Regulating the Gap, Not the Price: Why a 30% Trade Margin Cap Suits Cancer Drugs Better Than Price Ceilings

The Regulator Left the Price Alone and Went After the Gap Article 47 of the

Constitution directs the State to treat improving public health as among its primary duties. That is a Directive Principle, so no citizen can sue to enforce it. The courts have read health into Article 21's right to life, but neither provision says anything about how a cancer drug should be priced.

That job falls to an executive instrument: the Drugs (Prices Control) Order, 2013, issued under the Essential Commodities Act, 1955. The new cancer-drug measure is interesting precisely because it does not use the DPCO's main weapon.

It does not fix a ceiling price. It regulates the gap.

Two ways to make a drug cheaper The text of the DPCO offers a direct route.

For scheduled drugs, those on the National List of Essential Medicines, the NPPA sets a ceiling price that no seller may exceed. Most cancer drugs are not on that list. They are non-scheduled, so their prices are largely set by the market.

Here the NPPA found the problem was not mainly the manufacturer's price. It was what happened after the drug left the factory. Average trade markups were about 170% and some reached 700%. Trade Margin Rationalisation targets exactly that.

It caps the difference between the price at which the trade buys the drug and the MRP at 30% of the MRP. The manufacturer's selling price is untouched. What gets squeezed is the distributor-to-patient markup, including the margin hospitals capture by selling at an inflated MRP.

Take the Supreme Court's example. A drug supplied at ₹2,700 carried an MRP of ₹27,000, a tenfold gap. Under a 30%-of-MRP cap, if ₹2,700 is the price to the trade, the MRP could be no more than about ₹3,860. Because MRP is the legal maximum a seller may charge, the cap reaches the hospital counter too.

Why this suits patented cancer drugs A ceiling price works best for old, multi-sourced drugs with plenty of competitors to benchmark against.

Patented cancer drugs have no such benchmark. Capping them directly would force the regulator to second-guess research and production costs it cannot easily verify and could discourage companies from launching new therapies in India.

TMR avoids that fight. It accepts the manufacturer's price and removes only the excess layered on top. That is why it can cover 35 patented medicines without becoming a dispute over innovation. The 2019 pilot on 42 cancer drugs cut MRPs by up to 91%.

The design trap The method has a built-in limit and officials have named it themselves.

Drugs are being chosen partly because they are expensive. A 30% margin on a cheap drug may not cover distribution and marketing costs and could discourage companies from supplying it. So the cap protects patients from inflated markups on costly drugs, but not from markups on cheaper ones. It also does nothing if the manufacturer's own price is high.