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NATIONAL PHARMACEUTICAL PRICING AUTHORITY
❖ Introduction
• The National Pharmaceutical Pricing Authority (NPPA) is a government regulatory agency that controls
the prices of pharmaceutical drugs in India. So, we can say that Drugs prices are monitored and
controlled by the National Pharmaceutical Pricing Authority (NPPA)
• NPPA enables the government to declare a ceiling price for essential and lifesaving medicines so as to
ensure that these medicines are available at a reasonable price to the general public.
• National Pharmaceutical Pricing Authority (NPPA) was constituted vide Government of India dated 29th
August 1997 as an attached office of the Department of Pharmaceuticals (DoP), Ministry of Chemicals
and Fertilizers as an independent Regulator for pricing of drugs and to ensure availability and
accessibility of medicines at affordable prices.
➢ The National Pharmaceutical Pricing Authority(NPPA) has been entrusted with the following functions
1. To implement and enforce the provisions of the Drugs Price Control Order (DPCO), 1995/2013.
2. To undertake and/or sponsor relevant studies in respect of pricing of drugs/formulations.
3. To monitor the availability of drugs, identify shortages, if any, and to take remedial steps.
4. To collect/maintain data on production, exports and imports, market share of individual companies,
profitability of companies etc. for bulk drugs and formulations.
5. To deal with all legal matters arising out of the decisions of the Authority.
6. To render advice to the Central Government on changes/revisions in the drug policy.
7. To render assistance to the Central Government in the parliamentary matters relating to the drug
pricing.
❖ DPCO
➢ Introduction
• National pharmaceutical pricing policy (NPPP) is the policy governing price control and Drugs Price Control
Order (DPCO) is the order by which price control is enforced.
• DPCO is issued by ministry of chemicals and fertilizers, which is the main nodal administrative ministry for
pharmaceutical companies.
• The central government makes the DPCO, 2013(15/05/2013) under section 3 of the Essential Commodities
Act, 1955 whereby certain medicine could be declared to be essential commodities.
• DPCO is defined as an order issued by the central government under the Essential Commodity Act, 1955
which enables it to fix the prices of some essential bulk drugs and their formulation
• DPCO 2013
The government has notified the DPCO 2013 under the Essential Commodities Act, 1955, which will give power
to the NPPA (National Pharmaceutical Pricing Authority (NPPA) to regulate prices of 348 essential drugs along
with their specified strengths and dosages under NLEM 2011
• History
In 1966, parliament members felt that manufacturers charging high rate on drugs.
To control on high drug rates, DPCO act 1966 was passed under section 3 of essential commodities act 1955.
DPCO act, 1966 replaced by DPCO act, 1970.
In 1974, Hathi committee was formed and submitted its reports in 1975.
DPCO act, 1970 replaced by DPCO act, 1987.
DPCO act, 1987 replaced by DPCO act, 1995.
Finally DPCO act, 1995 replaced by DPCO act, 2013.
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➢ Hathi Committee
• Government constituted a Committee in February, 1974, which consists of 15 members under the
chairmanship of Mr. Jaisukhlal Hathi
• The Report of the Hathi Committee (1975) is an important landmark in the development of the Indian
Pharmaceutical Industry. The Hathi Committee emphasized the achievement of self-sufficiency in
medicines and of abundant availability at reasonable prices of essential medicines.
➢ Difference between DPCO 1995 and 2013
➢ Objective of DPCO
i) It ensures the availability of medicines and drugs in the market.
ii) It controls the rates of essential and life-saving medicines and makes sure to release them at reasonable
prices.
iii) It promotes the rational use of drugs in the country.
iv) Helps in encouraging cost-effective production with economic sizes.
v) DPCO also provide the list of price of controlled drugs
vi) Provide procedure for fixation of prices of drug i.e schedule and non-schedule drugs
vii) Implementation of prices fixed by the central government
viii) Effective for introducing new technologies and new drugs in the market.
ix) Strengthens the capability to produce drugs.
❖ Definition
1. "Active pharmaceutical ingredients or bulk drug" means any pharmaceutical, chemical, biological or
plant product including its salts, esters, isomers, analogues, and derivatives, conforming to standards
specified in the Drugs and Cosmetics Act, 1940 and which is used as such or as an ingredient in any
formulation.
2. "Formulation" means a medicine processed out of or containing one or more drugs with or without use
of any pharmaceutical aids, for internal or external use for or in the diagnosis, treatment, mitigation or
prevention of disease and, but shall not include –
(i) any medicine included in any bonafide Ayurvedic (including Sidha) or Unani (Tibb) systems of
medicines;
(ii) any medicine included in the Homeopathic system of medicine; and
(iii) any substance to which the provisions of the Drugs and Cosmetics Act, 1940 do not apply;
3. "Schedule" means a Schedule appended to this Order
i) Schedule-I it contain the national list of essential medicines 2011 divided into 27 sections.
ii) Schedule-II it contains the various forms for approval and revision of prices of scheduled
formulations.
