Daybreak - Guess who is helping the government keep drug prices in check

Episode Date: October 8, 2024

So far, buying medicines in India has been a complete minefield. Allow me to elaborate with the help of a completely plausible hypothetical scenario. Say you catch the flu one day and need 75 mg of the antiviral drug Oseltamivir. More often than not, we don’t really check the price tag of these drugs. But what if I told you the prices can swing anywhere between Rs 30 and Rs 125 per capsule, depending on the manufacturer and the doctor prescribing it. Now, variable pricing is not really a revelation. It’s a pretty common practice. The government caps the price of nearly 400 essential drugs through the National List of Essential Medicines. But that’s where the oevrsight ends. Generally, non-essential drugs remain outside this price cap. The National Health Authority, the body which runs India’s public health insurance scheme, Ayushman Bharat, is now looking for digital pharmacy partners to promote pricing transparency. The aim is to tackle this overcharging crisis. So in September, it went ahead and enlisted Marg ERP, a leading provider of pharmacy inventory software as one such partner. Now Kaushal Shah, founder of Evitalrx, revealed that even his cloud-based pharma software firm is on track to join the initiative in the coming weeks.But here’s the thing. This one click solution is still a long way off. Tune in. Don't forget to send us your recommendation for this Thursday’s Unwind segment. The theme is “your favourite murder mystery.” Send them to us on WhatsApp as a voice note or as a text message. The number is [phone] Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. So far, the process of buying and selling medicines in India

has been a bit of a minefield. Allow me to elaborate with the help of a completely plausible hypothetical scenario. Say you catch the flu one day, and needs 75mg of the antiviral drug, Oselta Mavir. More often than not, we don't really check the price tag of these drugs. But what if I told you, the prices can swing anywhere between 30 rupees and 1.25 per capsule, depending on the manufacturer and the doctor prescribing it? So it's the same drug, but at vastly different price tags.

Now, variable pricing is not really a revelation. It's a pretty common practice that I'm sure quite a few of us know about. already. When it comes to essential drugs, the government generally caps the price of nearly 400 of them through the national list of essential medicines. But that's where the oversight ends. Generally, non-essential drugs remain outside this price gap and hospitals tend to make the most of it. They very often inflate prices, so insured patients are billed way over the maximum retail price. Insurers, unsurprisingly, aren't too pleased about absorbing these. extra costs. I mean, they're losing a lot of money in the process.

The extent is such that in 2023 to 24, the National Pharmaceutical Pricing Authority, which is a regulatory agency that controls the prices of pharmaceutical drugs in the country, recorded close to 2,500 cases of overcharging. That's an 80% increase in the last decade alone. But things may change soon. You see, the National Health Authority, the body which runs India's public health insurance scheme, Ayushman-Bharat, is now looking for digital pharmacy partners to promote pricing transparency. The aim is to tackle this overcharging crisis. So in September, it went ahead and enlisted Marg ERP, a leading provider of pharmacy inventory software as one such partner. And now, Koshal Shah, the founder of E Vital RX, revealed that even his cloud-based

pharma software firm is on track to join the initiative in the coming weeks. Both Margher and E Vital RX's software are used by thousands of chemists and pharmacists across the country. So by enlisting their help, the government will have access to a wealth of information. They'll be able to track pricing, inventory and procurement trends across the country. It would help identify which drugs are marked up, where they are being sold, and just how deep those price gauges really go. In the process, it could take a lot of pressure off of insurance companies. The government also stands to benefit big time.

Not to mention, it could help nab the parties overcharging these pharmaceuticals. But here's the thing. This one-click solution is still a long way off. You see, majority of India's hospitals don't maintain electronic medical records and about 80% of its pharmacies still don't use these softwares. What's worse? Even these records aren't truly digital. Welcome to Daybreak, a business podcast,

from the Ken. I'm your host Rahil Philippos and I'll be joining my colleagues Nikda Sharma every week to bring you one business story that is worth understanding and worth your time. Today is Wednesday, the 9th of October. One big reason for overcharging is the fact that patients usually just don't care enough to check the prices. They know their insurer will cover most of it, so it really doesn't matter. And that, of course, is incentive enough to overcharge. All of it adds up. Back in 2019, the government reported that the total overcharged amount stood at 6,400 crore rupees. It gets even more complicated when it comes to non-essential medicines, because these can't be tracked or monitored by the NHA. So that leaves health insurers in a real fix.

