E-pharmacy is what the doctor ordered

Business Line, May 10, 2021

By Pradeep S Mehta and Ujjwal Kumar

The deadly second wave of Covid-19 pandemic has not only broken India’s healthcare system, there is rampant black marketing of medicines and equipment that are in demand. It is hoped the ongoing pharmaceutical market study being conducted by the Competition Commission of India (CCI) would come out with some recommendations that could rectify unfair market practices harming consumers.

Market studies by competition authorities are often done to get a macro picture of the sector so that the authority can handle the micro issues more competently. Lately, the CCI has also increased reliance on market studies to better understand the dynamism of a given market or sector. Apart from the ongoing study of the pharmaceutical sector, the CCI has in recent times conducted such studies in the telecom sector, the digital market and e-commerce.

Priority sector

The healthcare sector, including pharmaceuticals, is among the top priorities for governments around the world, including India, which is reflected in the massive increase in budgetary allocation for ‘Health and Wellbeing’. Further, competition authorities are also doing their best to enhance access to healthcare and other essentials all over the world. That was also the theme of the World Competition Day on December 5, 2020.

The pandemic has chnaged market behaviour significantly. Not only consumers and doctors now adopt virtual mode of consultation, the online sale and purchase of pharmaceuticals, has gone up significantly. According to a FICCI white paper, the number of households using e-pharmacy services soared two-and-half times during last year’s lockdown period (to about 8.8 million). The paper said that 70 per cent of consumers were satisfied with the e-pharmacy services. Similarly, there was a halving of face-to-face consultations with doctors. The second wave of the pandemic has further accelerated this phenomenon.

Essential service

No wonder e-pharmacy was declared an essential service to be fully operational even during the strict lockdown period last year. E-Pharmacy is also one of the six building blocks of the flagship National Digital Health Mission, announced by Prime Minister Narendra Modi during his Independence Day speech. As e-pharmacy is set to play a significant role in our day-to-day life, the whole ecosystem needs to be nurtured, particularly from the vested groups whose control over the sector is shrinking due to this digital disruption.

Trade associations, such as the All India Organisation of Chemists and Druggists (AIOCD) and its sub-national affiliates, have been exercising significant control over the pharma supply and distribution chain, often causing anti-competitive effects. These associations seem bent on stopping the digitalisation of the supply chain by e-pharmacies, including by frivolous court cases and directly influencing the powers that be. The CCI and its predecessor, MRTP Commission, on many occasions have ruled against the anti-competitive practices of these associations.

Competition issues in the distribution segment is one of the focus areas of the CCI’s pharmaceutical sector market study, along with understanding the effects of competition due to prevalence of branded generic drugs, entry barriers for biosimilars, etc. The market study will also empirically examine competition issues identified in the CCI’s 2018 Policy Note, ‘Making Markets Work for Affordable Healthcare’.

According to this Policy Note, e-pharmacy can bring in transparency and spur price competition among platforms as also among retailers. It also enhances consumer choice by providing a list of equivalent drugs. Further, the ease of tracking the supply chain in the online set up also decreases the risk of counterfeit medicines, drug abuse and self-medication as well as black marketing. The Note, thus, called for regulatory level playing field between the offline and the online marketplace. It advocated optimal regulation of online marketplace keeping the distinction between a pure marketplace model and an inventory-based model of e-pharmacy.

The draft rules for e-pharmacies, in limbo since 2018, could take a leaf from the Policy Note within the context of defining (diverse) business models of e-pharmacies.

Question of access

The CCI Note also advocates against any territorial limits on the sales area of e-pharmacies put in by any regulation. It says, “[T]he rules may allow e-pharmacies to serve the entire country. This will help address the problem of drug distribution in entire country. Digitisation and information technology can play a game-changing role in reducing information asymmetry historically prevailing in health care markets around the world, more so in India.”

It is hoped that the CCI’s market study will have the same zeal while looking at e-pharmacies and identify regulatory and non-regulatory hurdles in its path of expansion, including those posed by the AIOCD.

Frivolous litigations

The CCI is aware of the anti-competitive effects due to self-regulated drugs supply chain by trade associations, which include existence of high trade margins.

However, it may also take note of frivolous litigations initiated by such vested interests. In case of biosimilars, the CCI has already taken cognisance of frivolous litigations and dealt with a dispute on this matter.

Drug prices are crucial to access to healthcare because of the very high out-of-pocket expenditures.

According to one estimate, if ₹100 is the total healthcare expenditure, ₹74 is spent from the consumer’s pocket out of which ₹50 is spent on pharmaceuticals.

Thus e-pharmacy is the key to offer best prices to consumers, by shortening the supply chain, freeing it from the control of trade associations, offering cost-effective choices and enhancing retail competition. Safe doorstep delivery is a bonus.

However, the CCI may also apply the learnings from its e-commerce market study, and see whether similar competition concerns exist in the e-pharmacy segment. It may also take cognisance of the recent trend of consolidation in the sector.

In the interest of consumers, the best approach for the market study would be to promote the e-pharmacy ecosystem, while minimising any competition concern in the sector.

The market study, therefore, must come out with competition advocacy agenda, so that the market players and consumers are better informed, and so are the polity and the judiciary.

The authors work for CUTS International, a global public policy research and advocacy group.


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