Practice Areas

1. What is DPCO, and what is its purpose? What does DPCO stand for? What is the purpose of the Drugs (Price Control) Order?

DPCO stands for Drugs (Price Control) Order. It is an order issued by the Government of India under the Essential Commodities Act, 1955, to regulate the prices of essential and life-saving drugs. The primary purpose of the DPCO is to ensure that these medicines are available to the public at reasonable and affordable prices, preventing pharmaceutical companies from charging exorbitant prices. The latest iteration, DPCO 2013, shifted the pricing mechanism from a cost-based to a market-based model.

2. How does DPCO affect drug pricing in India? How is the price of a drug fixed under DPCO? What is a ceiling price?

Under DPCO 2013, the National Pharmaceutical Pricing Authority (NPPA) fixes a "ceiling price" for scheduled drugs based on the simple average price of all brands in the market with a market share of at least 1%. Companies are not permitted to sell these drugs above the fixed ceiling price. For non-scheduled drugs, manufacturers are not allowed to increase the Maximum Retail Price (MRP) by more than 10% annually.

3. Who is the NPPA and what is its role? Who controls drug prices in India? What is the function of the National Pharmaceutical Pricing Authority?

The National Pharmaceutical Pricing Authority (NPPA) is the independent regulatory body in India that implements and enforces the provisions of the DPCO. Established in 1997, NPPA main functions include fixing and revising prices of controlled bulk drugs and formulations, monitoring the prices of other drugs, and recovering any overcharged amounts from manufacturers. The NPPA serves as the primary authority for ensuring the affordability and availability of drugs in the country.

4. What are the key DPCO compliance requirements for pharma companies? What do I need to do to comply with DPCO? How do pharma companies meet DPCO regulations?

To comply with DPCO, pharmaceutical companies must:

• Adhere strictly to the ceiling and retail prices fixed by the NPPA.
• Apply for prior price approval for any new drugs or new combinations that fall under the scheduled list.
• Maintain detailed records of production, sales, and pricing for audit purposes.
• Timely respond to any notices, including show-cause notices, issued by the NPPA. Failure to comply can lead to severe penalties.

5. What is the penalty for DPCO non-compliance? What happens if a company violates DPCO? What is the fine for overcharging under DPCO?

Non-compliance with DPCO is a serious offense. The penalties are outlined under the Essential Commodities Act, 1955, and include:

• Recovery of Overcharged Amount: The NPPA can order the manufacturer or importer to deposit the entire amount of sales realization from the sale of a drug at an unauthorized price, along with interest.
• Legal Action: The NPPA can initiate penal action, which may include fines and imprisonment for the company and its responsible personnel. The severity of the penalty depends on the nature and extent of the violation.

6. What is the difference between Scheduled and Non-Scheduled drugs? What are scheduled and non-scheduled drugs under DPCO? Are all drugs under price control in India?

Under the DPCO, drugs are classified into two main categories:

• Scheduled Drugs: These are formulations listed in Schedule I of the DPCO, which is based on the National List of Essential Medicines (NLEM). The prices of these drugs are directly controlled and a "ceiling price" is fixed by the NPPA.
• Non-Scheduled Drugs: These are all other formulations that do not fall under the NLEM. While their prices are not directly fixed, the DPPA monitors them and a manufacturer is prohibited from increasing their Maximum Retail Price (MRP) by more than 10% in a 12-month period.

7. Does DPCO apply to medical devices? Are medical devices under DPCO? How are the prices of medical devices regulated in India?

Yes, under a notification by the government, all medical devices have been classified as "drugs" and are therefore regulated under the Drugs and Cosmetics Act and by the NPPA. Similar to drugs, prices of certain essential medical devices, like coronary stents and knee implants, are capped by the NPPA. Other devices are monitored under the same 10% annual price increase cap that applies to non-scheduled drugs.

8. How does a company respond to an NPPA show-cause notice? What to do after receiving an NPPA notice? How to draft a reply to an NPPA show cause notice?

