Supreme Court Flags Steep Mark-ups on Essential Drugs

Why in news?

The Supreme Court asked why the DPCO’s 16% retailer margin is not applied uniformly, citing ten-fold cancer-drug mark-ups.

UPSC Relevance

Prelims: NPPA, Drugs (Prices Control) Order 2013, NLEM, Essential Commodities Act, Pradhan Mantri Bhartiya Janaushadhi Pariyojana, trade margin rationalisation.

Mains GS-II: Issues relating to development and management of health; government policies and interventions; role of the judiciary; welfare of vulnerable sections.

Mains GS-III: Inclusive growth; pharmaceutical industry; public spending and its efficiency.

GS-IV : Ethics in healthcare and business; profit versus public good.

What the Supreme Court observed

• A Bench of Justices Vikram Nath and Sandeep Mehta expressed concern over the sharp gap between the price at which essential medicines are supplied to retailers and the price charged to consumers, especially for cancer drugs.
• The Bench said such steep mark-ups place an enormous burden on taxpayers and described the situation as “carnage” or slaughter.
• It asked the Centre why the 16% retailer margin provided under the Drugs (Prices Control) Order (DPCO), 2013 should not be applied uniformly to all essential medicines, so as to curb steep mark-ups over the Price to Retailer (PTR). In its words, the loser ultimately is the taxpayer.
• The observations came while hearing petitions filed by advocate Kishan Chand Jain and paediatric surgeon Sanjay Kulshrestha, seeking the Court’s intervention to regulate the prices of drugs, medical equipment and generic medicines and make them more affordable.
• Example – Cancer drug: Justice Mehta pointed to a nearly ten-fold mark-up on an essential cancer drug that was supplied to retailers for about ₹3,000 but sold to consumers for ₹27,000. He asked who ultimately benefited from the difference of nearly ₹24,000.

Constitutional and legal dimensions

• Right to health: The Supreme Court has read the right to health and emergency medical care into Article 21 (Parmanand Katara case, 1989; Paschim Banga Khet Mazdoor Samity case, 1996). Unaffordable essential drugs weaken this right in practice.
• Directive Principles: Article 47 makes it the duty of the State to raise the level of nutrition and the standard of living and to improve public health. Article 39(e) and Article 41 also point to State responsibility for the health of workers and public assistance in sickness.
• Division of powers: Public health and hospitals are a State subject (Entry 6, List II), while drugs and poisons (Entry 19) and trade and commerce in products (Entry 33) are in the Concurrent List. This is why drug pricing is regulated by the Centre, but hospitals are regulated largely by States.
• Regulating hospitals: The Clinical Establishments (Registration and Regulation) Act, 2010 allows standardisation of rates, but it has been adopted by only some States. The NHRC’s Charter of Patients’ Rights (endorsed by the Health Ministry) recognises a patient’s right to buy medicines from any registered pharmacy of choice.
• Earlier, in (Siddharth Dalmia v. Union of India, 2025), the Supreme Court had asked States to frame policies to stop private hospitals from forcing patients to buy medicines and consumables from in-house pharmacies at inflated prices.

Understanding the drug price control framework

• Legal basis: The Drug Prices Control Order is issued by the Centre under Section 3 of the Essential Commodities Act, 1955, which allows it to control the production, supply and price of essential commodities. Drugs are an essential commodity under this Act.
• Evolution: India has had DPCOs in 1970, 1979, 1987, 1995 and 2013. The National Pharmaceutical Pricing Policy, 2012 shifted the method of price fixation from a cost-based approach to a market-based approach, which the DPCO 2013 put into effect.
• Coverage: Only medicines listed in the National List of Essential Medicines (NLEM), placed in Schedule I of the DPCO, are directly price-controlled. These are called scheduled formulations.
• How the ceiling price is fixed: The NPPA takes the simple average of the Price to Retailer (PTR) of all brands of a medicine having at least 1% market share, and then adds a 16% margin to the retailer. The consumer price is this ceiling price plus GST.
• Annual revision: Ceiling prices of scheduled medicines are revised every year in line with the Wholesale Price Index (WPI).
• Non-scheduled medicines: Their prices are not fixed, but manufacturers cannot raise the MRP by more than 10% in 12 months.
• Special powers (Paragraph 19): In extraordinary circumstances and in public interest, the government can fix or cap the price of any drug, including non-scheduled ones. This was used to cap the prices of coronary stents (2017) and knee implants (2017), and for trade margin rationalisation of anti-cancer drugs (2019).

