Centre’s Trade-Margin Cap on Cancer Drugs Set to Take Effect, Raising Supply Chain Cost Concerns

In approximately two weeks, the Centre’s 30 percent trade-margin cap on 137 non-scheduled cancer medicines is scheduled to reflect in the pricing of these products sold at chemists and hospitals. While patients anticipate financial relief through lower medicine prices, healthcare industry participants and advocacy voices caution that addressing specific therapeutic segments in isolation may push up costs across other parts of the supply and delivery chain.

According to the Centre's affidavit, the proposed trade margin cap is expected to result in significant reductions in the Maximum Retail Price (MRP) of anti-cancer drugs, estimated to be between 20 percent and 70 percent. The government pointed out that the move will increase transparency, reduce out-of-pocket expenditures for cancer patients, and generate an estimated annual savings of approximately ₹2,500 crore.

The government's affidavit further explains that patients often have low bargaining power relative to hospitals, along with limited knowledge regarding drugs, substitutes, and prices. These asymmetries persist despite strong competition among manufacturers, creating the need for regulatory intervention.

N. Santhanam, a healthcare administrator with experience in hospital and pharmaceutical segments, noted that the industry will likely absorb the cap, stating that no one will go out of business. While recognizing that cancer drugs are expensive, Santhanam suggested that affordability initiatives should be comprehensive and cover other therapeutic segments featuring costly medicines.

Other industry experts, speaking on the condition of anonymity, indicated that hospitals and drug companies will both face impacts from the trade-margin caps. They noted that these organizations might recover lost revenues from alternative services that were previously unbilled. Drawing comparisons to the price caps on cardiac stents implemented roughly nine years ago, they pointed to potential price increases on other items and services.

Hospital administrators outlined various operational expenses, including salaries, doctor fees, and investments in infrastructure, technology, and infection control. The head of a corporate hospital warned that a shrinking pool for cost recovery could lead to unbilled services acquiring a price tag, emphasizing the need for a comprehensive evaluation of hospital operations.

Sudarshan Jain of the Indian Pharmaceutical Alliance stated that drug companies are currently working on the logistics required to implement the trade-margin caps within the deadline of November 9, and emphasized the need for ongoing monitoring. He noted that companies will communicate price cuts to consumers to ensure benefits are passed on.

Meanwhile, KM Gopakumar, Co-convener of the Working Group on Access to Medicines and Treatments, argued that cancer drugs will remain expensive for patients who require multiple doses each month. He advocated for ceiling prices on other hospital services to prevent costs from shifting to items like diagnostics.

Industry insiders also noted that the trade-margin cut could make innovator drug prices more accessible to patients, narrowing the gap with less-expensive generic alternatives. While innovator companies are expected to comply with the directive to maintain production for now, the changes may prompt them to evaluate future strategies.

"Regulatory interventions aimed at making essential medicines affordable are crucial for reducing patient financial burdens. However, as industry experts point out, capping margins in isolation can create unintended shifts in operational costs across the healthcare supply chain. For sustainable business practices in the pharmaceutical and healthcare sectors, enterprises must carefully evaluate their cost structures and revenue models to adapt to regulatory changes without compromising service quality." — Dr. Shishir Gupta, Founder & CEO, StartupLanes