PM Narendra Modi recently announced that his government may soon make ‘legal arrangements’ to ensure that doctors prescribe only generic medicines. This was met with mixed responses. While a few have hailed this move as a much needed reform to make healthcare affordable to the common Indian, a few others have termed it as a continuation of Modi Government’s intervention in business. The real answer may be more complicated than this.
To start with, let there be no doubt in anybody’s mind that a nexus between doctors and pharmaceutical companies does exist and this nexus is one of the major driving force behind doctors prescribing for branded drugs rather than their cheaper, generic counterparts. Examples like this (http://timesofindia.indiatimes.com/india/doctors-turn-sales-representatives-in-live-surgery-telecasts/articleshow/58201115.cms) news, where doctor announced brand names while doing live procedure at NIC conference, are all too common and it will be irresponsible for any government to turn a blind eye towards it.
From transactional perspective, doctor- patient have a vendor-client relationship where the client pays the vendor. If you pay a vendor for his services, it is his professional responsibility to ensure that he puts your interests above other stakeholders. In mutual fund industry, where the mutual fund companies pay commission to distributors for sourcing business, the distributor is still held responsible for putting investor’s interests ahead of the mutual fund company. Recently, regulator has mandated that the client receives a statement at periodic intervals that show the pay-out the mutual fund company is making to the distributor for the investment made by the client. Compare this to the healthcare industry where 1) patient is paying the doctor 2) doctor is still getting a pay-out by the drug company and 3) no disclosure is made of the doctor-drug company transaction. No other service provider in any other industry can hope to get away with similar terms.
While deciding on the government intervention, it is important to frame this debate not as that of big government capping profits of private enterprises, but that of two powerful stakeholders in an essential industry colluding with the express purpose of mutual profit maximization. Even by the most lenient definition of free markets, this is not a business practice that forces of markets would eventually balance. Hence government must step in.
The disastrous aftershocks of this practice reach far beyond the patient and his immediate family. With health insurance penetration increasing in India, more and more people seeking treatments for serious ailments have part of their expenses covered by their insurer. As medicine costs is a major part of the overall costs, branded drugs increase the bills and by extension the claim amounts for the insurer. This may result in premiums going up over a period of time and make health insurance costly for everyone. It is not fair to expect ordinary insurance holders to subsidize the profits of drug companies and doctors.
It is also worth noting that even among more developed economies where the free market principle is supposed to be in practice, governments have stepped in from time to time to regulate and even punish drug companies. Most recently, In Dec 2016, Pfizer was fined a record 106 MN USD for hiking the price of their epilepsy drug by 2600%. (http://www.business-standard.com/article/news-ians/pfizer-fined-106-mn-for-unfair-prices-of-epilepsy-drug-116120700996_1.html)
What about the branded drugs then?
Even though I do not completely understand the complex economics behind pharma research and pricing, I appreciate that a drug company that has invested millions in research ought to be able to profit in return of the risk they undertake. There is also a constraint that pharmaceutical companies are not allowed to advertise their drugs directly and to a certain extent the drug company- doctor nexus is also a result of this constraint. May be, the government should consider relaxing norms on advertising for drug companies, at least for their branded drugs. Another, perhaps more out-of-the box solution is to allow an official tie-in between doctors and drug companies, the terms of which are disclosed to the patients. This might bring the good old free market competition into play, thereby reducing prices for the patients.
Former British Prime Minister Tony Blair once said that it is not an arrogant government that chooses priorities, it’s an irresponsible one that fails to choose and even though I am no big fan of Mr. Blair , I think it is an apt one for the topic under discussion. So while it is possible that the government may overreach, only an irresponsible government will fail to take a stand on an issue as important as this one, out of the fear of overreaching.
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