ANALYSIS OF HEALTHCARE AND PHARMACEUTICAL SECTOR VIS-A-VIS COMPETITION ACT, 2002
Anushka Srivastava[1] & Dr. Kunvar Dushyant Singh[2]
ABSTRACT:
The Indian pharmaceutical sector is the third largest in the world by volume and sixteenth largest, by value. Moreover, the healthcare sector provides services to the most populous nation in the world. In this background, to ensure affordable and readily available goods and services for a better human capital, it is essential to avert anti – competitive practices in these sectors. This task becomes all the more important in anticipation of black swan events like that of COVID – 19. It highlighted the need for a stringent regulation of the sector by the Competition Commission of India for a just and fair market conditions for the welfare of consumers. A robust and effective competition law, in the pharmaceutical and healthcare sector, is necessary not only to maintain healthy economic parameters but also to reap benefits of demographic dividend and attain developmental growth and harmony. Against this background, it is necessary to strike an equilibrium between entrepreneurial interests and consumer welfare i.e. prices of the commodity cannot be so low that the companies lose interest in the production which may affect availability and accessibility, yet it cannot be so high that it ceases to be affordable. This article delves into public data, relevant case laws and lastly in conclusion, the need for a robust anti – competitive mechanism for the pharmaceutical sector.
Keywords : pharmaceutical, competition, COVID – 19, India, CCI, anti – competitive.
INTRODUCTION:
The pharmaceutical sector plays a vital role in ensuring the well-being of individuals worldwide. It encompasses the development, production, and distribution of drugs, which are essential for treating diseases and improving public health. In India, the pharmaceutical industry has shown remarkable growth over the past few decades, opening opportunities for economic development, innovation, and access to affordable healthcare. However, with such growth comes the need for robust regulatory frameworks to safeguard competition and prevent anti-competitive practices.
Historically, the Indian pharmaceutical industry had a reputation for its generic drug production, supplying cost-effective medicines to both domestic and international markets. This competitiveness stemmed from the country’s progressive patent laws, which allowed the production of patented drugs through a process known as compulsory licensing. However, recent changes to intellectual property laws, particularly considering India’s obligations under international agreements such as the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights (TRIPS), have created a more favourable environment for pharmaceutical patents, potentially impacting competition dynamics.
One of the key factors driving change in the pharmaceutical sector is the increased focus on research and development (R&D) for novel drugs. With rising healthcare demands and evolving disease patterns, pharmaceutical companies are investing heavily in R&D to develop innovative therapies. This shift towards patented drugs has the potential to limit the availability and affordability of essential medicines, restricting market competition. Additionally, the consolidation of the pharmaceutical industry through mergers and acquisitions has raised concerns about monopolistic practices. Large pharmaceutical corporations, through their market power, can dictate prices, curb competition, and potentially exploit consumers. This dynamic warrants a careful examination of the Indian Competition Law to ensure a level playing field for both domestic and foreign pharmaceutical players.
Moreover, the emergence of complex supply chains and distribution networks in the pharmaceutical sector has further complicated the competition landscape. Issues such as vertical restraints, exclusive distribution arrangements, and abuse of dominant positions can significantly affect access to affordable medicines. These challenges necessitate a proactive approach by competition regulators to address potential antitrust violations.
To ensure Right to health implicit under Article 21, various elements of it, namely affordability, accessibility, quality and acceptability should be focused upon to establish a welfare state. Though the fundamental right to health is not explicitly envisaged in the Constitution of India, 1950 it has been recognized[3] as a derived fundamental right under Article 21 of the Constitution of India, 1950. Similarly, the right to access to quality and affordable medicines forms a vital component of the right to health which in modern times frequently gets vitiated amidst a myriad of anti – competitive practices. However, in a country where the healthcare system relies majorly on OOPE, the financial burden for households, particularly the poor and vulnerable ones, is high.
According to National Health Accounts (NHA) Estimates for India for 2019-20 launched by NITI Aayog, the share of Out-of-Pocket Expenditure (OOPE) in total Health Expenditure (THE) declined from 62.6% to 47.1%[4]. However, compared to the world average of 16.36%[5] OOPE, it is not an encouraging piece of data. High OOPE discourages people from availing services despite the urgent need. According to a WHO report[6] 55 million Indians are impoverished every year due to high OOPE on health and amongst them over 17% households incur catastrophic levels of health expenditure annually.
