March 21, 2013 Cited in Media 0 Comments

How pharma giants use litigation to evade fines

By Shonali Ghosal 

Pharma companies have been fleecing the consumers by overpricing their medicines. As of 31 January, the total amount overcharged by companies stands at a mind-boggling Rs 2,596 crore, according to the National Pharmaceutical Pricing Authority (NPPA). This figure is for the period since 1997 when the regulatory body was set up. On the other hand, the amount recovered by the NPPA stands at a measly Rs 234 crore — just 9 percent of the total.

Cipla tops the list of defaulting companies and owes the regulator fines amounting to Rs 1,684 crore. According to the list of erring companies and the recoveries made from them (available on the NPPA website), the pharma giant figures in 16 different instances of overpricing. Despite sending out demand notices, the regulatory body has failed to get Cipla to pay up even in a single instance.

The second major defaulter is Ranbaxy, which has already paid Rs 30 crore in fines, but still has dues pending of Rs 105 crore.

Under the Drugs (Prices Control) Order (DPCO) of 1995, the NPPA is empowered to regulate prices of medicines that use 74 out of the 500 commonly used bulk drugs (active pharmaceutical ingredients in medicines). These 74 drugs are mentioned in the  National List of Essential Medicines of India. When companies overprice these drugs, the NPPA can recover the overcharged amount in addition to an annual interest of approximately 15 percent as per the Essential Commodities Act.

However, once the company challenges the decisions in court, the case drags on as the DPCO does not allow for out-of- court settlements. One contention commonly raised by companies is that the composition of the medicine they produce and market is different from what is mentioned in the notification.

Companies also argue that they are a small-scale industry and therefore exempt from regulation, or that the stipulated price for the composition was not known at the time they introduced the medicine in the market.

As a result, more than 90 percent of the pending fines remain unpaid and locked up in lengthy litigation.

Though most other companies have either paid or have started paying their fines, Cipla has at least three cases stuck in various high courts and the Supreme Court. Consequently, the penalty for overcharging keeps rising every year with the annual interest adding up. Sources say the Supreme Court has asked for all of Cipla’s cases to be sent to it so they may be disposed together.

Some like Delhi-based RTI activist Afroz Alam Sahil raise questions about the efficacy of the NPPA itself. In response to an RTI petition filed by him last year, the NPPA said it does not have a compiled list of drugs and pharmaceutical companies, and asked him to look up the Directory of Pharmaceuticals Manufacturing Units in India on the Internet. “How do they monitor companies they do not have a record of?” asks Sahil.

Replying to another question in the petition, the NPPA stated that the sampling that was done to check if any drugs were actually being sold at rates higher than their MRP was mostly confined to the Delhi region in 2012. “That allows companies to contest the quality of sampling as their drugs are sold all over the country,” says Sahil. “How can the NPPA care only about drugs sold in and around Delhi?”

Though the Ministry of Chemicals and Fertilisers is set to enforce a price cap on 348 ‘essential medicines’ as opposed to the existing 74 bulk drugs on the essential medicines list, this step can contribute to the reining in of drug prices only if the NPPA is able to recover fines from defaulting companies. Currently, about 1,000 formulations that include the 74 essential bulk drugs are under price control.

Along with the proposed expansion of the list, a new Drugs Prices Control Order would also be in place to directly check the price of specific formulations.

While Ranbaxy did not answer TEHELKA’s queries, saying “the matter is sub judice and we cannot comment”, Cipla has not responded despite several calls and emails over the past two weeks.

This article was first published on, March 21, 2013.