Do No Harm? Unintended Consequences of Pharmaceutical Price Regulation in India

Abstract

The Drugs (Prices Control) Order of 2013 in India regulated the prices of certain essential and life-saving drugs to ensure their affordability and availability, expecting an increase in sales of those drugs. The authors study the effects of the regulation on sales volumes of each regulated drug using a synthetic control approach with sales data from a comparable country that did not experience a regulatory change. They assess the robustness of the results via multiple empirical approaches to triangulate the findings. Contrary to the order's objectives, they find that sales volumes declined for regulated drugs. Since the order placed restrictions on production levels and on drugs exiting the market, the lowered margins of regulated drugs could have pushed pharmaceutical firms to reduce their marketing expenditures on them. The authors provide evidence of such a reduction using detailing data from a large pharmaceutical firm. The findings illustrate that this shift in detailing adversely affected prescriptions from physicians without formal medical degrees who treat poor and disadvantaged people in India—patients that the order was intended to help the most. A survey the authors conducted shows that these physicians rely on detailing more than medically trained doctors. Taken together, the results provide insights into the strategic actions of firms when faced with regulations, and highlight their unintended consequences. The generalizable nature of the study's findings across a broad set of medications has implications for governmental agencies in terms of the need to account for the entire ecosystem when implementing such regulations.