The COVID-19 pandemic interrupted the provision and use of routine health services. In many countries, service utilization dropped, possibly due to reduced service hours or closure of health facilities during the pandemic or to patients’ fear of contracting COVID-19.
Affordability of services for households may also have been an important factor. The economic downturn triggered by the pandemic affected household incomes, particularly among households in lower income brackets. This might have led more households to forgo health services for financial reasons. In 2020, the first year of the COVID-19 pandemic, OOPS per capita fell in real terms in more than half of countries, , which may reflect reduced health service utilization[7].
Intersection between the Pharmaceutical Sector and Competition Law:
The Indian Competition Law, primarily embodied in the Competition Act of 2002, aims to promote, and sustain competition, ensure fair markets, and protect the interests of consumers. The Competition Commission of India (CCI) is the statutory body responsible for enforcing the said law and preventing anti-competitive practices. Competition Act is based on three prominent pillars which include anti-competitive agreements dealt under section 3, abuse of dominant position u/s 4 and combination and its regulation u/s 5 & 6 of the Act. The commission is under an obligation to identify and prohibit such activities in the healthcare and pharmaceutical sector.
Pricing strategies and agreements are pivotal when examining anticompetitive behaviors within the pharmaceutical industry. Regarding the legal aspects of this industry in India, the Drugs and Cosmetics Act of 1940, along with its associated regulations, establish the framework that oversees the marketing, authorization, and pricing of pharmaceutical products, including generic drugs. Additionally, the manufacture and distribution of pharmaceutical products in India are regulated by the Drugs (Control) Act of 1950.
In addition, the National Pharmaceutical Pricing Authority (NPPA) serves as the regulatory body under the Drugs (Price Control) Order 2013 (“DPCO”) and is tasked with overseeing drug prices in India. Its responsibilities include setting, revising, and monitoring the prices of controlled drugs and formulations within the country. However, it’s important to note that while the DPCO regulates the prices of specific drugs, it does not extend its control over the prices of similar substitutes for these regulated drugs. This can incentivize companies to produce these related substitutes and charge higher prices. Consequently, the regulatory framework becomes especially relevant when applying competition law in the pharmaceutical sector.
Furthermore, the Drugs and Cosmetics Act of 1940 aims to prevent the presence of substandard drugs to maintain high standards of medical treatment and eliminate the dilution of essential components of medical or surgical treatment. Drug regulation can play a significant role in either promoting or diminishing ex ante competition within the pharmaceutical market, including the early entry of generic drugs. In January 2019, the Ministry of Health and Family Welfare (MOHFW) introduced the Drugs and Cosmetics (Amendment) Rules 2019, which are designed to streamline the regulation of drug sales through online platforms or e-pharmacies.
Hence, it becomes abundantly clear that the regulations pertaining to the pharmaceutical sector should be considered alongside those governing competition within the market. Furthermore, when we consider the primary drivers of anti-competitive practices in the pharmaceutical industry, such as profit maximization and widening trade margins, the convergence of competition law and the pharmaceutical sector becomes particularly intriguing. This is primarily due to the fact that excessive pricing stands out as one of the most contentious subjects within the domain of competition regulation, and it is seldom viewed as an isolated issue on its own.
The practices prevalent in the pharmaceutical industry have significant implications both for consumers and the overall market, given the sector’s sensitivity. It’s somewhat paradoxical that consumers in India often have limited to no options when it comes to accessing pharmaceutical products. Several factors contribute to this lack of choice, with a prominent one being the heavy reliance on information provided by pharmacists and doctors. In the prescription drug sector, consumers typically do not have the freedom to choose their medication, they act based on the physician’s selection, and the consumer simply pays for it. This lack of consumer choice leads to a situation where, especially in private healthcare settings, consumers may encounter tied selling of medications and diagnostic tests. These practices bear a resemblance to anticompetitive concerns related to tying and bundling, as recognized under Section 3(4) of the Act. Such practices are inherently anti-competitive in nature and result in substantial costs being shouldered by consumers.
