of the medicine; and (ii) the relationship between medicine prices, their components, and pharmaceutical pricing policy. Section 1 provides the contextual information about the healthcare system, nomenclature and supply chain of medicines, 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 ndings on price components. Section 4 discusses the ndings with policy implications, and 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 government and municipal corporation. Prescribed medicines are provided free to patients who visit these facilities. Centralised procurement is done by each public sector agency. Tertiary care facilities also engage in procurement to augment the supply or in case of non-availability of medicines through the centralised procurement agencies. In India, only about 20% of the population access healthcare through the public sector. The remaining 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 medicines (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

industry to ourish. As product patent protection was not available, most essential medicines manufactured in India can be described as generic medicines. Nevertheless, medicine manufacturers want to generate brand name recognition for their product, which allows for premium pricing. In India, all products 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 inuential branded counterpart products; they are usually 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 manufacturer 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 brandedgeneric. 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

Until 2005, India was exempted from implementing the TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement, which allowed the Indian generic pharmaceutical
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Pharmaceutical pricing policy is the responsibility of the Department of Pharmaceuticals (DoP) which is under the Ministry of Chemicals and Fertilisers. The department has established an independent body, the National Pharmaceutical Pricing 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 identies 74 active pharmaceutical ingredients (APIs) for which a pricing formula is used to set the maximum retail price (MRP) for the formulations. 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, classied as scheduled medicines, include a few essential medicines. For all other medicines, called non-scheduled medicines, government does not 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 nonscheduled 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 receive 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.

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 conducted as per the detailed methodology mentioned in the manual of WHO/HAI (2008).
2.2 Medicines Surveyed

Medicines were chosen from the ndings of the prices and availability survey conducted just before this survey and earlier surveys conducted in India by Kotwani et al (2007, 2009a). As per the methodology, ve to seven medicines should be surveyed. We chose seven medicines based on the criteria mentioned in the methodology. The medicines Table 1: List of Medicines Surveyed for Price Component Survey in Delhi, India Medicine, Dosage form Strength Scheduled Therapeutic Chronic Price chosen were those found to have huge varia(Price Control) Class Disease Variation tion in public and private sector, huge price Amlodipine tablet 50 mg No Antihypertensive Yes Yes variation in the private sector, medicines in Erythromycin suspension 125 mg/5ml No Antibiotic; paediatric different dosage form, medicines for acute Amoxicillin+clavulanic acid tablet 500 mg+ and chronic conditions, and medicines un125 mg No Antibiotic Yes der drug price control or scheduled mediCeftriaxone injection 1 gm vial No Antibiotic Yes cine, and non-scheduled medicines, adult Diclofenac tablet 50 mg No Analgesic, Yes Public/ anti-inflammatory Private and paediatric preparation (Table 1). One Omeprazole tablet 20 mg No Anti-ulcer Yes of the selected medicines, amoxicillin Ranitidine tablet 150 mg Yes Anti-ulcer Yes No +clavulanic acid was part of the non-essenTheoretically, with over 20,000 generic manufacturers in tial medicine list (NEML) as per the EMLs in place at the time of India, there should be sufcient competition in the free market the survey, viz, National EML 2003 and Delhi State EML 2007. to keep the prices of medicines down. Ethical clearance for the study was obtained from the V P Chest Institute, University of Delhi. 2 Survey Methodology and Data 2.3 Sector Surveyed and Data Collection 2.1 WHO/HAI Methodology Two sectors were surveyed public and private. For public The recently revised methodology of WHO/HAI (2008) for surveying 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 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, insurance and freight). Stage 2: Landed price port charges (mainly for imported medicines). Stage 3: Wholesale/Central Medical Store price wholesaler
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sector, three public healthcare providers in Delhi were surveyed, Government of NCT (GNCT), Delhi, Municipal Corporation of Delhi (MCD) and central government. Two regions 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 under MCD (two dispensaries, one secondary care and one tertiary care hospital) were visited to 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 surveyed, only one generic version was available at all public sector facilities. Medicines to dispensaries are supplied by central medical store and for hospitals, drug companies with whom the rate is 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
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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 supplying agency or procurement department to the primary care, secondary care or tertiary care facility on the rate xed by the procurement agency with the pharmaceutical company.
2.3.2 Private Sector