For one, the absence of a particular drug in a particular geography significantly affects average pricing. And unfortunately for them, insurers don't have access to this kind of nuanced data. yet. Nor can they get into such nitty-gritty. Insurers very often are left feeling pretty cheated. And honestly, can you really blame them? You see, the bottom line is that the price checking system is broken, which means they find it very difficult to verify or validate drug prices. So far, there hasn't been a data-driven prevention mechanism. So it's only been in exceptional cases where they come across some obvious abnormalities in billing. Like say where costs exceed 30 to 35 of the bill that they would actually look at these claims more closely.

Otherwise, chances are, they miss it. You see, right now, what happens is that pharmacies and hospitals can't really communicate with each other effectively, given that they don't have the same code for the same drugs. Now, this is exactly where software's offered by companies like E Vital RX and Mark ERP come in. They could bridge this gap if they are widely adopted. Koshal Shah, the founder of E Vital RX,

how it would work. So, say you go to any pharmacy that uses his software and you look up a particular product, it will recognize the same name across the ecosystem. So basically, chemists will be able to look up a product and even suggest available alternatives to patients across pin codes, which would make generics accessible. Sounds pretty straightforward, right? Except, of course, it isn't. The government has been hunting for such comprehensive drug data for a really long time.

In fact, just last year, E Vital RX had listed an open network for digital commerce, the government-sponsored e-commerce platform. But it was delisted in about six months when no actual drug sales happened through the platform. The NHA also tried developing a codified database back in 2021, along with a government body called the Centre for Development of Advanced Computing or CDAC. It was a humongous task and managed to list 39,000 products. But it was still only scratching the surface. To put that in perspective,

Marg ERP's database is nearly four times of it, while E Vital RX's is 10.5 times. Of course, many people at NHA have asked E Vital RX to donate its database to them. But Shah says he'll only do it if it can be solidified and codified into a national database, and all parties are mandated to recognize medications listed on it. If that happens, it would be a win-win for everyone involved.

More than just the government and insurers, even pharmacies could potentially reap the rewards. More on that in the next segment. The more pharmacies that join the network of NHA partners like E Vital RX or Margirp, the more credible the government will consider them. The logic is pretty simple. The software providers can also act as third parties to validate offline pharmacies' bills, inventory and procurement. invoices. The thing is, this sort of information is generally recorded through GST invoices,

but checks on things like this can't be run digitally without a database. But E Vital RX founder, Koshal Shah, says his software can plug this. Basically, say someone claims that they are selling a particular medication to 10 people every day. If the procurement does not show up to those people on the database, it would mean that the invoices are fake. According to Shah, only pharmacies partnering up with these software networks should be able to claim reimbursements through government health schemes. He says that way, pharmacies have their back supported as long as they don't opt to take the shady path. That's because many pharmacies choose not to register directly under Ayushman Bhadah Digital Mission. Instead, they register separately so they can avail

of incentives like the Digital Health Incentive scheme, which incentivizes health facilities to digitize their transactions. According to Marg ERP's website, for a monthly cost of $10,000, pharmacies can potentially earn between $25,000 and $50,000 every month in addition to their regular earnings. Another way to get chemists to use this software would be if the government considers processing only those Ayushman-Bhara Digital Mission or ABDM claims that have pharma bills from such NHA registered software.

But the monetary gains don't compensate. for another big pain point. Stay tuned to find out what it is. Now, the biggest problem in all of this is the fact that no one has clearly defined what a digital record actually is. Suman C. Raman, the founder of Algorithm health, said that unless a law is laid down, mandating electronic medical records, there won't be any medical data in the country. The other big issue is discounting. Offline pharmacies face a big disadvantage there. They struggle to match up to discount.

offered by larger online players, especially if they were mandated to keep in line with defined pricing. A cash crunch might dissuade some pharmacies from keeping stock of expensive or not so commonly ordered medicine. But Koshal Shah, the founder of Eviol-Rex, says using a cloud-based customer relationship management software like the kind he offers could be useful here. With it, they can get a sense of what's in demand and what's not, what to keep in stock and what can be avoided. After all, margins are always a good thing. But even with incentives and more pharmacies on NHA approved networks, the data at hand might not be able to solve some practical issues. For one, a drug's pricing depends on its brand. For instance, Glenmark's Alcived is priced at 53 rupees per capsule,

while Sipla's anti-flu is over 1.5 times of that. So standardizing data can be a limitation. Because an insurer may say, hey, I'm not going to pay above this for this particular medication. And the thing is, several doctors haven't been fans of government directives on prescribing generic drugs. After all, according to the Indian Medical Association, only 0.1% of pharmaceuticals are tested for quality. So all in all, even if insurers are armed with the data, their hands will remain tied if the doctor chooses to prescribe only that expensive drug. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras.

Head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippo's produced by me, Snigda Sharma, and edited by Rajiv Sien.