COVID Vaccine Pricing Issue: Could Centre Have Helped Out States?

Instead of dwelling on legal options to control prices, the govt could’ve handled negotiations on behalf of states.

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As the second wave of COVID sweeps through India and citizens anxiously await vaccines, there is much confusion and controversy about the price of vaccines and the central government’s vaccine-procurement policy. The controversy is primarily centred on the issue of differential pricing strategy adopted by vaccine manufacturers like Serum Institute of India (SII) and Bharat Biotech, both of whom are offering the vaccine at a much lower price to the central government as compared to state governments, which in turn are getting the vaccine at a lower price than the private market.

This differential pricing strategy has raised the hackles of the state governments — and allegations of ‘profiteering’ are being made against the two vaccine manufacturers.

The issue has also been taken up by the Supreme Court in suo moto proceedings, where the court appears to be nudging the government to invoke price controls and compulsory licensing to check the prices of vaccines.

Centre Can Control Price of Any Drug, Including Vaccines. But Here’s An Exception for Patented Drugs

Legally speaking, drug prices can be controlled through one of three options.

The first option is the Drug Price Control Order, 2013 (DPCO) which is issued under the Essential Commodities Act, 1955.

The central government, at its discretion, can control the price of any drug — including vaccines. There is, however, an exception in the DPCO, 2013 for patented drugs developed through indigenous research and development facilities.

These drugs are exempted from the DPCO for a period of 5 years. This would mean that Bharat Biotech’s vaccine – Covaxin – is automatically excluded from the DPCO, since it was developed indigenously and in collaboration with the government scientific establishment like the Indian Council for Medical Research (ICMR) and the National Institute for Virology (NIV). The government can obviously amend the DPCO without much trouble to exclude this exemption that covers Covaxin. If the government decides to include SII’s Covishield in the list of drugs under price control, it cannot claim an exemption similar to Covaxin, since the former was developed in the UK and not India.

The practical problem in using the current DPCO to fix the prices of vaccines is that it is targeted primarily at fixing retail prices — not wholesale prices — that is, the price at which the end consumer is buying the vaccine rather than the price at which vaccine manufacturers sell it to the state governments.

In the case of the COVID vaccines, most state governments have already announced that they will ensure free provision of the vaccines, so retail prices are of concern, only for the sale of vaccine in the private market.

It is not clear if the DPCO, 2013 — in its current form — will serve the purpose of fixing the wholesale prices at which the vaccine manufacturers are going to sell to the state government.

Even presuming that the DPCO, 2013 does not apply to wholesale prices, the central government — or more specifically, the Department of Pharmaceuticals, Ministry of Chemicals and Fertilisers — can always announce a specific DPCO under the Essential Commodities Act, 1955 to tackle the specific issue of pricing COVID vaccines.

Why Compulsory Licensing for Vaccine Tech is Not a Viable Option

The second option put forth by some, including courts, is for the government to influence prices by issuing compulsory licences for the patents covering the COVID vaccines. Theoretically, this would increase the number of manufacturers and also the supply of vaccines at a reduced price, since the Controller of Patents can fix the sale price of vaccines produced under a compulsory licence.

In reality however, as I have discussed earlier over here, compulsory licences make sense only when the company seeking the licence has the capacity to reverse-engineer the vaccine without the aid and assistance of the patent holder.

It is difficult if not impossible to replicate vaccines without being provided biological samples by the company that developed the vaccine in the first place. If by some possibility the vaccine could be reverse-engineered, it would have to go through clinical trials once again — and that will take time and money. It is, therefore, unlikely that compulsory licensing is a viable option for vaccine technology.

Vaccine Pricing: The ‘Simpler Route’ Which the Centre Didn’t Take

The third option, which has received lesser attention, involves using contractual clauses in the government’s funding agreement with Bharat Biotech, to force the company to lower its rates. We do not know if such a clause exists in the funding agreement because the government has not made the agreement public.

Rather than spending time over legal options to control prices of vaccines, the simpler solution for the central government would be to handle negotiations by itself on behalf of all states.

A market where there is only one buyer, gives the buyer enormous leverage in price negotiations. It is a form of de-facto price control.

Rather than pit the states in a perverse kind of ‘hunger games’ for vaccines, the central government should have taken it upon itself to negotiate with all vaccine manufacturers, to ensure equitable pricing for all Indian citizens.

This decision to fragment the buyer’s market, by forcing the states to negotiate separately with the vaccine manufacturers, is ‘bad economics’, as discussed in this piece by Ashish Kulkarni and Murali Neelakantan.

(The writer is a lawyer with interest in IP, drug regulation, transparency and politics. He tweets @Preddy85. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)