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

For each of the seven medicines, 2-4 branded and 2-3 branded-generic versions were surveyed for price components in the private sector. As per the methodology, private retail pharmacies were visited for collecting the nal Table 2: Per Cent Contribution of Each Stage of the Supply Chain in the Private price of the medicine available to patient. Four retail Sector to the Final Price the Patient Paid for Ceftriaxone 1 gm Injection Ranbaxy Alkem Aristo Wockhardt Alembic Nicholas pharmacies (called chemist shops in Delhi) for each region Manufacturer Product Type Branded Branded Branded Branded- Branded- BrandedGeneric Generic Generic (urban and peri-urban) were selected on the basis of availability of medicines, cooperative staff and feasibility. Manufacturer contribution with 72.16 73.23 65.94 17.23 20.43 16.56 The pharmacies chosen for urban area were in central C&F agent mark up (Stage 1) Stage 2 (not applicable) and south district whereas peri-urban pharmacies were Wholesaler mark up (Stage 3) 7.22 7.84 11.18 3.71 4.60 2.80 in north-east and south-west district of NCT, Delhi. Retailer (Stage 4) 15.87 14.17 18.11 74.30 70.21 75.88 Data from retail pharmacies was collected for nal VAT (Stage 5) 4.76 4.76 4.76 4.76 4.76 4.76 selling price of the medicine; any stage 5 charges (VAT/ Final unit Price (Rupees) 64.39 49.46 69.01 132.33 107.67 128.01 tax/dispensing fees); stage 4 charges (retailers markup Scheme# (Purchase Qty+Free Qty) 10+2 10+2 or city tax); procurement price or price-to-retailer; and # Scheme by manufacturer of buy 10 and get 2 free is given to retailer; this extra 16.67% is the source of medicine, i e, wholesaler. After data was col- additional profit for retailer. lected from all the retail pharmacies, wholesalers to interview easy to understand the contribution of each stakeholder and, at for data collection were identied. From wholesalers data was the end, the contribution of manufacturer in the nal price of collected on selling price to retailer or price-to-retailer; any medicine to the patient. stage 3 charges (wholesaler markup); the purchase price to wholesaler (price-to-wholesaler); source of medicine (local 3.2.1 Stage 5: Dispensing Fees/VAT 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

Detailed break-up of the per cent contribution of each stage in making the 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 surveyed, both in their branded and branded-generic versions. Findings on markups and contribution of each stage and stakeholder are described below from Stage 5 to Stage 1 so that it is

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

The methodology has an Excel Workbook designed for entering data and analysis for the price components survey. The data collected on individual medicines was entered into the workbook on the price components. The workbook generates summary tables that were used for analysis and contribution of each stage or the stakeholder was identied in the nal price to the patient.
3 Findings 3.1 Public Sector

For public sector procurement, agencies x the price of medicines (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 central medical store without any transport charge or any other add-on. Government (public) procurement agencies pay 5% VAT on the rate xed with the manufacturer. The procurement centres of all the public sector agencies, GNCT, Delhi, MCD, and of central government, and the independent procurement department of tertiary care central government hospitals pay 5% VAT on the rate xed with the manufacturer responsible to
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For branded products, retailers prot contributes between 13% and 19% in the total price of the product for all the seven medicines surveyed (Tables 2-8). The markup (% prot) for retailers on branded products of the surveyed medicines were ~20% for both scheduled and non-scheduled medicines, though on certain medicines the prot was as high as 36% (Table 9, p 111). One very important and interesting nding was the trade schemes on certain branded products. Trade schemes run between 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 surveyed: 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 benet the retailer with larger prot margins, as the medicines that they get free on schemes represent pure prot. There is no evidence that patients benet from the trade schemes: retailers do not discount the medicines for patients.
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Of course, the margin or prot for the retailer markedly increased if the manufacturer offered trade schemes the prot for the retailer then became 40% and 37% on the two products of ceftriaxone; for amoxicillin+clavulanic acid the total prot was 37%, and for omeprazole the prot was 32% on the branded product with the scheme (Tables 2-4). The actual prot in the local currency becomes huge for medicines which are expensive, e g, ceftriaxone injection and amoxicillin+ clavulanic acid tablets.

