Medicine Pricing in India: Why the Supreme Court Is Concerned About Drug Prices, MRP and Retailer Margins

Why in News?

• The Supreme Court has raised concerns over the substantial difference between the Price to Retailer (PTR) and MRP of medicines.
• The Court referred to an example of a cancer medicine supplied to retailers for around ₹2,700 but carrying an MRP of nearly ₹27,000, and questioned whether the existing 16% retailer-margin framework should be extended more broadly.

Background: How Are Medicine Prices Regulated in India?

• India regulates medicine prices primarily through the Drugs (Prices Control) Order, 2013 (DPCO), issued under the powers of the Essential Commodities Act, 1955.
• The National Pharmaceutical Pricing Authority (NPPA), established in 1997 under the Department of Pharmaceuticals, implements and monitors various aspects of drug-price regulation. 
• It fixes or revises ceiling prices for scheduled formulations, fixes retail prices for certain new drugs and monitors compliance with DPCO provisions.

Key Points

What Is the DPCO, 2013?

The Drugs (Prices Control) Order, 2013 is the principal framework for controlling prices of specified medicines in India. It empowers the government to regulate the prices of essential medicines and enables the NPPA to:

• Fix ceiling prices of scheduled formulations.
• Fix or revise retail prices of certain new drugs.
• Monitor drug prices and overcharging.
• Recover amounts charged in excess of permissible prices.
• Take action in exceptional circumstances to regulate prices in the public interest.

Scheduled Formulations

These are formulations included in Schedule I of the DPCO, based on the National List of Essential Medicines (NLEM). Their prices are subject to government regulation through the ceiling-price mechanism.

Non-Scheduled Formulations

These are medicines outside the scheduled list and are not subject to the same direct ceiling-price mechanism.

However, the DPCO provides that their MRP cannot be increased by more than 10% during the preceding 12 months. NPPA can also monitor such medicines and take corrective measures where warranted.

How Is the Ceiling Price Calculated?

For scheduled medicines, the NPPA uses a market-based pricing methodology.

The process broadly involves:

1. Identifying brands and generic versions of a particular formulation.
2. Considering products with at least 1% market share.
3. Taking their Price to Retailer (PTR).
4. Calculating the average price.
5. Adding a 16% retailer margin to arrive at the ceiling price.

What Is the 16% Retailer Margin?

• The 16% margin is an important component of the pricing mechanism for scheduled formulations.
• It does not mean that every medicine in India currently has a legally fixed 16% total profit margin.
• Rather, it forms part of the methodology used for determining the ceiling price of scheduled formulations.
• This distinction is important because non-scheduled medicines operate under a different pricing framework. NPPA itself states that manufacturers of non-scheduled drugs do not require price approval in the same manner, although NPPA has monitoring and corrective powers.

The Non-Scheduled Medicine Pricing Issue

• The major concern raised before the Supreme Court relates to the initial pricing of non-scheduled medicines.
• If a medicine is outside direct ceiling-price control, its manufacturer can initially determine its MRP. The subsequent 10% restriction limits increases over the existing price.

Why is this significant?

• Suppose a medicine is launched with an unusually high MRP.
• Even if future increases are restricted, the 10% rule operates on an already high base price.
• Therefore, petitioners argue that controlling subsequent annual increases does not necessarily address the problem of an excessively high launch price.
• This issue is central to the ongoing debate over whether the present framework adequately protects patients from disproportionate medicine prices.

Constitutional Dimension: Article 21 and Right to Health

• The petitions also raise the issue from the perspective of Article 21 of the Constitution, which guarantees the Right to Life.
• The Supreme Court has interpreted Article 21 broadly, including dimensions of the Right to Health within the constitutional protection of life.
• The argument before the Court is that medicines are essential to accessing healthcare and that excessively high or arbitrary prices can create barriers to treatment.
• Thus, the debate is not limited to pharmaceutical pricing; it also involves the broader question of affordable and accessible healthcare.

Role of the NPPA

The National Pharmaceutical Pricing Authority (NPPA) plays a central role in India's drug-pricing system.

Its functions include:

• Fixing and revising ceiling prices.
• Fixing prices of certain new drugs.
• Monitoring prices of medicines.
• Monitoring compliance with DPCO.
• Taking corrective measures against overcharging.
• Regulating prices in extraordinary circumstances where required in the public interest.

As of 23 June 2026, NPPA reported ceiling prices for 935 formulations and retail prices fixed for 3,805 new drugs within the relevant DPCO framework.

Annual Revision of Ceiling Prices

Ceiling prices of scheduled formulations are generally revised annually based on the Wholesale Price Index (WPI). The purpose is to allow regulated prices to respond to changes in input and wholesale prices while maintaining the price-control framework.

Key Challenges

Limited Coverage of Direct Price Control

The present framework does not impose the same ceiling-price mechanism on every medicine. This creates an important policy debate regarding medicines outside the scheduled list.

High Launch Prices

A restriction on subsequent price increases may not fully address an unusually high price established at the time of launch.

Hospital Pharmacy Mark-ups

Large differences between procurement prices and patient-facing prices can increase healthcare expenditure, particularly when patients have limited choice of pharmacy.

Information Asymmetry

Patients generally depend on doctors, hospitals and pharmacists for information about medicines and prices.

Balancing Innovation and Affordability

Excessive price controls may affect incentives for research, development and introduction of new medicines, while inadequate regulation can increase patient costs.

Conclusion

• India has an established institutional framework for medicine-price regulation through the Essential Commodities Act, DPCO 2013 and NPPA. However, differences between scheduled and non-scheduled medicines create distinct regulatory approaches.
• The Supreme Court's recent observations have brought renewed attention to retailer margins, hospital pharmacy pricing, high launch prices and affordability of essential medicines.
• For policymakers, the key challenge is to develop a system that ensures affordable medicines and transparent pricing while maintaining incentives for pharmaceutical production and innovation.

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