Competition watch dog raps pharma sector for non-competitive market moves

India is probably the only or one of the few pharma markets where we have a third category (branded generics) in addition to branded and generic medicines. The CCI’s recent policy note on ‘Making Markets Work for Affordable Healthcare’, comes down heavily on branded generics.

Addressing the quality perception behind proliferation of branded generics, the policy note points out that while worldwide, generic drugs are seen as a key competitive force against the patent-expired brand name drugs marketed at monopoly prices, in India, the pharma market is dominated by ‘branded generics’ which limit generic-induced price competition. The CCI note states that the price premium enjoyed by branded generics could be due to the perceived quality assurance that comes with the brand name, leading to prescription by doctors but it also cautions that it is equally possible that the brand proliferation is to introduce artificial product differentiation in the market, offering no therapeutic difference but allowing firms to extract rents.

The CCI puts the onus on the country’s regulators to stop this practice, recommending that the regulatory apparatus must address the issue of quality perception by ensuring consistent application of statutory quality control measures and better regulatory compliance. Unless the quality of drugs sold in markets can be taken to be in conformance of the statutory standards regardless of their brand names, generic competition in the true sense of the term cannot take off, says the note.

The CCI’s recommendation of a one-company-one-drug-one brand name-one price policy to address this practice of creating artificial product differentiation is not a new one. Why then has it not been implemented? Obviously the industry has managed to bury this recommendation each time it is raised.

The CCI note also highlights how pharma companies and trade associations contribute towards building up the high margins on drug prices and suggests that efficient and wider public procurement and distribution of essential drugs could be one solution. Electronic trading of drugs, with appropriate regulatory safeguards, could be another way to bring in transparency and spur price competition among platforms and among retailers.

The CCI has received 52 cases pertaining to pharma and healthcare sector over the nine years of enforcement of the Competition Act, 2002. The ‘information asymmetry’ in these sectors significantly restricts consumer choice and allows various industry practices (like branded generics, high trade margins etc) to flourish. While the CCI admits that such practices may not always violate the provisions of the Act, they create conditions that do not allow markets to work effectively and healthy competition to drive the market outcomes.

In light of these recommendations, one wonders how the CCI will look at a recent suggestion from the US-India Business Council (USIBC), on behalf of some MNC pharma companies, to create a policy to allow a second portfolio of medicines, at a lower cost for distribution as part of the Ayushman Bharat (AB) scheme. This is clearly an attempt to tap the bottom of the pyramid market, but is it anti-competitive if it increases access to quality medicines at affordable prices?

While the CCI note appreciates ‘legitimate public policy objectives’, it tries to determine the extent to which choice and competition can improve outcomes consistent with those objectives. In a nudge to regulators, it points out that the response to these issues can, in many instances, take the form of appropriate regulations that can pre-empt market-distorting practices and help create pro-competition conditions. The CCI has shared the note with key ministries like the Ministry of Corporate Affairs, Ministry of Health and Family Welfare, Department of Pharmaceuticals and NITI Aayog. Since these are the Ministries which frame policies to regulate the pharma/healthcare sectors, one hopes these suggestions become part of regulations soon.