the prot was 37% and 43%. For the price-controlled medicine, ranitidine, the prot 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 nal price of medicines Table 3: Per Cent Contribution of Each Stage of the Supply Chain in the Private (Tables 2-7). The actual markup for wholesaler or the prot Sector to the Final Price the Patient Paid for Amoxicillin+Clavulanic Acid (500 mg+125 mg) for wholesaler was around 10% for both the scheduled Manufacturer Ranbaxy Cipla GSK Elder Pharma Cipla Intas and non-scheduled medicines surveyed (Table 9). Product Type Branded Branded Originator Branded- Branded- BrandedBrand* Generic Generic Generic One interesting nding was seen for a product, Manufacturer contribution with amoxicillin+clavulanic acid manufactured by Cipla in C&F agent markup (Stage 1) 72.16 53.64 72.16 19.80 32.22 15.19 two versions, branded and branded-generic. The MRP for Stage 2 (not applicable) both the products was almost not very different (unit Wholesaler markup (Stage 3) 7.21 25.73 7.22 2.88 4.00 1.84 price Rs 18.00 vs 20.07) but the market strategy was difRetailer markup (Stage 4) 15.87 15.87 15.87 72.56 59.01 78.21 ferent for each version. For the so-called branded version, VAT (Stage 5) 4.76 4.76 4.76 4.76 4.76 4.76 the wholesaler had a good markup (48%) and for the Final price (unit price in Rupees) 402.96 107.99 241.17 252.03 120.41 275.22 branded-generic the retailer had a 163% prot (Table 3 (40.29) (18.00) (40.19) (42.00) (20.07) (45.87) and Table 9). 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 mg
Manufacturer Product Type Torrent Dr Reddy Zydus Alkem Ranbaxy Cipla Branded Branded Branded Branded- Branded- BrandedGeneric Generic Generic

Manufacturer contribution with C&F agent markup (Stage 1) Stage 2 (not applicable) Wholesaler markup (Stage 3) Retailer markup (Stage 4) VAT (Stage 5) Final price (unit price in Rupees)

3.2.4 Stage 2: Per Cent Contribution of Import Duty Stage 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. Therefore, Stage 2 contribution was not applicable. 3.2.5 Stage 1: Per Cent Contribution of the Manufacturer in the Final Price

59.57 71.98 62.02 16.32 22.18 16.05 10.32 8.01 18.69 2.42 4.23 2.34 25.35 15.25 14.52 76.50 68.83 76.84 4.76 4.76 4.76 4.76 4.76 4.76 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 mg
Manufacturer Product Type Pfizer Originator Brand* Mankind Branded Zydus Branded Cadila Cipla Alembic Branded Branded- BrandedGeneric Generic

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 selling price. The median per cent contribution of manufacturer 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 medicines (the range was 15% to 58%).
3.2.6 MRP of Surveyed Medicine or Price-to-Patient

Manufacturer contribution with C&F agent markup (Stage 1) 74.11 Stage 2 (not applicable) Wholesaler markup (Stage 3) 7.92 Retailer markup (Stage 4) 13.21 VAT (Stage 5) 4.76 Final price (unit price in Rupees) 82.50 (8.25)

67.57 70.61 8.68 8.23 18.99 16.40 4.76 4.76 9.90 27.80 (0.990) (2.780)

73.62 16.97 18.30 7.16 2.96 2.00 14.46 75.31 74.54 4.76 4.76 4.76 38.86 27.70 26.50 (2.59) (2.770) (2.650)

* Originator brand is also a type of branded medicine.