Why steep mark-ups persist

• Limited coverage of price control: Only NLEM medicines are directly controlled. A large share of the market consists of non-scheduled drugs, where trade margins are not capped.
• Loopholes in the scheduled list: Price control applies to a specific formulation, strength and combination. Companies can shift to non-scheduled strengths or fixed-dose combinations to escape control. The Rosuvas example shows the opposite distortion, where a single drug costs more than its controlled combination.
• Margins on PTR, not on MRP: Because many companies print a high MRP and give a low PTR, a large hidden margin is created. Hospitals and retailers compete for stock by demanding higher margins, not lower prices for patients.
• Captive patients in private hospitals: In-house pharmacies sell at MRP, and patients, especially in emergencies or cancer treatment, have little bargaining power. An NPPA analysis in 2018 of private hospitals in Delhi-NCR found margins on drugs and consumables ranging from about 344% to over 1,700%.
• Information asymmetry and inelastic demand: Patients cannot judge prices or alternatives, and demand for life-saving drugs does not fall when prices rise. This is a classic case of market failure.
• Branded generics and prescribing practices: Doctors often prescribe brand names, and unethical marketing ties between companies and prescribers push costlier brands. The Uniform Code for Pharmaceutical Marketing Practices (UCPMP), 2024 is voluntary and lacks strong penalties.

Why this matters

• High out-of-pocket expenditure (OOPE): Although OOPE has fallen, it still forms close to two-fifths of total health expenditure as per recent National Health Accounts estimates. Medicines are the single largest component of OOPE, pushing many families into poverty.
• Rising cancer burden: ICMR estimates show India’s cancer cases rising to over 15 lakh a year. Cancer treatment runs for months, so mark-ups on anti-cancer drugs cause catastrophic spending.
• Burden on the public exchequer: Government health schemes such as CGHS, ECHS, Ayushman Bharat–PM-JAY and State insurance schemes often reimburse medicines at or near MRP. Inflated prices therefore become a direct cost to taxpayers, which is the point stressed by the Bench.
• Credibility of ‘Pharmacy of the World’: India is the third-largest producer of medicines by volume and a leading supplier of low-cost generics globally. It is a paradox that Indian patients themselves face unaffordable drug prices at home.
• Universal Health Coverage: Affordable medicines are essential to achieving SDG 3.8 (Universal Health Coverage) and the goals of the National Health Policy, 2017, which stressed free drugs in public facilities.

Way Ahead

• Rationalise trade margins: Extend trade margin caps, in a phased manner, to all essential and high-value medicines, including non-scheduled drugs and combinations, and consider fixing margins in relation to MRP rather than only the PTR.
• Close loopholes: Price control should cover all strengths and combinations of an essential molecule, so that companies cannot escape by changing the formulation.
• Regulate private hospitals: Enforce the patient’s right to buy medicines from any pharmacy, bring hospital drug and consumable prices under transparent disclosure, and push wider adoption of the Clinical Establishments Act.
• Strengthen the NPPA: Give it statutory backing, more staff and data systems for real-time price monitoring through PMRUs in every State.
• Promote quality generics: Encourage prescription by generic name, supported by strong quality testing so that doctors and patients trust generics.
• Make UCPMP binding: Give the marketing code legal force with penalties to break the nexus between companies and prescribers.
• Raise public spending on health: Move towards the National Health Policy target of 2.5% of GDP, with free essential medicines in public facilities to reduce dependence on private pharmacies.

The Supreme Court’s remarks highlight a simple truth: controlling the price of a drug at the factory gate is of little use if the gains are captured along the supply chain. A fair system must balance the viability of industry and trade with the patient’s right to affordable treatment. 

National Pharmaceutical Pricing Authority (NPPA)

National List of Essential Medicines (NLEM)

Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP)

Practice Questions

Q1. Consider the following statements regarding drug price regulation in India:

1. The Drugs (Prices Control) Order, 2013 is issued under the Essential Commodities Act, 1955.

2. The National Pharmaceutical Pricing Authority prepares the National List of Essential Medicines.

3. Manufacturers of non-scheduled formulations can increase the maximum retail price by up to 10% in twelve months.

How many of the statements given above are correct?

(a) Only one     

(b) Only two     

(c) All three     

(d) None

Answer: (b). Statements 1 and 3 are correct. Statement 2 is incorrect, as the NLEM is prepared by the Ministry of Health and Family Welfare through the Standing National Committee on Medicines; the NPPA only fixes prices.

Q2. Consider the following statements:

Statement-I: A fixed-dose combination of two drugs may be sold at a lower price than one of its constituent drugs sold alone in India.

Statement-II: Price control under the Drugs (Prices Control) Order, 2013 applies to specific formulations listed in its Schedule, and not to every medicine containing the same molecule.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I

(b) Both Statement-I and Statement-II are correct but Statement-II does not explain Statement-I

(c) Statement-I is correct but Statement-II is incorrect

(d) Statement-I is incorrect but Statement-II is correct

Answer: (a). A scheduled combination (such as rosuvastatin with aspirin) is price-controlled, while the single drug may be non-scheduled and priced freely, so the combination can be cheaper.