Healthcare cost: How much is too much?

My uncle, after undergoing a successful removal of tumor a few years ago, was recently diagnosed with abnormal growth of cancerous cells. It was a case of metastasis i.e. spread of a cancer from one organ or part to another non-adjacent organ or part. Thankfully the disease was manageable due to timely detection and availability of a suitable drug. As we move ahead I must clarify that in this blog, I am not focusing on the disease or its treatment rather the focus would be the cost of availing such healthcare services. Before I decided to write this blog post, I had a lengthy and animated discussion with one of my friend who has been working in the pharmaceutical industry for quite a few years. 

Let me now outline the cost of the prescribed medication. The prescribed drug was a patented molecule and was priced at 61,000 INR/week. There was a scheme on offer in order to make it affordable. As per the scheme, in case you paid in cash i.e. you couldn't get it reimbursed, you just had to pay 50,000 INR/week. The company would provide a week of free supply in lieu of every week of supply purchased by the customer i.e. 1+1 free. In case your bill reached 6,00,000 INR, the pharma company would provide a free lifetime supply for further dosage. In a nutshell, your out-of-pocket expense was capped at 6,00,000 INR. I would leave this to the discretion of readers whether the numbers quoted in the last few lines are affordable. 

While my uncle’s case may be an isolated one but high out-of-pocket expense coupled with limited supply of healthcare providers ensure that each year 39 million people in India are pushed into poverty because of indebtedness to cover healthcare costs. So, who is to blame? Of course, government is one of them but what about the providers (lets concentrate on the pharma companies in this blog)? My friend, referred to in the first para, felt that it was wrong to blame the pharma companies. Some of the arguments put forth by him are as follows: 

• It’s not the prerogative of the private players to ensure availability as well as affordability of the drugs 
• The research and development costs which could be higher than a few billion USD for certain drugs, justifies the price tag 
• Lowering prices in India could result in undue pressure being put in other countries thereby resulting in a spiraling effect and hampering their profitability in a major way 
• India, despite high volumes, isn’t strategic enough for major players in the short term due to limited purchasing capacity. It’s a fact that India accounts for a very small portion of their global pharma sales 
• With compulsory licensing making the headlines, he was of the opinion that more government interventions could result in companies altogether avoiding launching such drugs in India. 

If you consider his arguments, it’s hard to find fault with them. But are the pharma companies really playing it fair? A few points that highlight some critical issues are as follows: 

• The sales and marketing initiatives of the pharma companies leave a lot to be desired. While they may hide behind the government’s inaction but today India has become a major market for branded generics largely due to existing malpractices and complicity of govt. officials 
• Even their pricing mechanism (an issue also raised by the regulators) for India doesn't take into account the purchasing capacity of the country thereby resulting in 6,00,000 INR being touted as an affordable figure 
• The marginal cost (R&D cost is an upfront cost) for smaller molecules is much less. After all once compulsory licenses are enforced, price for such drugs comes down drastically (as low as 3% of the original price in some cases) 
• While India may not be a very profitable proposition for patented drugs yet but OTCs and branded generics are already proving to be attractive opportunities given the size of the population 

It may take ages if pharma companies wait till purchasing power of India rises to be in line with that of the developed economies before they enforce a fairer pricing policy. After all, India has allowed product patent under the WTO agreement thereby opening up a huge market for these companies. And given the criticality of healthcare, it can’t simply be left to the market forces i.e. demand and supply. 

So is there a way out or the stalemate, as outlined by continuing activity on the compulsory licensing front, would continue? (BDR Pharmaceuticals applied to the patent office for a compulsory license to sell a generic version of BMS Co's cancer drug in Mar’13). One possible way out for the pharma companies would be to collaborate with the government e.g. an assured value of procurement by govt. if prices are voluntarily lowered by them. Greater transparency on pricing which includes factors like per capita income, insurance coverage etc. would also help pharma companies counter the growing cynicism against them.

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