The Supreme Court on Monday indicated that the government's reply regarding a 30 per cent trade margin ceiling on anti-cancer drugs — pegged to the maximum retail price — fell short of what the bench considered adequate, with the judges also pressing for an explanation as to why similar pricing limits could not be extended to other medicines.
The government had announced a decision to cap trade margins on anti-cancer medicines at 30 per cent of the maximum retail price — a move projected to deliver roughly Rs 2,500 crore in annual relief to patients — and has previously faced judicial scrutiny over hospitals charging steep markups on oncology drugs.
Justices Vikram Nath and Sandeep Mehta, sitting together on the bench, found the Centre's reply inadequate, pointing out that a saline drip retailing at Rs 270 carries a manufacturing cost of just Rs 11. One of the judges remarked that there was little cause for satisfaction in the matter.
The bench remarked that the framework put forward by Solicitor General Tushar Mehta and Additional Solicitor General Aishwarya Bhati, who were representing the Centre, appeared to offer no tangible benefit to patients.
Justice Nath put it to the Solicitor General that the bench was unable to see why, having already placed a ceiling on anti-cancer drug prices, the government had not extended a similar pricing framework to medicines more broadly — adding that while factors such as transportation, raw materials, research and development, and other related expenses were well understood, those costs were already accounted for within the maximum retail price.
Questions about the rationale for permitting markups of 400 times the production cost were raised by the bench, which put the question directly, asking how such a situation could be permitted.
Bhati put forward the position that pharmaceutical prices across India rank among the most affordable anywhere globally, a factor he attributed to the draw of international patients seeking medical care there.
Justice Mehta noted that a domestically manufactured cardiac stent carries a production cost of roughly Rs 5,000, yet hospital billing for the same device routinely reaches upward of Rs 25,000; a comparable gap was noted for the antibiotic Azithromycin, whose manufacturing cost of approximately Rs 28 stands in contrast to the retail price of over Rs 70 at which it changes hands.
Tushar Mehta argued that price controls on medicines have a practical ceiling, pointing to the role of wider profit margins in making drugs available to remote and underserved communities.
Justice Mehta noted that delivering price-controlled medicines to patients is a governmental obligation, adding that the administration bears responsibility when DPCO-listed drugs fail to reach those who need them.
The bench directed Solicitor General Tushar Mehta to propose a framework for placing a ceiling on drug prices, with the core question before the court being which medicines fall within the DPCO-regulated list and which do not. The bench adjourned the proceedings to October 27, noting that any such mechanism would serve to reinforce the government's position. The bench also directed that all necessary steps be completed no later than 27 October.
According to a 551-page affidavit filed by the Centre, responsibility for preparing and publishing the national list of essential medicines rests with the Ministry of Health and Family Welfare.
The affidavit described the National List of Essential Medicines as a document assembled by the Standing National Committee on Medicines — a body drawing together relevant specialists and stakeholders — which takes into account, among other reference points, the World Health Organization's own essential medicines catalogue, drugs deployed across National Health Programmes, the Indian Pharmacopoeia, and the National Formulary. The 2022 edition, the most recent of three versions published since 2011, covers 388 medicines and upwards of 900 formulations.
Under the government's medicine pricing framework, the ceiling rate for any scheduled formulation is derived by computing a simple average of the retailer-level price across all brands and generic equivalents that each hold at least a one per cent share of total market turnover — measured on a moving annual basis — and then adding a 16 per cent margin to that averaged figure, with the resulting number serving as the maximum retail price beyond which no sale of the drug is permitted.
The affidavit also noted that producers retain the ability to offer an appropriate margin to both wholesalers and retailers within the bounds of the established ceiling price, with such price caps now set across 935 formulations to date.
Regarding medicines outside the scheduled category, the government noted that producers are free to set their own introductory price and are expected to factor in the competitive landscape when doing so, while the National Pharmaceutical Pricing Authority keeps watch over the maximum retail prices of all such unscheduled products to prevent any producer from raising that price by more than ten per cent within a rolling twelve-month window.
In a ruling handed down on 29 September, the court characterised the practice as causing widespread harm to patients, pointed to hospitals levying prices on cancer drugs at ten times their base cost, and recommended that a uniform profit margin of 16 per cent be applied across all medicines. The court also urged the central government to examine the practice of hospitals compelling patients to buy medicines exclusively through their own in-house pharmacies, noting that ordinary people bear the burden of such arrangements.
Petitions placed before the apex court sought rulings on pricing controls for medicines, the mandating of generic prescriptions, and oversight of medical devices under the DPCO, 2013.
