Why in news?

The Supreme Court described the markup between a medicine's price to retailers and its printed MRP as "carnage," calling it akin to "broad daylight dacoity with patients." A bench of Justices Vikram Nath and Sandeep Mehta, hearing petitions on medicine pricing, asked the Centre why the 16% retailer margin under the Drugs (Prices Control) Order (DPCO), 2013 should not apply to all essential medicines.

The triggering example: An essential cancer drug supplied to retailers for ₹2,700 carries an MRP of nearly ₹27,000 — ten times the supply price. The bench remarked: "If this is not extortion, then what is it? It is very surprising that the authorities who are supposed to take a decision on this are absolutely silent."

The petitions seek regulation of drug prices, generic prescriptions, medical devices, and stricter enforcement of price controls to prevent disproportionate profit margins across the drug supply chain.

What’s in Today’s Article?

• The Legal Framework
• Scheduled vs Non-Scheduled Medicines
• How Ceiling Prices Are Calculated?
• The Loophole: Non-Scheduled Medicines
• The Constitutional Argument

The Legal Framework

• Essential Commodities Act, 1955 gives the Centre power over essential goods, including medicines.
  • Section 3(1): Allows regulation of production, supply, and distribution "for maintaining or increasing supplies... or for securing their equitable distribution and availability at fair price."
  • Section 3(2)(c): Allows issuing orders to control commodity prices.
• The DPCO is such an order (under Section 3(2)(c) of the act) — the primary framework governing medicine prices in India.
• It authorises the National Pharmaceutical Pricing Authority (NPPA), set up in 1997 under the Department of Pharmaceuticals, to:
  • Fix and revise ceiling prices of scheduled formulations.
  • Set retail prices for new drugs.
  • Monitor overcharging and enforce the DPCO.
  • Order recovery of money from companies if patients are overcharged.
  • In some cases, cap prices even of medicines/devices otherwise outside regular price control.

Scheduled vs Non-Scheduled Medicines

• The DPCO divides medicines into two categories. A formulation means a medicine in a particular strength and dosage form.
  • Scheduled formulations: Listed in Schedule I of the DPCO, based on the National List of Essential Medicines (NLEM) prepared by the Ministry of Health and Family Welfare. These are subject to government price controls.
  • Non-scheduled formulations: Medicines not on this list — not subject to price ceilings.
• The current NLEM contains 384 medicines, accounting for only 20% of total drug market turnover. This means 80% of the market operates largely outside direct price control.

How Ceiling Prices Are Calculated?

• A ceiling price is the highest price at which a scheduled formulation can be sold, before taxes. The NPPA calculates it through a specific method:
  • It identifies every version (brand and generic) of a formulation sharing the same active ingredient.
  • It excludes versions accounting for less than 1% of total market sales, measured via Moving Annual Turnover (MAT) — a product's sales popularity over the previous year, sourced from market research firms.
  • For each remaining version, it takes the Price to Retailer (PTR) — what the manufacturer/distributor charges the chemist or hospital pharmacy.
  • It averages these PTRs, then adds a 16% retailer margin.
  • The result is the ceiling price — the MRP cannot legally exceed this, apart from local taxes or GST.
• Example: If three versions hold ≥1% market share with PTRs of ₹8, ₹10, and ₹12, the average is ₹10. Adding the 16% margin gives a ceiling price of ₹11.60.
• Annual Revision: Ceiling prices are revised every April 1, based on the Wholesale Price Index (WPI). Manufacturers may raise prices in line with the preceding year's WPI change without separate approval; if WPI falls, they must cut prices within 45 days.

The Loophole: Non-Scheduled Medicines

• Medicines outside the NLEM face no price ceiling. Manufacturers can freely set the initial MRP. The only restriction: the MRP cannot rise by more than 10% in 12 months thereafter.
• This is precisely what's being challenged. Petitioners argue that since the DPCO never regulates the launch price of non-scheduled drugs, manufacturers can set inflated prices from day one — making the 10% annual cap meaningless, since it only limits growth from an already-inflated base.

The Constitutional Argument

• The PILs invoke Article 21 — the right to life, which includes the right to health — as the constitutional basis for regulating medicine pricing.
• One petition argues that allowing manufacturers to freely set the initial MRP gives them arbitrary, unrestricted power to set any MRP, regardless of the actual cost of manufacturing the medicine.
• Hospital pharmacy influence: The petition claims retail price or MRP of medicines by companies are decided according to inputs of corporate hospitals, and that pharmacy expenses constitute 30–40% of a critically ill patient's total bill in corporate hospitals.
• Generic vs branded pricing: Citing Lok Sabha statements, the petition notes medicines sold under generic names (their composition names) are 50% to 90% cheaper than their branded counterparts — pointing to prescribing practices as another lever for reducing patient costs.

Conclusion

The Supreme Court's blunt language captures a system where regulation exists on paper but bites only a fifth of the market. A 16% margin cap means little when 80% of drugs can launch at any price a company chooses, and even "controlled" medicines can be marked up far beyond legal limits in hospital pharmacies. Fixing this requires closing the launch-price loophole, not just capping future hikes.