Supreme Court Questions Huge Gap Between Drug Cost and MRP, Calls Pricing Regulator Defunct

On October 27, a Bench of Justices Vikram Nath and Sandeep Mehta questioned the Centre over the wide gap between the price to retailer and the maximum retail price for medicines and hospital supplies, said the National Pharmaceutical Pricing Authority looked "totally defunct" and reserved its order on pleas seeking tighter regulation of hospital billing.

Figures placed before the Court drove the hearing. A drip line procured for about Rs 15 was sold at Rs 250. An item or course of treatment costing around Rs 11,000 to the retailer carried a printed price of about Rs 1.3 lakh. The Bench asked how gaps of that scale could be defended and whether existing rules allowed the margin to expand to that extent between procurement and sale to patients.

Salaries, buildings, power and other running costs were not an answer, Justice Nath and Justice Mehta said. Hospitals cited staff pay, infrastructure and electricity to justify the bills. The Court said those expenses had to be charged separately and shown clearly if they were to be recovered. They could not be loaded invisibly into the price of drugs and consumables.

The regulator drew the sharpest remark. The Bench said the National Pharmaceutical Pricing Authority appeared totally defunct if multiples of this order persisted in open sales and hospital pharmacies without check. It asked what monitoring of trade margins was done, how price data was collected and what action followed when cost and printed price diverged so far.

New Delhi was asked to explain the legal basis for the present system. The Bench wanted to know if any cap applied to the margin between price to retailer and printed price for non-scheduled products and devices, who fixed that margin and how compliance was verified. The questions covered medicines sold through retail chemists and products supplied and billed inside hospitals, where patients often have no option to compare or refuse.

Maximum retail price gaps hit patients

The chain under dispute is short. A manufacturer sells to a distributor at a transfer rate. The distributor supplies the retailer or hospital pharmacy at the price to retailer. The pack then bears a higher printed figure for sale to the consumer. Where competition is weak and information is limited, the distance between the second and third figures widens. The petitions say that is what has happened in parts of health care sales.

Hospitals sit apart in that chain. A street chemist only sells. A hospital often prescribes, dispenses and bills the product under one roof. Patients taken in for surgery or emergency care rarely shop for alternatives. They pay the bill handed over at discharge. The pleas argue that lack of choice makes strict control of trade margins more urgent inside hospitals than in open retail.

Stents, implants, syringes, IV sets and common drugs figure in the complaints from doctors and patient groups. Families enter a hospital for a fixed procedure and leave with charges far above the estimate because consumables are priced high. Households without insurance borrow or sell assets to pay. Those with cover exhaust policy limits and are left short for later treatment.

Out-of-pocket spending still pays for much of health care in India, and medicines take a large share of it. The Bench linked the billing practice to that burden. When the printed price bears little relation to procurement cost, trust in the bill weakens. The Court said it had to examine whether existing rules protected patients or whether fresh directions were needed.

Bench questions NPPA oversight

The National Pharmaceutical Pricing Authority works under the Department of Pharmaceuticals to fix and monitor prices of scheduled medicines and to watch trade margins for other products. Its powers flow from the Drugs (Prices Control) Order issued under the Essential Commodities Act. In recent years it has capped trade margins on selected anti-cancer drugs and price-sensitive devices and issued market-based price lists for scheduled formulations. October 27 raised whether that work had kept pace with market practice.

Counsel pointed to limits in the present method. Scheduled drugs have ceiling prices. A large segment of medicines, consumables and implants stays outside direct price fixation. For those products, a manufacturer can declare a high printed price while the actual supply rate to hospitals remains low, leaving room for a large retained margin. Enforcement rests on company filings, sample checks and complaints. The Bench said that system had shown no visible restraint.

That is why drug price control was discussed at length during the hearing. The Bench asked whether margin caps applied to a few categories should be extended, how a workable formula could be fixed without choking supply and who would audit hospital purchase invoices against billed amounts. No formula was laid down on October 27. The Court said these were matters for order, after weighing the reply of the Centre and the material from the petitioners.

Strain over medicine bills is visible outside courtrooms. Families compare discharge summaries with chemist rates in the market outside. Chemists speak of identical strips sold at different printed prices under different labels. The same search for clarity sends users online to check hospital estimates and queries such as birth control pills philippines mercury drug price to learn what a retailer will actually charge. The hearing tapped that demand for a printed price tied to cost plus a fair margin.

Counsel for the Centre was heard on the mechanism for collecting price data and acting on violations. The Bench asked for specifics, not general statements of policy. It sought the number of excess-margin cases detected in recent years, the penalties imposed and whether hospitals billing above a set margin had faced action. Those answers, the Court indicated, would shape the scope of its order.

Orders have now been reserved. No new cap or penalty was announced on October 27, and no date for pronouncement was fixed in court. Hospitals, makers and the regulator must wait for written directions on how trade margins are computed, disclosed and enforced. For patients, the order will decide whether the discharge bill stays tied to the cost of what was used.