Indian drug price regulator chases fines for overcharging on generics

Published: 11-Jun-2012

Litigation has severely limited the amount recovered to date by the NPPA

By A Nair, Asia correspondent

Leading Indian pharmaceutical manufacturers, such as Cipla, Dr. Reddy's and Ranbaxy, and multinational companies including Pfizer, GlaxoSmithKline, Merck & Co and Eli Lilly have been pulled up by the drug price regulator, the National Pharmaceutical Pricing Authority (NPPA), for overcharging on such generic drugs as ciprofloxacin, salbutamol, cloxacillin, norfloxacin, doxycycline and ibuprofen.

In the 10 years, up to October 2011 the NPPA had imposed a cumulative penalty of US$443m on several pharmaceutical companies in India, a vast majority of which are multinationals, for overcharging Indian consumers. Since then, the authorities have been able to realise only a meagre $39m from the drug manufacturers. During the first three months of 2012, the agency has sent notices in nine cases to recover an amount of $25m.

In nearly 600 cases, the companies have complied and cleared their dues, but much of the remaining amount is caught up in litigation. Several of the drug companies are currently fighting a case in the Supreme Court against the government, claiming the demand is not tenable and sustainable.

Some 800 drug companies in India have had demand notices sent to them for charging higher prices than that fixed by the nodal drug price monitoring authority. Mumbai-based Cipla said it has received demand notices for $76m from the NPPA towards interest for alleged drug overpricing and further demand notices from the government towards interest up to January 2012.

The interest is on the allegedly overcharged amounts in respect of the same drugs that are a subject of litigation in India's Supreme Court. Cipla had previously received a demand notice for $221m (inclusive of interest) from the government for the period July 1995 to April 2009.

The NPPA has been in litigation with Cipla over the issue, and has not been able to recover any amount from the drugmaker. According to the NPPA’s website, until 31 March 2012 the penalty imposed on Cipla is the highest.

The drug price monitoring laws in India empower the NPPA to force companies to slash their profit margins in case of more than a 20% increase in 12 months. Under the Drugs Prices Control Order, the NPPA is empowered to fix and regulate the prices of medicines kept under statutory price control. It has intensified efforts to recover the outstanding arrears and has started referring overcharging cases to district collectors of concerned states for revenue recovery.

Domestic pharma companies have decided to fight it out, maintaining that the demands are contrary to the orders passed by the Supreme Court of India, which has directed drug companies to first deposit 50% of the overcharged amounts with the NPPA before contesting its decision in the court.

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