Content from the Brookings Institution India Center is now archived. After seven years of an impactful partnership, as of September 11, 2020, Brookings India is now the Centre for Social and Economic Progress, an independent public policy institution based in India.
Healthcare expenditure is financed through various sources in a country. It can be financed by the government (state or union), insurance schemes (public or private) or borne by households directly in the form of out-of-pocket expenditures (OOPE). More financing by the government implies less financial burden on households in the form of huge out-of-pocket expenses. The World Health Organization’s (WHO) data on global health expenditures reveals that when it comes to out-of-pocket expenditure as a proportion of current health expenditure, India does much worse in comparison to the world average (65% for India versus world average of around 20% in 2016). A comparison with other Asian countries also reveals a similar scenario. Thailand and China have reduced the proportion of out-of-pocket expenditure over time, while Sri Lanka and Bangladesh witnessed an increase over time.
The state-level scenario is not very different from the national picture which reveals that the burden of health expenses falls mostly on households. In the state of Bihar, out-of-pocket expenses are a whopping 80% of the total health expenditure. In Uttar Pradesh, India’s most populous state, OOPE forms three-fourth of the total health expenditure. Some states do relatively better, such as Karnataka, Himachal Pradesh, and Gujarat, but even in these states, households bear almost half of the total health expenditure as OOPE.
OOPE warrants special attention as it leads to impoverishment, with 7% of the households falling below the poverty line on account of health expenses. OOPE has increased in both rural and urban areas with the expenditure attributable to medicines forming the single largest category. Medicines are an integral part of any medical treatment and the expenditure incurred on them is quite substantial. The share of medicines in OOPE was around 51% in 2013-14, this figure reduced to 43% in 2015-16, but still remained the biggest contributor to the OOPE incurred by households. Lastly, out of the total pharmaceutical expenditure incurred by households, 18% is for in-patient treatment while 82% is for out-patient care. These figures suggest that the cost of pharmaceuticals is an important area for policy intervention.
While access to affordable medicines is important, the quality of medicines is essential to achieve desired curative outcomes.
In this report, we focus on three important aspects of medicines in India – accessibility, quality, and affordability of drugs. The first part analyses access to drugs from two main perspectives – the accessibility of medicines via Jan Aushadhi (JA) stores and e-pharmacies. With branded generic drugs priced far higher than their unbranded generic counterparts, access to reasonably-priced drugs is limited in India. To address this, the Jan Aushadhi scheme was launched in 2008 to increase access to affordable and quality medicines. The key features of this scheme included setting up pharmaceutical stores with government support and making cheaper drugs available to consumers. Using district-level demographic and economic characteristics, we find that more JA stores are found in districts with larger proportions of urban population, higher literacy rates and a greater level of development. Despite the incentive-based nature of the scheme, which rewards store owners for the volume of business, some districts in the Northeast and Central India failed to attract any JA entrepreneurs. Lastly, with the proliferation of the internet in urban cities, we have witnessed the growth of e-pharmacies. The market share of this segment is currently small but the convenience and price discounts offered by startups in this domain are set to propel the e-pharmacy sector in the coming years. In this relatively new, innovative space, business growth has to be balanced against important regulatory needs. Without an accurate prescription validation mechanism, we could witness a rise in antibiotic resistance over time or overuse and habit formation for opioids.
While access to affordable medicines is important, the quality of medicines is essential to achieve desired curative outcomes. In the second chapter, we look at drug-testing capabilities and bottlenecks such as the shortage of manpower needed for inspections. We draw upon publicly available information from the Central Drugs Standard Control Organisation (CDSCO), Lok Sabha questions, and notifications related to substandard and spurious drugs released by individual state regulatory bodies. Based on CDSCO data, we find that the overall percentage of substandard and spurious drugs in India is around 3-4% for the years 2014-16. Data from six individual states show that most notifications related to substandard drugs originate from manufacturing units within the same state. However, a substantial proportion of these alerts are ascribed to drugs originating from other states such as Himachal Pradesh and Uttarakhand. The state regulatory machinery is powerless when it comes to punitive actions against manufacturing units located outside the state’s administrative boundaries.
In the final chapter, we focus on past policies that have struck a balance between providing affordable and reasonably priced medicines to consumers and enabling the pharmaceutical industry to grow with sufficient profit margins. Price regulation of pharmaceutical products is the policy instrument that has been used to address the affordability of medicines in India. It is implemented by the Department of Pharmaceuticals under the Ministry of Chemicals and Fertilisers via Drug Price Control Orders (DPCOs), with the National Pharmaceutical Pricing Authority acting as the executing body.
The recent drug price regulation extended price control to 347 drugs (with over 800 formulations) that are on the National Essential List of Medicines. The ambit of regulation increased from just 74 drugs being regulated between 1995 and 2012 to 347 drugs post-2013. This report aims to examine how drug price regulation has evolved over the last four decades during which three-drug price control orders were executed. We also analyse how this regulation has kept pace with the changing disease burden in the country during the same time period. Though the scale of the regulation has increased over time, there was a brief period of deregulation as a result of DPCO 1995. We observe that recent orders have increased drugs under regulation in all therapeutic classes, especially drugs used to treat cardiovascular and respiratory diseases, which have witnessed an increase in disease burden as well.
This report examines how price regulation, the policy instrument used to address the affordability of medicines in India, has evolved over the last four decades.
It is important to consider all aspects of drug accessibility – affordable medicines will lessen the financial burden on households; easy availability of generics would mean less reliance on expensive alternatives, and good-quality of drugs is the minimum requirement for effective treatment. Through our analyses in each of these three chapters, we put forth recommendations aimed at addressing issues in the quality of medicines, increasing the availability of medicines and the structure of price control in our country.
Read the full report here