The Supreme Court on Tuesday questioned why the Union government was reluctant to bring a wider range of medicines under price control, observing that its reliance on market forces and concerns about pharmaceutical-industry growth cannot justify leaving patients exposed to medicine prices that may be hundreds of times higher than procurement costs.

“You are dealing with the lives of people, Ms. Bhati. Don't take it as a commerce. Treat it as a life of the poorest person of this country. You are talking only in the terms of commerce, economic policy, this, that. Is this a matter in which economic policy will be supreme as compared to the life of the citizens at large?” Justice Sandeep Mehta asked Additional Solicitor General Aishwarya Bhati, who was defending the Centre's pharmaceutical pricing policy.

The Court reserved its order in the case concerning regulation of medicine prices after questioning the Centre over the substantial difference between the maximum retail price (MRP) of medicines and the prices at which retailers procure them. The Court also questioned why a large proportion of medicines remained outside the stricter price-control regime under the Drugs (Prices Control) Order, 2013 (DPCO).

A bench of Justice Vikram Nath and Justice Sandeep Mehta repeatedly asked Additional Solicitor General Aishwarya Bhati to explain why the government permitted manufacturers to print MRPs several times higher than the prices charged to dealers and retailers.

During the hearing, Justice Sandeep Mehta recounted an incident in which a medical dealer, whose wife was undergoing cancer treatment at a prominent hospital, wanted to procure a chemotherapy injection for her at the dealer price of ₹11,000. The hospital refused to administer the injection and charged ₹1.3 lakh for it, he said.

“Can you show any justification for this loot, please?” he asked Bhati.

At one point, after repeatedly asking the Centre to explain the rationale, Justice Mehta said, “We again are at a loss to understand what is the justification for this difference. You are not coming out with the answer, please.”

Centre defends calibrated approach to drug price control

ASG Bhati said that the government's policy sought to balance affordable medicines with innovation, competition, industrial growth, employment and economic well-being. She argued that complete price control was not the answer and that the government preferred selective interventions over controlling the entire market.

Under the existing framework, scheduled medicines are subject to ceiling prices under the DPCO, while manufacturers of non-scheduled medicines can determine their initial MRPs, subject to restrictions on subsequent increases. The Centre relied on the National Pharmaceutical Pricing Policy, 2012, which identifies four objectives: ensuring the availability of essential medicines at reasonable prices, providing sufficient opportunity for innovation and competition, supporting pharmaceutical-industry growth, and promoting employment and shared economic well-being.

“Therefore, to call out just one limb to have medicines at reasonable prices may not be the correct way to look at it. Our policy is based on these four limbs and maintaining a balance on all these four limbs is what we endeavour to do as regulators,” Bhati told the Court.

“The decision is not to have a full control but to make only interventions from time to time rather than controlling the entire market,” she said, adding that India had moved away from the “control Raj” and that the government's policy was to allow market forces to operate.

Justice Mehta questioned whether the approach effectively allowed manufacturers to set arbitrarily high initial MRPs before relying on a 10% annual increase limit to restrain prices.

“You at the initial level fix the MRP right up to the moon. Then you increase by 10%. How does that make a difference?” he asked.

When Bhati argued that India already had among the lowest medicine prices globally, Justice Mehta responded, “Don't even start arguing this. India has the lowest price of medicines. There are so many other things also which India is unfortunately suffering. Then we'll go to per capita income. We'll go to so many other things. Please don't compel us to do that.”

He also questioned whether market-based reasoning was appropriate when patients' lives were at stake. “When you talk of patients and their lives, do we really think that kind of capitalistic thinking? Are we really going for that? This is not a country where we have that kind of social security, which we expect, or which we are trying to achieve”, he said.

The Court repeatedly returned to the question of why the government had chosen not to exercise stricter control over a much larger proportion of medicines.

Court questions why most medicines remain outside DPCO

Justice Vikram Nath asked Bhati, “What stops you from taking control of the entire range of medicines and drugs?”

ASG Bhati said that there was no legal impediment to doing so, but the government had taken a policy decision to adopt a calibrated approach.

Justice Nath asked why the government classified some medicines as essential and left others outside that category. Justice Mehta questioned how medicines were selected for inclusion in the scheduled category, observing that the same active pharmaceutical ingredient could be covered under one name but excluded under another.

“That's where the game is. Which medicine to keep in the schedule and which not to keep. That's where the game is. The same salt may be under a particular name part of the scheduled drugs; same may be kept out,” he said.

The petitioner, Kishan Chand Jain, submitted that non-scheduled medicines accounted for approximately 83% of the pharmaceutical market by value. Bhati gave a different breakdown, telling the bench that scheduled medicines accounted for 35% by volume and 18% by price.

