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Generic medicines: in cobweb of hospitals, docs, drug firms

V Raghunathan and Rajendra Damera May 9 2017, 23:28 IST
The recent announcement by Prime Minister Narendra Modi making it mandatory for doctors to prescribe only generic drugs rather than specific brands is a welcome initiative towards bringing the cost of healthcare down. Still, if that objective is to be achieved, a lot more may need to be done. Here’s why.

The propensity to recommend high-cost prescription drugs is integral to the callousness with which hospitals operate today. When two tests would suffice, six are recommended, as each test is high-margin cash for the institution. Hefty charges linked to the size of our pockets include surgeon’s charges, surgical charges and surgery charges, whatever such distinctions may mean!

Our common understanding of how generic and retail drugs are prescribed by doctors goes like this: most hospitals have a pharmacy on their premises, which typically sells branded medicines for outpatients, and generic drugs (which may also have brands of their own) for in-patients. Generics are identical to branded drugs in composition, but cost much less to the hospitals because of lower marketing and distribution costs. Branded drugs are sold for the retail buyer at large, while generics are restricted to the hospitals. All drugs, branded and generic alike, are sold at the price printed on the medicine strips, but usually at 10% discount.

What is the extent of price difference between the generic and prescription drugs? While historically, market price of generic drugs have been on average significantly lower than the branded prescription drugs, thanks to the increasingly commercial nature of hospitals which work in cahoots with pharma-companies, that trend has been changing. The maximum retail price (MRP) of generic drugs have been inching closer to the MRP of branded medicines in many cases.

Here are a couple of examples. In a quick study we conducted some time ago, we found that the branded version of Amoxycyllin+ produced by three different manufacturers carried a printed MRP of Rs 241, Rs 87 and Rs 108, while its generic sibling, manufactured by three other parties, carried a printed price (MRP) of Rs 260, Rs 270 and Rs 267. However, the drug priced Rs 87 for branded and Rs 270 for the generic were by the same manufacturer! The same was true of Cefixime, for which MRP of the branded version by three manufacturers were Rs 69, Rs 83 and Rs 115 while their generic counterparts carried printed prices of Rs 225, Rs 250 and Rs 190.

Why are Amoxycillin+ and Cefixime priced much higher in their generic versions? Were their costs much higher? Not at all. Invoice prices of the former generics were Rs 57, Rs 50 and Rs 57 while that of the latter were Rs 50, Rs 43 and Rs 53. Worse still, there were some drugs whose invoice price to the hospital was a measly Rs 6, while the printed MRP was around Rs 90 so that in such cases, even the most socially responsible hospital cannot sell the drug too far below the printed price, lest the patients doubt the bona fide of the medicine and the hospital itself.

What is more, we found the average margin on the generics, though priced lower than branded drugs, to be nearly 400%, while average margin on the equivalent branded drugs, though priced higher, a more sedate 30-35%. Now try making sense of it all. The pharmacies are not under the control of the prescribing physicians and nowhere is this more so than in corporate hospitals, big and small.

In any case, even if doctors are mandated to prescribe only generics, what is the guarantee in our lackadaisical system that the pharmacy will necessarily dispense the generic and not talk the customer into buying the branded version, if the absolute rupee margin on it happened to be higher? It is in this context that the pharmacies being the hand-maidens of corporates become relevant, which explains why the MRPs of the so-called generics are almost equal to the MRPs of retail, branded drugs.

Every large pharmaceutical company today has a generics division. But what do we make of it when the same drug is provided at different prices by the same company? Not only the big daddies in the pharma sector but even their cub-counterparts produce these generics. In some cases, “manufacturing plants” are housed in apartment blocks with a tablet making machine and a small bottling unit for syrups, which is all one needs to start a generics “company.”

Controlling prices
These companies are understandably the puppets whose strings are in the hands of larger hospitals who dictate or control the invoice price, the margins, the MRP etc. Prices apart, quality of not just generics but even the branded medicines are questionable at times.
This is why a mere call for prescribing only generic drugs may be important, but not enough.

For example, one can see no conceivable reason why the percentage margins on generic drugs should be so much higher (should it not be lower, in fact?) than the margins on the branded medicines. Could the regulators look into what level of margins constitute price-gouging for pharmaceutical companies? Where the price differentials between the generics and their branded counterparts are vast like some examples cited above, does that present a case for a closer look?

For that matter, if the government does think generic medicines are the right answer for the plight of the masses that need lower-cost healthcare, shouldn’t some medicines be restricted for generic production alone? The key for the government in formulating its policy in this regard is to zero in on the drivers of prescriptions which are far more involved than what meets the eye. There are costs, margins, MRP, incentives given by pharmaceutical companies to doctors, price-fixing and much else to what drive prescriptions. Yes, the health sector is ailing and we are far from a close diagnosis of the malaise. As long as that’s the case, no successful treatment can begin.

(Raghunathan is an academic and author; Damera is a practising surgeon)

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