NEW DELHI: Firms currently selling essential medicines at less than government-mandated price caps will have to freeze rates at existing levels and will not be given the option of matching the higher ceiling price, according to the upcoming drug pricing policy.

This will constitute a setback to companies that sell essential drugs at rates below the government-set price and put them at a disadvantage against new entrants who will able to able to sell products at the ceiling price.

But this move will address a major concern of health activists and the World Health Organization, which had expressed the fear that a market-based ceiling price would encourage drug makers selling medicines below this level to raise prices.

“This would have defied the basic purpose of regulating the prices of essential drugs. We have, therefore, decided to change the concept of ceiling price. Rates of medicines sold at more than the ceiling price will have to be slashed. But rates of medicines sold at below the ceiling price will not be increased,” said a government official.

The prices prevailing in May 2012, six months before the drug pricing policy was notified, will be taken as the reference point. Drug producers will be permitted an annual increase in the retail price in sync with the wholesale price index.

The Centre is in the process of expanding the number of drugs whose prices are regulated. At present, dosage forms made from 74 bulk drugs or active pharma ingredients (APIs) fall under price control.

Spate of Litigation Likely

But the number of essential or life-saving drugs has been increased to 348, and in all, the prices of around 650 dosages will now be fixed by the government. The department of pharmaceuticals has sent the new Drug Pricing Control Order, 2013, to the law ministry for clearance early this week, and it is likely to be notified in early April.