The retailers prot for non-scheduled medicines contributes between 59.0% and 78.2% (except for erythromycin suspension) for branded-generic product in the nal price of medicine to the patient. The main prot for retailers was seen for branded-generic version of medicines where the range of markups was 163% to 460%. There were two exceptions where
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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 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 version, branded or branded-generic (Table 7). The other six medicines surveyed belonged to non-scheduled medicines or those whose price is not xed by the government. The ndings revealed that there was no consistency in
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the nal price to patient for various versions of the same therapeutic molecule available in the market. The difference between 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
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 mg
Manufacturer Product Type Biochem German Systopic Novartis Blue cross Cipla Branded Remedies Branded Originator Branded- BrandedBranded Brand* Generic Generic

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

Stage 2 (not applicable) Wholesaler markup Stage 3) 7.25 10.29 6.51 5.29 11.82 3.69 Retailer markup (Stage 4) 15.78 16.06 16.26 19.04 60.69 71.80 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 mg
Manufacturer Product Type Cadila JB Chemical GSK Cyber Pharma Panm Branded Branded Originator Branded- Pharma Brand* Generic BrandedGeneric

acid. But there was no difference in the nal price to the patient 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 brandedgeneric of ceftriaxone injection which was higher than the branded product (Table 2). A huge price variation was seen for the nal price that the patient pays for these medicines: for amlodipine, the lowest available tablet was for Re 0.99 by Mankind versus the highest-priced by Pzer at Rs 8.25. The lowest-priced tablet for diclofenac 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, ceftriaxone, omeprazole, amoxicillin+clavulanic acid, erythromycin, 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

Manufacturer contribution with C&F agent markup (Stage 1) Stage 2 (not applicable) Wholesaler markup (Stage 3) Retailer markup (Stage 4) VAT (Stage 5) Final price (unit price in Rupees)

72.12 7.26 15.85 4.76 7.57 (0.504)

72.17 7.22 15.84 4.76 10.10 (0.505)

71.03 54.53 39.32 9.36 11.09 10.80 14.85 29.62 45.12 4.76 4.76 4.76 15.29 5.50 15.00 (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 ml
Manufacturer Product Type IPCA Branded Abbott Originator Brand* Alembic Branded Biochem BrandedGeneric

Manufacturer contribution with C&F agent markup (Stage 1) Stage 2 (not applicable) Wholesaler markup (Stage 3) Retailer markup (Stage 4) VAT (Stage 5) Final price (unit price in Rupees)

72.01 6.37 16.86 4.76 22.30 (0.3716)

77.28 77.23 58.02 8.25 6.74 8.44 9.70 11.26 28.77 4.76 4.76 4.76 20.10 30.10 21.20 (0.3352) (0.5017) (0.3333)

*Originator brand is also a type of branded medicine.

and one other branded product was being offered with a 10+2 scheme to the retailer (Table 3). In case of erythromycin suspension, the price of OB was less as compared to other branded, popular products and was usually available with retail pharmacies (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 responsible 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, omeprazole (Tables 4-6) and one version of amoxicillin+clavulanic
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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 organisations (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 nal price of medicines to the government or to patients. On the basis of the evidence from the 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 lowincome and middle-income countries. However, it is not the absolute price but the affordability to citizens that is an important criterion for access to medicines in a particular country. In spite of a 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 million 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 beneted without any consideration for the patient. A clear picture of how the 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 prot is for the actor who
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is pushing and is responsible for promoting the sale of a medicine, i e, the pharmaceutical company for branded products and the retailer for branded-generics. Another important nding is that in spite of huge prots for retailers on brandedgeneric medicines, the nal price (MRP) of a branded-generic medicine is usually less than the branded product. This again shows that the manufacturer derives enormous prots from branded products. In India a few essential medicines are under price control; for most of the medicines government does not x the price. It is believed that free market forces will keep the prices of medicines in-check. It is the manufacturer who decides the 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 active role to push sales through their medical representatives and it was observed that the manufacturers selling price constituted the major component (54% to 77%) in the nal price. For branded-generic medicines, mainly it is the retailer who is pushing the sales in the market and the retailer mark-ups constituted the major component (59% to 78%, exception one product, erythromycin suspension) in the 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 prot 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

