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31 October, 2018
The role of competition law authorities is to ensure that markets work in a manner that allows the process of competition to drive market outcomes. One way of doing this is by using enforcement measures – taking action against enterprises that are hindering the process of competition by entering into anti-competitive agreements or abusing their position of dominance. However, that is not the only way.
Competition law authorities can also contribute to the enhancement of competition by stepping up their advocacy measures. While the Competition Commission of India (CCI) has consistently been using advocacy measures as part of its functions, recent measures highlight how the CCI’s advocacy measures are becoming more nuanced because of its institutional experience in enforcing competition laws.The Policy Note on ‘Making Markets Work for Affordable Healthcare’ (Policy Note) brought out by the CCI is a prime example of this trend.
The Policy Note specifically points to the CCI’s institutional experience when it states that CCI has decided “52 cases pertaining to the pharmaceutical and healthcare sector”. In deciding these cases, the CCI has observed that many of the anti-competitive practices observed in the healthcare sector can be traced to the “information asymmetry” prevalent in the sector.
The Policy Note recognises that practices prevailing in the sector due to lack of information symmetry “may not always” violate the Competition Act, 2002, but they tend to “create conditions” that do not permit the process of competition to unfold effectively in the markets.
The CCI, thus, decided to conduct deliberations on these issues with relevant stakeholders. The various initiatives taken by the CCI in this regard culminated in a ‘Technical Workshop on Competition Issues in the Healthcare and Pharmaceutical Sector in India’ (Technical Workshop) where participants included people from the pharmaceutical industry, healthcare service providers, civil society organisations, regulators, healthcare think tanks, etc.
The Policy Note brought out by the CCI documents the issues and recommendations raised in the Technical Workshop. The key issues and recommendations included in the press release of Policy Note (was released on 24 October 2018) pertain to the following areas:
a) Role of intermediaries in drug price build-up
Issue:
“Unreasonably high trade margins” due to drug companies and trade associations.
Recommendations:
“Efficient and wider” public procurement process for distribution of essential drugs at lower prices (to replace price control measures, which have been termed as “sub-optimal regulatory instruments”). Electronic trading of drugs – i.e. allowing use of e-commerce to buy and sell drugs, “with appropriate regulatory safeguards”.
b) Quality perception behind proliferation of branded generics
Issue:
Conventional generic-induced price competition is limited since the Indian market is dominated by ‘branded generics’.
Recommendations:
Address “quality perception” by ensuring that drugs conform with the regulatory standards, irrespective of the brand name.
Reduce artificial product differentiation through a “one company-one drug-one brand name-one price” policy (interestingly, this recommendation was also included in the Draft Pharma Policy introduced by the Central Government last year).
c) Vertical arrangements in healthcare services
Issue:
Incentive-based referral system tends to effect consumer choice.
Recommendations:
Circulation of periodic validated data by hospitals relating to health parameters (e.g., mortality rate, infection rate, number of procedures) to help patients make an informed choice.
Regulation that “mandates” hospitals to allow consumers to buy standardised consumables from the open market (rather than only from in-house pharmacies).
Uniform and consistent accreditation standards for diagnostic labs.
Improving portability of patient data between hospitals so that patient is not locked-in.
d) Regulation and competition
Issue:
Multiplicity of standards/regulators governing the pharmaceutical sector at the centre and state level leading to inequality in implementation.
Recommendations:
Harmonise criteria/process adopted by state licensing authorities under the aegis of the Central Drugs Standard Control Organisation (CDSCO).
Improving the process of approval for new drugs by making it time-bound and publication of detailed guidelines governing each step.
In addition to the four areas highlighted above, the CCI has pointed out two additional areas which require a policy response, these are:
- Shortage of medical professionals (owing, among other things, to high cost of medical education)
- Inadequacy in health insurance.
Significantly, the CCI has decided to share the Policy Note with the Ministry of Corporate Affairs, Ministry of Health and Family Welfare, Department of Pharmaceuticals and NITI Aayog, probably in hopes of triggering a suitable “policy response”.
If a “policy response” does occur, it will not be the first time that the CCI intervention has led to a policy change. The CCI was faced with many complaints arising from the real estate sector, which highlighted the lack of an appropriate regulator within the sector. The CCI’s intervention through a case[1] can be attributed as a significant contributor to the early implementation and enforcement of the Real Estate (Regulation and Development) Act, 2016, which addresses many of the issues highlighted by the CCI.
Therefore, stakeholders ought to note that the Policy Note, though recommendatory in nature, could potentially lead to significant policy changes in the healthcare sector too.
For further information, please contact:
Rahul Goel, Partner, Cyril Amarchand Mangaldas
rahul.goel@cyrilshroff.com
[1] Shri Jyoti Swaroop Arora vs M/s Tulip Infratech Ltd. & Ors., Case No. 59/2011, Order dated 3 February 2015 (Upheld by the High Court of Delhi vide order dated 16 May 2016 in W.P(C) 6622/2015)