Justice Mehta noted that the central question was the extent of coverage under the scheduled-drug regime. “The issue is what should be the extent of coverage under the scheduled drugs. That would take care of everything. You cover maximum drugs under the scheduled drugs,” he said.

The Court also questioned the National Pharmaceutical Pricing Authority (NPPA) over whether it actually made any regulatory interventions. After examining the Centre's affidavit, Justice Mehta remarked, “Your body seems to be defunct with due respect”, he said.

Bhati referred to interventions under Paragraph 19 of the DPCO, which permits the government, in extraordinary circumstances and in the public interest, to fix or alter the ceiling price or retail price of a drug. These include capping MRPs for 106 non-scheduled formulations used to treat diabetes and cardiovascular diseases in 2014, fixing ceiling prices for coronary stents and knee implants in 2017, and capping trade margins on 42 selected non-scheduled anti-cancer medicines in 2019. She also cited interventions concerning oxygen concentrators and medical devices during the COVID-19 pandemic.

The Court asked whether these selective measures adequately addressed a system in which most medicines by market value were outside the scheduled category.

Justice Mehta also questioned the delay in regulating cancer-medicine prices. He asked why the government allowed such large price differences to persist for years.

“Why does it take six years to arrive at that decision, please? They are all experts. They need six years to take this decision that cancer medicines have to be kept at a reasonable price?”, he asked.

The Centre's affidavit acknowledges that patients have limited bargaining power and knowledge of medicines, their substitutes and prices, creating information and bargaining asymmetries with pharmacies, hospitals and doctors. It also states that hospitals may purchase medicines from manufacturers offering the highest trade margins and then sell them to patients at MRP.

Justice Mehta questioned why the government continued to rely on market forces when patients generally could not negotiate prices or verify procurement costs.

“In your government pharmacies sell the same medicine for 6 rupees which is having an MRP of 270 rupees. We'll give you 100 examples,” he said. He also referred to a saline drip line carrying an MRP of ₹15 but being sold for ₹270.

The Centre's affidavit states that trade margins may vary because low-value products need higher margins to encourage retailers to stock them; rural areas with low sales may require higher margins to ensure availability; and medicines requiring cold-chain maintenance, sterilisation or special packaging may entail higher distribution costs. Low turnover and arrangements for returning expired or spoiled products may also affect margins.

Bhati also relied on the government's position that a competitive pharmaceutical market helped keep medicine prices low and that higher trade margins could be justified by product characteristics, distribution costs and market conditions.

The Court questioned whether these considerations justified MRPs hundreds of times higher than procurement prices. “How does keeping MRP 400 times help competition?” Justice Mehta asked.

The Court also questioned the government's reliance on innovation as a justification for allowing market forces to operate. Justice Mehta asked Bhati to name five new molecules developed by the Indian pharmaceutical industry in the preceding 30 years. Bhati said she was not sufficiently familiar with the subject to answer.

Jain submitted that the dispute concerned non-scheduled, off-patent medicines and that the innovation argument did not justify the existing pricing framework for those medicines.

The Court continued to question why the government was unwilling to impose a broader cap on margins. Bhati emphasised that the government did not intend to promote excessive margins but believed that stricter controls could be injurious to the development of the pharmaceutical industry.

The Court also scrutinised the Centre's recent decision to cap trade margins on selected non-scheduled anti-cancer medicines at 30% of MRP, questioning whether the measure would make a meaningful difference if the MRP is already inflated.

Jain submitted that a 30% margin on MRP translated into a markup of approximately 42.86% on the underlying purchase price. He highlighted that the DPCO's formula for scheduled medicines allowed a retailer's margin of 16% on the price to retailer, not on MRP.

Justice Mehta questioned, “The deduction you have brought in on the MRP. So MRP was already 400 times. On that, you give a reduction of 30%. How does that make a difference?”

He also questioned the practical value of government monitoring drug prices without a wider regulatory solution.

Hospitals oppose broader restrictions on medicine margins

Senior Advocate Mukul Rohatgi, appearing for hospitals, argued that hospitals relied on medicine margins to meet operating costs, including maintaining operating theatres, diagnostic equipment and medical staff around the clock. He said that reimbursements under government health schemes and health insurance are lower than the amounts billed.

Rohatgi submitted that if hospitals lose revenue from medicine margins, they would have to increase charges for other services, making treatment more expensive. He also argued that hospitals need funds to maintain infrastructure and upgrade equipment.

Justice Vikram Nath questioned why infrastructure costs could not be recovered through other service charges. He also questioned why patients should be charged the full MRP when hospitals procured medicines at substantially lower prices.

Justice Mehta questioned why patients purchasing medicines directly from pharmacies should have to bear inflated prices when they have no access to the retailer's procurement price.

Rohatgi suggested that an expert committee could examine the issue and determine an appropriate solution.

Ultimately, the Court reserved its order and permitted all parties to file written brief submissions within two weeks.