'Don't treat human lives like commerce': SC pulls up center and hospitals over drug surcharges

The Supreme Court on Tuesday slammed the Center for not adequately justifying the steep mark-ups on drugs and asked why it took years to cap business margins on select drugs. anti-cancer drugs and whether commercial considerations were put before the lives of patients.

Justices Vikram Nath and Sandeep Mehta reserved their order in a public interest litigation (PIL) filed in 2023 by advocate and activist Kishan Chand Jain seeking affordable medicines and reforms in drug pricing and medical regulation.

The court also questioned the hospitals’ pricing practices and asked why drugs were sold to patients at maximum retail prices (MRPs) that were much higher than their cost of acquisition.

“People’s lives Ms. Bhati… don’t treat it as a business. Treat it like the life of the poorest citizen of this country,” the bench told another advocate general Aishwarya Bhati, who appeared at the centre. “We have asked you at least 30 times to tell us that rationale,” he added.

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The hearing came after the government, through a notification on October 17, capped trade margins at 30% of MRP for select non-scheduled cancer drugs. The measure is expected to reduce retail prices by 20-70%, the center said in a statement.

The bench also took notice of its belated intervention by the National Medicines Pricing Authority (NPPA) and questioned whether the latest measure would meaningfully reduce prices when the original MRP itself was vastly inflated. “Your body appears to be completely dysfunctional, with all due respect,” the bench observed while questioning the authority’s record of dealing with excessive surcharges.

The court cited the case of a chemotherapy injection that a medical dealer said he could procure ₹11,000 but for which the hospital charged ₹1.3 million. It asked the government to explain the difference and why the intervention took so long.

The final decision will determine to what extent The Supreme Court may step in to deal with excessive drug markups and whether broader price regulation is warranted. The decision will be closely watched by the pharmaceutical industry, hospitals and policy makers due to its potential implications for center pricing and patient out-of-pocket healthcare costs.

Argument of the center

Bhati argued that government policy sought to balance the availability of essential medicines at reasonable prices with innovation, competition, industrial growth and employment. She favored targeted interventions over comprehensive price controls, she said, warning that over-regulation could affect investment and the availability of medicines.

“Our policy is based on these four branches,” she told the court, referring to the availability of essential medicines at reasonable prices, innovation, competition and industrial growth, including employment and shared economic prosperity.

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The bench, however, questioned the adequacy of the existing framework and asked why the initial MRP of a drug could be set well above its supply price and then allowed to rise every year. “At the initial level, you fix the MRP up to the moon. Then you increase by 10%,” the bench observed.

She also questioned the government’s reliance on market forces to regulate prices, saying patients have limited bargaining power and little information about the prices at which hospitals and retailers obtain drugs.

What the hospitals said

Senior advocate Mukul Rohatgi, appearing for the hospitals, argued that drug margins helped private medical facilities meet the cost of maintaining operating theatres, catheterization labs, MRI machines and round-the-clock medical staff. He said public hospitals are overburdened and private facilities need adequate resources to provide healthcare.

Rohatgi warned that the cut in drug margins could force hospitals to increase charges for other services. He also said that listed hospitals usually operate with profit margins of around 10% and need to invest thousands of crores of rupees to upgrade equipment. “These hospitals are listed companies… 10% is the profit of all these hospitals. Every year I have to bring in thousands of crores to upgrade the machines,” he told the bench.

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The benchmark suggested that both MRP and retail price (PTR) should be displayed on drug packages to improve transparency. It also raised concerns about whether financial incentives from high drug margins could encourage unnecessary procedures, though it clarified that it had not made a definitive finding that such practices occurred.