Receiving an NPPA show-cause notice requires a timely and professional response. It is a formal opportunity to present your defence. Advice of a Legal Counsel expert in the field must be taken. Sometimes, unnecessary information supplied by the companies puts them in trouble. A well-drafted reply should:

• Acknowledge and Reference the Notice: Clearly state the reference number and date of the notice.
• Provide a Factual Explanation: Present a clear, well-supported account of the events leading to the alleged violation.
• Include Supporting Documents: Attach all relevant documents like invoices, production records, and financial statements to substantiate your claims and defence.
• Cite Relevant Provisions: Reference the correct paragraphs of the DPCO and any relevant legal precedents.
• Seek Legal Counsel: It is highly advisable to engage a professional with a specialized DPCO practice to draft a comprehensive and legally sound response.

9. What is the impact of DPCO on drug innovation and R&D? Does DPCO stifle innovation? What is the impact of price control on R&D in the pharma sector?

This is a debated topic. While the DPCO's main goal is affordability, some argue that strict price control can disincentivise innovation by reducing the profitability of new, patented drugs. However, the government has provided certain exemptions for new drugs developed in India to encourage research. The DPCO and NPPA aim to strike a balance between ensuring access to essential medicines and incentivizing the pharmaceutical industry to invest in research and development.

10. What are the services offered by a DPCO consulting firm? What services do DPCO consultants provide? How can a DPCO firm help my company?

A professional DPCO consulting firm like Mace can provide a range of services to help companies navigate the complex regulatory framework. These services typically include:

• Price Fixation and Compliance: Assisting with the accurate calculation of ceiling and retail prices.
• Regulatory Filings: Managing the submission of required forms and data to the NPPA.
• Legal & Advisory Support: Providing strategic advice on pricing strategies, handling legal notices, and representing clients in NPPA hearings.
• Audits and Due Diligence: Conducting DPCO internal audits to ensure compliance and performing due diligence for mergers and acquisitions.
• Litigation: Before the Revision Authority, High Court and Supreme Court
• NPPA overcharged amount recovery, a specialized DPCO practice can provide crucial legal and strategic support to pharmaceutical companies.

11. Are over-the-counter (OTC) drugs also subject to DPCO?

Yes the basis for deciding which medicines come under price control is the National List of Essential Medicines (NLEM). Under the DPCO 2013, scheduled formulations consist of the essential medicines in the NLEM. A formulation that is a combination of any of the drugs listed in the NLEM can be subject to price fixation.

12. What is the National List of Essential Medicines? What is the role of the National List of Essential Medicines (NLEM) in DPCO?

The Ministry of Health and Family Welfare is responsible for publishing the NLEM. The first NLEM was formulated in 1996 and has been revised periodically, with the most recent version being NLEM 2022. The NLEM 2022 includes 384 drugs, with 34 new drugs added and 26 removed from the previous list.

13. How does NPPA collect data for price fixation?

(1) Integrated Pharmaceutical Database Management System (IPDMS): The NPPA uses IPDMS 2.0, a system that facilitates the online submission of required returns and reports from manufacturers. Manufacturer Price Lists: Under the Drugs (Prices Control) Order, 2013 (DPCO), every manufacturer must issue a price list in a specific format (Form-V for formulations) to the government, dealers, and State Drug Controllers. These forms contain essential information like product details, prices to distributors and retailers, and price changes. (3) Third-Party Market Data: The NPPA relies on data from external agencies to get comprehensive market information. For example, it is in the process of selecting an agency to provide detailed pharmaceutical market data, including sales units, Moving Annual Turnover (MAT) values, sales value, and market share. (4) In-house Data Collection: The NPPA's functions include collecting and maintaining data on production, exports, imports, and market share of individual companies for bulk drugs and formulations. (5)Public Transparency: The NPPA uploads a draft of its price calculation sheets on its website for a 10-day period to invite comments and additional data from stakeholders before finalizing prices. The NPPA also makes its price notifications available on its website.

Our Practice Area: NPPA Legal Services