4. “Scheduled formulation" means any formulation, included in the First Schedule whether referred to by
generic versions or brand name
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5. "Non-scheduled formulation" means a formulation, which is not included in Schedule – 1
6. "Ceiling price" means a price fixed by the Government for Scheduled formulations in accordance with
the provisions of this Order
7. “Generic version of a medicine” means a formulation sold in pharmacopeial name or the name of the
active pharmaceutical ingredient contained in the formulation, without any brand name
8. “Margin to retailer” for the purposes of this Order shall mean a percentage of price to retailer
9. “Maximum retail price” means the ceiling price or the retail price plus local taxes and duties as
applicable, at which the drug shall be sold to the ultimate consumer and where such price is mentioned
on the pack
10. “Pharmacoeconomics” means a scientific discipline that compares the therapeutic value of one
pharmaceutical drug or drug therapy to another
11. "Price list" means a price list referred to in paragraphs 24 and 25 and includes a supplementary price list
12. “Price to retailer” means the price of a drug at which it is sold to a retailer which includes duties and
does not include local taxes
13. "Retail price" means the price fixed by the Government for a new drug
14. “Wholesale price index” means annual wholesale price index of all commodities as announced by the
Department of Industrial Policy and Promotion, Government of India, from time to time
15. “Moving annual turnover” in a particular month means cumulative sales value for twelve months in
domestic market.
❖ Sale prices of bulk drugs
To regulate the equitable distribution and increasing supplies of a bulk drug specified in the First Schedule and
making it available at a fair price, from different manufacturers, this order authorized the central government to
fix the maximum sale price of bulk drugs
1. While fixing the sale price government shall take into following consideration
i) Post tax return of 14 % on net worth
ii) Return of 22% on capital employed.
iii) For new plant, return of 12 % based on long marginal cost
iv) Where the production is from basic stage,-post-tax return of 18% on net worth or a return of 26% on
capital employed
2. At the time of production of drug, manufacturer fill detail in Form-I and give necessary information to
the government within 15 days
3. No person shall sell a bulk drug at a price exceeding the maximum sale price fixed plus local taxes, if any
4. Any manufacturer, who desires revision of the maximum sale price of a bulk drug, shall make an
application to the Government in Form 1, and the Government shall after making such enquiry, as it
deems fit within a period of four months from the date of receipt of the complete information, fix a
revised price for such bulk drug or reject the application for revision for reasons to be recorded in writing
❖ Retail price of formulations
R.P. = (M.C + C.C. + P.M. + P.C.) X (1+ MAPE/100) +ED
Where,
R.P. = Retail price
M.C. =Material Cost
C.C. = Conversion Cost
P.M. = Packaging material
P.C. = Packing Charges
ED = Excise duty
MAPE = Maximum Allowable Post-manufacturing Expense
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❖ Calculation of ceiling price of a scheduled formulation.–
The ceiling price of a scheduled formulation of specified strengths and dosages shall be calculated as under:
Step1. First the Average Price to Retailer of the scheduled formulation i.e. P(s) shall be calculated as below:
Sum of prices to retailer of all the brands and generic versions of the medicine
( having market share more than or equal to one percent )
of the total market turnover on the basis of moving annual turnover of that medicine
Average Price to Retailer, P(s) = Total number of such brands and generic versions of the medicine having
( market share more than or equal to one percent of total market turnover )
on the basis of moving annual turnover for that medicine
Step2. Thereafter, the ceiling price of the scheduled formulation i.e. P(c) shall be calculated as below:
P(c) = P(s).(1+M/100)
where
P(s) = Average Price to Retailer for the same strength and dosage of the medicine as calculated in step1
above.
M = % Margin to retailer and its value =16
• The ceiling price calculated and notified by the Government shall be applicable to scheduled imported
formulations also.
➢ Margin to retailer
While fixing a ceiling price of scheduled formulations and retail prices of new drugs, 16% of price to retailer as a
margin to retailer shall be allowed
➢ Maximum retail price
i) The maximum retail price of scheduled formulations shall be fixed by the manufacturer on the basis of
ceiling price notified by the Government plus local taxes whenever applicable, as under
Maximum retail price = Ceiling price + Local Taxes as applicable
ii) The maximum retail price of new drugs shall be fixed by the manufacturer on the basis of retail price
determined by the Government plus local taxes whenever applicable, as under
Maximum retail price = Retail price + Local Taxes as applicable
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