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

The Drug Price Control Order 2013 (DPCO) in India, regulated the prices of certain essential and life-saving drugs to ensure their affordability and availability; with the expectation that this would translate into boosting the sales of those drugs. To assess whether such a sales increase was achieved, we 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 which did not experience a regulatory change. We assess the robustness of our results via multiple empirical approaches to triangulate our findings. Contrary to the order’s objectives, we find that sales volumes decline 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. We provide evidence of such a reduction using detailing data from a large pharmaceutical firm. We illustrate that this shift in detailing adversely affected prescriptions from physicians without formal medical degrees who treat the poor and disadvantaged in India; patients that the DPCO was intended to help the most. A survey we conducted shows that these physicians rely on detailing more than medically trained doctors. Taken together, our results provide insights into the strategic actions of firms when faced with regulations, and highlights their unintended consequences. The generalizable nature of our 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 of patients, physicians, pharmaceutical firms and pharmacies when implementing such regulations.