Contributed by Naman Aggarwal

Introduction

The Sustainable Development Goals (‘SDGs’), also known as the Global Goals, were adopted by the United Nations in 2015 as a universal call to end poverty, protect the planet, and ensure that all people enjoy peace and prosperity by 2030. However, in the recently concluded SDG Summit held in New York between September 18-19, 2023,  world leaders recognised that countries were on track to meet only 15% of its 169 targets that comprise the seventeen SDGs.

Through this article, the author proposes a solution for the introduction of pro-competitive policies to ensure the fulfilment of SDGs at a faster rate. The author reasons this model by taking the Jan Aushadhi Scheme (JAS) as an example and analysing how it may be used to further the achievement of SDG 3 (specifically target 3.8), which addresses the access to medicines for all due to its pro-competitive design. Medicines constitute a substantial proportion of out-of-pocket expenses in Indian households and in order to address this issue, the Government of India launched the Jan Aushadhi (Medicine for the Masses) Scheme (JAS) to provide cheap generic medicines to the patients.

Before analysing the scheme, it is necessary to understand the market demographics of the pharmaceutical industry. The top 10 pharmaceutical companies hold approximately 40-50% of the market share. A study on competition in the Indian pharmaceutical industry found that 69% of the market at the formulation level had moderate to high concentration. Further, the industry also has high entry barriers, such as high investment requirements, strong brand loyalty, patent protection etc., which conclusively suggests that oligopolistic conditions prevail in the industry. CCI’s market study on the pharmaceutical sector in India revealed that the market leaders in the pharmaceutical sector, even in the presence of many firms and brands, charge prices that are relatively higher than other market participants, especially those with lower market share. Health is the key factor for the development of any nation and is the foundation for the achievement of SDGs. However, due to these exploitative and anti-competitive practices, the health is being impacted. It is necessary that pro-competitive measures take place and correct the oligopoly-stricken pharmaceutical market.

Analysis of the Jan Aushadhi Scheme

Competition law is the forgotten stepchild of healthcare quality. Competition acts as an instigator for the market, leading to productive, innovative, and dynamic efficiency. Apart from just controlling the price for generics, competition law should be enforced to ensure a vibrant market by addressing demand and supply side issues for each product. For example, the U.S. generic market is one of the most dynamic and cost-effective in the world due to competition between manufacturers. Similarly, in China, the government is accelerating the reform of pharmaceutical prices, the principal component of which is introducing competition.

One such initiative to induce competition in the Indian oligopoly-stricken pharmaceutical market was the introduction of Pradhan Mantri Bhartiya Janaushadhi Pariyojna by the Indian government. The basic idea of the scheme is to provide quality medicines to the citizens at affordable prices. The scheme is designed to generate competition in the pharmaceutical sector at three levels: procurement, distribution, and price setting.

Procurement

Procurement refers to the purchase of goods and services for the production of the end products. The drugs are procured under the Jan Aushadhi programme by issuing tenders with simple eligibility criteria, which can be accessed here.

To understand the induced competitiveness in the Jan Aushadhi tenders, let us compare it with the conditions of other similar tenders for the supply of drugs to the government. One such tender was issued by Bhopal Memorial Hospital & Research Centre (taken as a sample to evaluate), which can be accessed here. If we look into the tender, we find that it contains various avoidable clauses and conditions against the bidder’s interests. The tender mentions that the BMHRC reserves the right to reject any tender, including the lowest quotation, without any reasonable justification (point 10), which reduces the motivation of the bidders to file for the minimum quotation and thus impacts competition. No such authorisation has been granted under the Jan Aushadhi tenders. Also, the BMHRC tender does not guarantee any minimum quantity that will be demanded, and the supplier has to supply such quantity as and when required (point 9). This reduces the bidders’ security and increases the risk of wasting their resources. The tender also requires a prior deposit as a bid security with no interest payable, which is unreasonable (point 21(i)).

Further, in previous schemes before Jan Aushadhi, such as NHRM, there were similar trends. Standard bidding documents were adopted only in four States, while in thirteen States, separate non-standard bid documents were adopted by the State and District Health Societies.

Lack of efficiency in the tendering process, bid opening process, or payment mechanisms can lead to sub-optimal procurement, resulting in a supply shortage. These practices reduce the confidence of the suppliers and manufacturers to file for the tender, which results in fewer bids being received. Consequently, these conditions have been avoided in the procurement tender of the Jan Aushadhi medicines to encourage more manufacturers to file for the bid under the tender. The avoidable entry barriers have been eliminated, and a balance between competitiveness and supply of quality drugs is maintained.

