Centre tells Supreme Court it is examining high margins and malpractices beyond cancer drugs

The Centre has informed the Supreme Court that while it capped trade margins on anti-cancer drugs at 30 percent due to extreme markups in oncology, it is actively examining other high margins and malpractices in medicine and hospital consumable pricing.

In an affidavit filed on October 12 in response to a petition by Dr. Sanjay Kulshrestha, the Department of Pharmaceuticals stated it is cognizant of systemic malpractices driven by patients' weak bargaining power and lack of information. Although the government has currently acted only on oncology drugs, the filing noted that other cases of high margins and malpractices are being examined in consultation with stakeholders, though no specific timelines or additional drug categories were outlined.

The government's affidavit highlighted extreme pricing asymmetries, particularly within hospital supplies. While noting that India’s overall drug market is competitive and generally keeps prices low, healthcare involves information and bargaining asymmetries between patients on one side and hospitals, doctors, and pharmacies on the other. According to the filing, these dynamics lead to various malpractices despite manufacturing competition.

The affidavit pointed out that hospitals typically buy medicines from manufacturers offering the highest trade margin and sell them to patients at maximum retail price (MRP). In oncology, margins reportedly range from 170 percent to 700 percent or more, linked to the fact that recent medical advances, especially biological drugs, are more often distributed through hospitals. Prices in other therapeutic areas are described as relatively much lower.

Regarding hospital consumables, the Centre stated that margins of 100 percent to 1,000 percent or more are prevalent. Hospitals tend to procure items with high MRPs but low purchase prices. While government schemes and insurance generally include these supplies in negotiated package rates, patients paying directly are billed separately at MRP.

The government also addressed arguments surrounding legitimate differences in trade margins. It noted that low-value products, rural markets with low sales volumes, items requiring cold chain or fragile packaging, slow-moving drugs, and products lacking return-of-expired-stock arrangements may necessitate higher margins to maintain availability. For consumables ranging from very low-cost items to ₹350 or more, the affidavit stated that a uniform percentage margin would not work, and setting margins requires extensive consultation due to varying nursing and administrative charges across hospitals.

The decision to cap trade margins on anti-cancer drugs at 30 percent of MRP matches the level used in a 2019 exercise. The government expects MRPs for these drugs to fall by roughly 20 percent to 70 percent, saving patients about ₹2,500 crore annually. The aim is to balance a reasonable margin with the prevention of excessive pricing without directly reducing manufacturers' selling prices. A previous 2019 notification capped margins on 42 non-scheduled anti-cancer drugs, lowering MRPs across 526 brands and yielding estimated annual savings of ₹984 crore.

"The government's scrutiny of trade margins in healthcare highlights a critical challenge regarding pricing transparency and patient information asymmetries. For businesses operating in the healthcare, pharmaceutical, and hospital supply sectors, compliance and ethical pricing models will become increasingly vital as regulatory oversight tightens. Startups and enterprises in this space must build sustainable revenue strategies that do not rely on extreme markups on consumables and specialized medicines, keeping long-term regulatory compliance in sharp focus." — Dr. Shishir Gupta, Founder & CEO, StartupLanes