Cases to comprehend the interaction:
- Nadie Jauhri v. Jalgaon District Medicine Dealers Association[8] : In the present case, the informant alleged that the opposite party was collecting Product Information Service (PIS) charges from the manufacturers of pharmaceutical products, in violation of the provisions of the Act. Accordingly, the Commission directed the Director General (DG) to cause an investigation into the matter.
The DG opined that the practice of levying PIS charges by the OP would result in appreciable adverse effect on competition in the market, based on the factors listed under Section 19(3) of the Act, due to the following reasons.
- Firstly, the said practice would distort supply of medicines in the market and create barriers to entry for pharmaceutical companies planning to enter the market.
- Secondly, the practice would foreclose competition in the market as there are very few products of similar kind available in the market.
- Thirdly, action on part of the OP would be detrimental to the economic development as it would restrict distribution of new drugs or launch by way of any change in product brand, dosage, form, strength, etc.
- Fourthly, this practice would put unwarranted restrictions on the freedom of trade by market participants.
- Finally, the interest of consumers would be adversely affected by this practice.
In Varca Druggist & Chemist v. Chemists & Druggists Association and Santuka Associates Pvt. Limited v. AIOCD, decided by the Commission, held that the voluntary payment of PIS charges by the pharmaceutical companies was not an anti-competitive practice under the Act. However, a mandatory payment of PIS charges would result in one.
Consequently, the Commission directed the opposite party to cease and desist from indulging in practices which have been found to be anti-competitive in terms of the provisions of Section 3(3)(b) read with Section 3(1) of the Act.
- Sudeep P.M. v. All Kerala Chemists and Druggists Association[9] : The informants who were stockists (wholesalers) in the State of Kerala, alleged that All Kerala Chemists and Druggists Association (AKCDA) and its district level associations were mandating the requirement of a No Objection Certificate (NOC) prior to the appointment of any stockists, in contravention of the provisions of Section 3 of the Competition Act, 2002 (the ‘Act’), despite cease and desist orders of the Commission in earlier cases involving similar issues.
The Commission found no substance in the contention of AKCDA of implementing recommendations of the Mashelkar Committee report, which are mainly aimed at combating the distribution of spurious, counterfeit and questionable quality drugs. The Commission further noted that these recommendations do not, in any manner, appear to suggest that the associations can undertake the task of mandating NOC prior to the appointment of stockists. Thus, the argument posed by AKCDA regarding its proactive role in safeguarding the interest of consumers/patients through practice like NOC is nothing but an attempt to hide its anti-competitive activities under the garb of a pseudo protectionist approach.
The order further reiterated that the appointment of stockists is the right of every pharmaceutical company and the same should be based on commercial wisdom and fair market practices. Practices like the NOC not only replace the commercial business decisions of pharmaceutical companies with the decisions of these trade associations, but also affect the distribution chain by bringing inefficiencies in the distribution channels.
The Commission found that AKCDA had indulged in anti-competitive conduct in violation of the provisions of Section 3 of the Act and imposed monetary penalties on the erring party under Section 27 of the Act.
- Santuka Associates Pvt. Ltd. v. All India Organization of Chemists and Druggists[10] : The informant alleged abuse of dominant position by the All India Organization of Chemists & Druggists (AIOCD) by, inter alia, limiting and restricting supply of pharmaceutical drugs in India.
Based on the detailed analysis and investigation, the DG concluded that the horizontal agreement amongst the members of AIOCD & the practices carried on by their members on the issue of grant of NOC for appointment of stockists, fixation of trade margins and collection of PIS charges and/or boycott of products of pharmaceutical companies fall within the mischief enshrined in Section 3(3)(a) and 3(3)(b) read with Section 3(1) of the Act. Subsequently, the Commission found the AIOCD in violation of the provisions of Section 3(3)(a) and Section 3(3)(b) of the Act and proceeded to pass suitable orders under Section 27 of the Act against the AIOCD including penalty.
