The government SOTS offer drew criticism from healthcare groups and activists.
The government has offered to waive of Rs 1,325.5 crore of interest on penalty of Rs 4,827 crore against several drug makers as Special One Time Settlement (SOTS) scheme in the case of alleged overcharging of drugs.
"It is noted that there are 666 cases pending for a long time with a total outstanding of Rs 4,827.3 crore approximately. Out of this amount, it is proposed to condone interest of Rs 1,325.5 crore," the government said in letters written to industry associations Indian Drug Manufacturers Association (IDMA) and Indian Pharmaceutical Alliance (IPA).
"In this regard a clarity is required whether the pharma companies are ready to pay Rs 3,501.9 crore outstanding on account of principal and interest i.e. there is no dispute on the principal amount in all 666 cases and pharma companies have no objection to pay the interest after condonation," the letter added.
Barnali Khastgir, Under Secretary (DPCO Pricing) - Department of Pharmaceuticals, wrote twice to the industry associations in March and April this year, offering interest waiver as one-time settlement.
Moneycontrol reviewed copies of those letters.
The government has offered to withdraw the cases if drugs makers pay the principal amount. It further said the offer for interest waiver, was based on the request of one-time settlement from the industry.
There are 666 cases pending since 1997 against companies for the non-compliance of notified ceiling price. Many are under litigation.
The National Pharmaceutical Pricing Authority (NPPA) fixes ceiling price of essential medicines based on the Schedule-1 under para 19 of Drugs Prices Control Order (DPCO) 2013. The annual price hike is linked to the wholesale price index (WPI) inflation. In respect to medicines not covered under DPCO, drug makers are allowed to increase the maximum retail price by 10 per cent annually. The companies violating will be penalised and prosecuted
If companies are found overcharging, demand notices are issued for the recovery of the overcharged amount, along with 15 percent interest thereon for violation. If the manufacturers fail to deposit the overcharged amount, further action is initiated against them.
Dozens of drug manufacturers including the big ones like Sun Pharma, Lupin, Cipla, Dr Reddy's, Zydus Cadila, Abbott, Pfizer, Novartis, GSK, Wockhardt, Torrent Pharma, Sanofi, Biocon, AstraZeneca, Intas Pharmaceuticals, Morepen Laboratories, Macleods Pharmaceuticals. Mylan among others are contesting penalties raised against them.
Industry response
The response from the industry has been measured. IDMA said the liabilities raised against various companies suffer from discrepancies such as inaccurate computational methods to arrive at penalties, a large number of those case are suo moto that are not legally tenable and wrong computation of prices of bulk drugs and formulations against the provisions of DPCO.
"As such each case has its own merits and demerits, and the issues involved in each case is dissimilar, which needs to be sympathetically considered by the concerned authorities," Deepnath Roy Chowdhury, National President of IDMA wrote to the government in response to the SOTS offer on April 22.
"Such issues cannot be settled by the association on behalf of individual companies," IDMA said.
The IPA spokesperson could not be reached.
Health activists call it bad precedent
The government SOTS offer drew criticism from healthcare groups and activists. They allege that SOTS sets a wrong precedent that will be detrimental to overall compliance by diluting the enforcement of penalties, when violations are quite rampant and hardly any prosecutions are carried out under DPCO.
"The DOP's offer for a one-time blanket settlement is against the objectives of the price control regulations. The DPCOs in question have been issued under the Essential Commodities Act, 1955. There are no provisions that allow for condonation, therefore any waiving of the interest such as in a large number of cases taken together is in contravention of the law," said AIDAN in a statement.
"Under the scheme of the DPCOs, interest is payable as a form of penalty. The settlement is designed to allow companies that have illegitimately pocketed huge amounts by overcharging consumers over the years to get off scot free," the statement added.