also found a scheme of 2+1 on branded ceftriaxone injection indicating 33.33% extra prot to the retailer. Price components for ceftriaxone injection reveal how pharmaceutical manufacturers in the free market push their products, not by bringing down the price of medicines for patients but by giving more prots 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 almost 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 very important nding, indicative of the fact that manufacturers have huge prots and that the prices of medicines 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 benet the retailer with larger prot margins, as the medicines that they get for free represent pure prot. There is a benet to the wholesaler as well, as they have increased volume of sales for those products with trade schemes. There is no benet to patients from trade schemes: retailers do not discount the medicines for patients, 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 indicates that the manufacturer has a huge prot margin. A trade scheme of 10+2 means that there is enough prot in the standard manufacturer margin on ve packs of the medicine to cover the manufacturers costs and prot for six packages. The earlier survey conducted in New Delhi by Kotwani and Levison in 2007 to conrm the appropriateness of the methodology
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Another surprising nding for ceftriaxone injection was that the branded-generic product was printed with a higher MRP than the branded product. This nding was also observed by Kotwani and Levison in 2007. These high-priced branded-generic injections are generally stored by pharmacies near tertiary 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 tertiary care hospitals sometimes offer 5% to 10% discount on MRP printed on such products and themselves make enormous prots. Such branded-generics allow huge markups for retailers; and, for expensive medicines, the actual prot for the retailer is massive. A very different marketing strategy, probably unique to India, 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 versions of the product, amoxicillin+clavulanic acid with almost similar MRP or price-to-patient. However, the marketing strategy was different for both the products, one was like the branded product but with a huge margin to the wholesaler (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 manufacturing two versions for cetirizine, lansoprazole, and alprazolam and for the branded-generic versions of these products the retailer margin was 1,016%, 201%, and 415%, respectively. 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 (ranitidine), 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 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).
Table 9: Per Cent Markup for Wholesaler and Retailer for Each Medicine Surveyed in the Private Sector
Medicines Branded Wholesaler Retailer Branded-Generic Wholesaler Retailer

prescribers or the consumer have doubts about the quality of low-priced branded-generics manufactured by a not so wellknown company. These doubts can easily be removed by increasing the awareness of the stakeholders about prices and conducting quality testing of low-cost branded-generic medicines (Singal et al 2011 and Singhal et al 2011).
4.4 Ineffective Competition

Ranitidine (price-controlled) Ceftriaxone injection Amoxicillin+clavulanic Amlodipine Diclofenac Omeprazole Erythromycin Syrup

~10 10-17 ~10 * 10-12 7-15 11-14 9-11

~20 17-23# ~20# 16-25 20-25 18-36# 11-21

20-27 17-22 12-14 11-17 19-52 15-19 14

45-90 280-392 163-460 37-378 176-306 260-418 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.

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 brandedgeneric 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 percentage 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 prots for the retailers are huge. Government charged 5% VAT on the surveyed medicines apart from the other taxes levied on active pharmaceutical ingredients (APIs). The 5% VAT is directly paid by the consumer and by the government procurement agencies. Very few medicines 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 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 medicines are used for chronic diseases, so if the patient is prescribed the cost-effective medicines, a huge saving can be made. Affordability and adherence to therapy can also be increased. The lowest-priced medicines found during this survey were all from reputed pharmaceutical companies which were manufacturing branded-generic versions. Generally,
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The ndings of the survey clearly show that market competition does not seem to be driving medicine prices in the downward direction to a level that is as low as is possible. The 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 ndings reveal that there is no transparency in the xing of the MRP by the manufacturer. 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 brandedgeneric medicines are dispensed by dispensing GPs (general practitioners), unqualied doctors or by pharmacists themselves. 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 notied a new National Pharmaceutical 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 ensuring a healthy and transparent industry. The NPPP has proposed to bring all the medicines mentioned in the National Essential Medicine List (EML) 2011, in the strength mentioned, under price control, but instead 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 xation. The top-selling brands are usually the more expensive 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
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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 regulated. This may lead to a manyfold increase in the price of many medicines which are priced much below Rs 3. One example 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 procurement price (tender price) of three states can be used as a base price and manufacturers may be permitted to sell their products at up to three or four times the average tender prices. The pharmaceutical pricing policy should bring about transparency 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 manufacturing 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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