CONCLUSION:
As the distribution of drugs in India has undergone a significant transformation in recent years, the pharmaceutical market presents an intriguing narrative regarding the level of competition in the prescription drug segment. Specifically, in a pharmaceutical sector characterized by information asymmetry and supplier-induced demand, which considerably limits consumer choice, there is a pressing need for comprehensive and thoughtful scrutiny. This scrutiny is necessary to ensure the availability of affordable drugs, which is a fundamental prerequisite for reducing overall healthcare expenses.
Moreover, as India strives to foster a robust innovation landscape, with a focus on factors like investing in human capital for research and development, establishing a safe and legally sound environment, and enhancing regulatory frameworks to support world-class biopharmaceutical research, it is imperative for regulators to adopt a vigilant approach. This approach should involve monitoring and assessing the significant impacts that may arise from these developments. Identifying regulatory gaps or potential overreach becomes crucial in this context.
Moreover, it is an established fact that competition has the potential to drive down prices for medications, especially essential medicines. With the emergence of new retail and online pharmaceutical platforms in India, the significant changes in the sector’s landscape have been and will continue to be driven by the entry of organized players into the market. While competition laws aim to maintain competitive conditions and encourage market forces to self-regulate, the primary challenge lies in striking a balance between consumer welfare and entrepreneurial interests within the pharmaceutical sector.
Arguably, the competitive effects associated with the introduction of generic drugs can enhance consumer welfare by making medicines more affordable and fostering competition in the market. Achieving a harmonious equilibrium between regulations and competition is crucial, given the unique characteristics of the pharmaceutical market. It’s essential to ensure that regulatory mechanisms do not hinder the incentive to innovate in the sector, thereby safeguarding consumer welfare in the long run.
Exploring strategies such as differential pricing or negotiated pricing between innovators and the government could be a viable approach. Incentivizing pharmaceutical companies to develop drugs tailored to India-specific health challenges (through measures like patent extensions and R&D subsidies) may also be a productive path forward.
In conclusion, it’s important to address the price-quality paradox in the pharmaceutical industry. Substantial investments are required to maintain high standards of quality, and this is often reflected in the pricing of medications. However, the absence of prescription insurance in India can make these high prices a significant barrier to affordability for many individuals. By fostering healthy competition within the market economy, we can work towards competitive prices that benefit consumers both in the present and the future.
REFERENCES:
- N D Jayal v. Union of India, 2004 (9) SCC 362.
- National Health Accounts Estimates for India (2019-20).
- World Bank Data.
- Selvaraj S, Karan K A, Srivastava S, Bhan N, & Mukhopadhyay I. India health system review. New Delhi: World Health Organization, Regional Office for South-East Asia; 2022.
- WHO, “Global spending on health: rising to the pandemic’s challenges” (December, 2022).
- Nadie Jauhri v. Jalgaon District Medicine Dealers Association, 2019 SCC OnLine CCI 12.
- Varca Druggist & Chemist v. Chemists & Druggists Association and Santuka Associates Pvt. Limited v. AIOCD, 2019 SCC OnLine CCI 12.
- Santuka Associates Pvt. Ltd. v. All India Organization of Chemists and Druggists, 2013 SCC OnLine CCI 14.
[1] LLB, Amity Law School, Amity University, Lucknow Campus.
[2] Assistant Professor, Amity Law School, Amity University, Lucknow Campus.
[3] N D Jayal v. Union of India, 2004 (9) SCC 362.
[4] National Health Accounts Estimates for India (2019-20), available at : https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1919582 (last visited on 24th Mar, 2025)
[5] World Bank Data, available at : https://data.worldbank.org/indicator/SH.XPD.OOPC.CH.ZS?name_desc=false (last visited on 23rd Mar, 2025)
[6] Selvaraj S, Karan K A, Srivastava S, Bhan N, & Mukhopadhyay I. India health system review. New Delhi: World Health Organization, Regional Office for South-East Asia; 2022, available at : https://apo.who.int/publications/i/item/india-health-system-review
[7] WHO, “Global spending on health: rising to the pandemic’s challenges” (December, 2022), available at :
[8] 2019 SCC OnLine CCI 12.
[9] 2017 SCC OnLine CCI 54.
[10] 2013 SCC OnLine CCI 14.