Drug Price Control Order (DPCO)

Under India's Drug Price Control Order (DPCO), the retail prices of pharmaceutical formulations (medicines) are regulated to ensure affordability and accessibility. The National Pharmaceutical Pricing Authority (NPPA) is responsible for enforcing these price controls.

Here’s a step-by-step breakdown of how retail prices are fixed for formulations under the DPCO:

1. Classification of Drugs:

Drugs are categorized into two main lists:
- Scheduled Drugs: These include essential medicines listed in the National List of Essential Medicines (NLEM).
- Non-Scheduled Drugs: Medicines not included in the NLEM.

2. Ceiling Price for Scheduled Formulations:

The retail price of scheduled formulations is fixed based on a "ceiling price" determined by the NPPA.

This formula takes the average price to the retailer (PTR) of all brands or companies that have at least a 1% market share by volume. The government allows a 16% margin to retailers over this price.

Price to Retailer (PTR) = Price at which the retailer purchases the drug.

3. Cost-Based Pricing for New Drugs:

For new drugs, which might not have a market history for such averaging, the NPPA can determine prices based on the manufacturer’s cost, adding reasonable margins for production and retail.

4. Retail Price of Non-Scheduled Formulations:

While non-scheduled drugs are not directly controlled, the DPCO limits price increases for these drugs. Manufacturers are allowed to increase the maximum retail price (MRP) of non-scheduled drugs annually by up to 10% of the previous year's MRP.

5. Factors Considered in Pricing:

The NPPA considers several factors when fixing prices:

Cost of production (including raw materials, packaging, and conversion costs).
R&D costs.
Trade margins.
Manufacturer's profit margin.
Any government subsidies or incentives are applicable to the drug.

6. Monitoring and Compliance:

Manufacturers of scheduled drugs must comply with the ceiling prices set by the NPPA.
If prices exceed the ceiling price, the NPPA has the power to issue notices, penalize companies, and direct refunds for overcharging.

Example:

If a company manufactures Paracetamol, a scheduled drug under DPCO, and has a PTR of ₹10, and the ceiling price calculated by NPPA is ₹12, the company cannot sell the product at a higher price. The retail price would be ₹12 plus a fixed trade margin, say 16%, leading to a maximum retail price of around ₹13.92.

This system ensures that essential medicines remain affordable to the general public while allowing manufacturers and retailers a fair profit margin.