Due to this ‘inclusive design’ of the tenders, more suppliers file for the bid, making them compete to secure the procurement order. As per a study, the government has saved substantial time and money due to the competitiveness induced by bulk purchases and transparent tender procedures of the Jan Aushadhi Scheme. Besides, all drugs procured under this scheme are tested for quality assurance at NABL (National Accreditation Board Laboratories) accredited laboratories and are compliant with WHO GMP (World Health Organisation’s Good Manufacturing Practices) benchmarks. A study done on the JAS found that the medicines tested after procuring from Jan Aushadhi sources are of equivalent and comparable quality to their counterpart branded medicines available in the market.

Thus, the competitive design of the Jan Aushadhi Scheme ensures both affordability and the quality of the drugs procured through its efficient and inclusive design. Affordability is ensured due to the procurement at lower prices due to the induction of competition, and quality is ensured through the quality compliance authorities of the government.

Distribution

Distribution affects the opportunity available to an individual to acquire the medicines. Jan Aushadhi Scheme has a competitive design for better distribution of affordable medicines to every citizen in remote areas. The scheme mentions the opening of Jan Aushadhi Kendras to provide medicines to the individuals. Jan Aushadhi Kendras are the centres from where quality generic medicines can be purchased at affordable prices. The scheme tries to improve the oligopoly-stricken pharmaceutical market by opening an abundance of Kendras in every part of the nation. The scheme hopes to achieve this with the help of eligibility criteria it has chosen for the opening of Kendras. Individuals can open a Jan Aushadhi Kendra if they have a D. Pharma or B. Pharma degree or employing anyone possessing one of them. Anyone who fulfils this basic requirement can file an online application for the opening of the Kendra.

Due to this model, more than ten thousand Kendras have been opened, and all the districts have been covered. Owing to the opening of more Kendras, the accessibility of generic medicines to individuals increases, and an alternative market is established in the sector due to better distribution. The market, which was yet only concentrated with the branded drugs of a few large companies, has been introduced with the competition by generic medicines, which boosts competitiveness and consequently the prices of the drugs. Research conducted in Sweden revealed that implementing the compulsory generic substitution policy led to a 15% drop in overall medication costs. Similar results were drawn from the experiences of eight countries that had implemented a generic medicines policy.

Price Setting

The third level at which the Jan Aushadhi Scheme affects the market structure is by inducing competition in the price setting of the pharmaceutical companies. The prices of the Jan Aushadhi medicines are 50%-90% less than branded medicines in the open market and already account for transportation and distribution expenses, as well as profit margins for cooperative societies, NGOs, and charitable organizations that manage Jan Aushadhi Kendras. The pricing of the medicine is based on the principle of a maximum of 50% of the average price of the top three brands of the said medicine. The principle works feasibly due to the low prices at which the drugs are procured from the manufacturers and suppliers due to a competitive tender filing policy.

The prices in an oligopoly market, where the pharmaceutical industry operates, are generally decided collectively, in a cartel, or under a firm’s leadership, due to which they retain high profit margins. Moreover, when a new market player or product enters the market, the existing firms engage in price wars and non-price competition, such as improved customer services, innovative products etc. They resort to predatory pricing, which involves cutting the prices below the average cost of production to push their competitors out of the market. Only in this case, the competitor is the government and can compete with predatory pricing. This price war will induce the much needed competition in the highly concentrated market and force the market players to reduce their profit margins and provide affordable medicines. This will eventually benefit the consumers by reducing their out-of-pocket expenditure.

Conclusion

In the article, we analysed the competitive design of the Jan Aushadhi Scheme. From the analysis, it can be understood that the primary reason the Jan Aushadhi Scheme promotes SDG achievement is its pro-competitive market design. The scheme induces competition in the market for the top pharmaceutical firms that produce branded drugs at higher prices. Now, the much cheaper and affordable generic medicines are available to individuals of comparable quality, which reduces the concentration and consolidation of a few firms in the market. Quality medicines are now available at very affordable prices, reducing an individual’s overall healthcare expenditure.

Thus, it can be concluded from our discussion that introducing pro-competitive market design and policy in an ailing sector can heal that sector, and consequently, the government should focus on formulating pro-competition policies in the social development sectors. For example, the agriculture sector is suffering from various entry barriers and other anti-competitive elements like a limited number of sellers due to licensing, high level of concentration in the seed market (‘the Big Six’ (Monsanto, Syngenta, DuPont, BASF, Bayer, Dow) collectively control more than 63% of the global commercial seed market) etc. Therefore, introducing competition in these and other similar sectors can heal the market and help achieve SDGs.