Alice Mollon
Drug price caps are meant to bring an array of benefits for patients and healthcare systems—improved access to essential and life-saving medicines, better public health outcomes, and reduced financial burdens. But they might actually limit the distribution of medicines to those in need, according to Indian Institute of Management Calcutta’s Saravana Jaikumar, Chicago Booth’s Pradeep K. Chintagunta, and IIM Ahmedabad’s Arvind Sahay.
Analyzing an array of data following the introduction of a policy in India regulating prescription drug prices, the researchers find that average sales of the regulated drugs fell significantly in the country compared with those in the Philippines, whose culture, economy, and healthcare system all share some similarities with India. This raises the counterintuitive idea that drug price caps could actually lead to worse outcomes for some people, particularly the very poor—the exact people that price limits are supposed to help.
In India, about 80 percent of healthcare costs are paid for by individuals themselves, mostly through out-of-pocket expenses. In 2013, India’s Drug Price Control Order placed 348 essential medicines under price regulation, mostly capping them at the average price of all the main brands. The DPCO primarily targets manufacturers, not retailers.
Jaikumar, Chintagunta, and Sahay looked at monthly sales data from wholesalers covering 179 of the regulated medicines. The researchers compared those drugs to synthetic ‘control’ drugs they created using sales data from the Philippines to estimate how each drug in India was affected by the DPCO rules. The findings demonstrate that average sales in India decreased in the 12 months ending in May 2014, after the regulations came into force—by around half a million units per month per drug, indicating an average decline of about 1.2 percent per drug each month.
What accounts for this slump in sales? The researchers suggest that because these drugs became less profitable, pharmaceutical companies might have spent less money on promoting them, particularly through the practice of detailing, or sending representatives to doctors’ offices to provide information about the drugs.
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How Drug Ads Can Help Patients Get Access to TreatmentTo test their idea, the researchers assessed data on 54 medicines from a large Indian drug company, some regulated and some with no price cap. They studied how often the pharma giant’s salesforce visited doctors to solicit those drugs between 2012 and 2014, and found visits decreased for pills with a price cap, and increased for those without the price ceiling.
The research concludes this reduction in promotional spending particularly affected the number of prescriptions written by doctors without formal medical training, who often treat poorer people in India. Prior field reports suggest that 57 percent of allopathic doctors in India have no medical degree—with the proportion being even higher in rural areas—and that these providers rely more on detailing than do those with formal medical training.
The researchers carried out a survey of these doctors in India in which they asked for an estimate of the percentage of times the respondents had prescribed various brands of two different antibiotics, only one of which was regulated. The surveyed doctors also answered questions about the detailing behavior of drug companies. The results support the notion that changes in detailing affect the behavior of doctors without formal medical degrees more, which corresponds with prescription data showing a 3 percent decline in prescriptions of price-regulated drugs by this physician group.
The most direct implication of the study, Chintagunta says, is that regulators need to think about the whole system—patients, doctors, pharmacies, and drug companies—when drawing up policy. Cutting doctors off from information from drug companies, he says, could lead them to prescribe the wrong pills, potentially harming patients. Reducing pharmacy profits, meanwhile, might lead to fewer drugs being stocked, while drug companies might focus on marketing more profitable pills, thereby raising prices for patients or stopping production of important but less lucrative medicines.
Ideally, Chintagunta says, instead of putting limits on specific drugs, regulators would focus on a few important groups of medicines and set price limits for the entire category. With this approach, a company making one type of medicine wouldn’t have much reason to switch focus to another type in the same group. However, in such a scenario, regulators need to encourage new drug launches in the category under regulation as well, to ensure firms don’t reduce their investments in R & D. “This way,” he concludes, “we think the regulators can achieve their goals without causing unintended problems.”
Saravana Jaikumar, Pradeep K. Chintagunta, and Arvind Sahay, “Do No Harm? Unintended Consequences of Pharmaceutical Price Regulation in India,” Working paper, December 2023.
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