Supreme Court on Essential Drug Mark-ups: DPCO 2013, Trade Margins and the Fight for Affordable Medicines

A Supreme Court Bench of Justices Vikram Nath and Sandeep Mehta on 29 September 2026 expressed serious concern over the sharp gap between the prices at which essential medicines, particularly cancer drugs, are supplied to retailers and the maximum retail price (MRP) paid by consumers. Observing that steep mark-ups place an enormous burden on taxpayers, the Bench described the situation as “carnage”. It asked the Centre why the 16 per cent retailer margin provided for under the Drugs (Prices Control) Order (DPCO), 2013 should not be applied uniformly to essential medicines, to curb mark-ups over the price to retailer (PTR).

The Court was hearing petitions led by advocate Kishan Chand Jain and paediatric surgeon Sanjay Kulshrestha seeking regulation of the prices of drugs, medical equipment and generic medicines. Justice Mehta cited an essential cancer drug supplied to retailers at around ₹3,000 but sold to consumers at ₹27,000, and asked who benefited from the difference of about ₹24,000. Solicitor-General Tushar Mehta acknowledged the concern, said the government must find a way forward while “balancing equities”, and pointed to private hospitals, rather than pharmaceutical companies, as the main gainers. The matter will be heard again on 12 October 2026.

For UPSC aspirants, this is a rich topic that spans the right to health, price regulation under the Essential Commodities Act, the design of the National List of Essential Medicines (NLEM), the working of the National Pharmaceutical Pricing Authority (NPPA), and health financing, including Ayushman Bharat.

Background and Context

Five Important Key Points

• The Supreme Court asked why the 16 per cent retailer margin under DPCO 2013 should not be extended to all essential medicines, terming steep mark-ups over PTR “carnage”.
• Justice Mehta highlighted a cancer drug sold at about ₹27,000 against a retailer supply price of around ₹3,000, a nearly ten-fold mark-up.
• The Bench noted that when treatment is covered by government-funded schemes such as Ayushman Bharat, inflated prices are ultimately borne by taxpayers.
• The Solicitor-General said private hospitals, not pharmaceutical companies, gain from the mark-ups, and the Bench also flagged the practice of hospitals insisting that patients buy from their in-house pharmacies.
• The Court has posted the matter for further hearing on 12 October 2026, when the Centre is to place details of existing pricing mechanisms.

Legal and Constitutional Framework

Drug pricing in India derives from the Essential Commodities Act, 1955, under whose Section 3 the Centre issues Drugs (Prices Control) Orders. The current DPCO, 2013 replaced the 1995 Order and adopted a market-based pricing method: the ceiling price of a scheduled formulation is the simple average of the prices of all brands with a market share of at least one per cent, to which a 16 per cent retailer margin is added. The NPPA, established in 1997, fixes ceiling prices, monitors non-scheduled drugs and recovers overcharged amounts. Drugs included in the First Schedule are those in the National List of Essential Medicines, which was revised in 2022 to include 384 medicines. Non-scheduled formulations are allowed a maximum annual price increase of 10 per cent. The constitutional anchor is Article 21, interpreted in Paschim Banga Khet Mazdoor Samity v. State of West Bengal (1996) to include access to health care, along with Article 47, which directs the State to raise the level of public health.

The Mark-up Problem: How the Gap Arises

The Bench’s concern is that regulation focuses on the price at which the manufacturer sells (the ceiling price and PTR), while margins between PTR and MRP are unregulated for many non-scheduled drugs. Trade margins, covering distributors, retailers, and hospitals, can be very large. The Court’s example of a common statin sold at around ₹240 a strip while its combination with aspirin, a scheduled formulation, costs about ₹70 exposes how price control produces anomalies: a combination costs less than one of its components because only one is regulated. Similarly, where the MRP is printed by the manufacturer, retailers and hospitals capture the difference between the acquisition price and the MRP, and consumers cannot tell what the real cost was.

Earlier Policy Measures

Trade Margin Rationalisation was applied in 2019 to 42 non-scheduled anti-cancer medicines, capping trade margins at 30 per cent and reportedly reducing the prices of many such drugs sharply. That experience shows that targeted margin caps can work without disrupting supply. The Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) supplies generic medicines at a fraction of branded prices through more than fifteen thousand Jan Aushadhi Kendras. The Uniform Code for Pharmaceutical Marketing Practices, 2024 seeks to regulate inducements to doctors. The Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (PM-JAY) provides health cover of ₹5 lakh per family, extended in 2024 to all citizens aged 70 and above. Despite these, out-of-pocket expenditure on medicines remains a leading cause of household impoverishment.

Economic Implications

Medicines account for the largest share of out-of-pocket health spending in India. For chronic diseases such as cancer, diabetes and cardiovascular disorders, price differentials of this scale can push families into debt. The economic argument for uniform margin caps is that the taxpayer is a payer in several schemes, and the government is effectively subsidising mark-ups. At the same time, the pharmaceutical industry, a major exporter with a strong generics base, warns that excessive controls may discourage innovation, reduce availability of low-margin essential drugs and encourage shortages. The fiscal implications for PM-JAY package rates and hospital procurement are also large.

Role of Private Hospitals and Pharmacies

The Solicitor-General’s submission that private hospitals are the main beneficiaries points to a regulatory gap. Hospitals purchase drugs and consumables in bulk at low prices and sell to captive patients at or near MRP. The Bench flagged the practice of hospitals compelling patients to buy from in-house pharmacies, leaving little choice. The Clinical Establishments (Registration and Regulation) Act, 2010 provides for standard rates and transparency but has been adopted by only some States. A national framework requiring hospitals to disclose acquisition costs and permitting patients to purchase from outside pharmacies would address this.

Governance and Institutional Concerns

The NPPA’s capacity to monitor tens of thousands of formulations is limited, and enforcement relies heavily on manufacturers’ data. Pricing information is fragmented across the Central and State drug controllers, and the Pharmaceutical Pricing Data Bank is not always up to date. The MRP-based system is also vulnerable to manipulation since the MRP is set by the manufacturer without direct scrutiny for non-scheduled drugs. Regulation of medical devices, which the petitions also include, is weaker still, as devices fall under a limited notified list under the Medical Devices Rules, 2017 and NPPA price monitoring.

Bihar Connection

Bihar has one of the lowest public health expenditures per capita in India and a high share of out-of-pocket spending, which makes it especially exposed to inflated drug prices. Patients with cancer from the State often travel to Patna’s Indira Gandhi Institute of Medical Sciences, the Mahavir Cancer Sansthan, the Homi Bhabha Cancer Hospital at Muzaffarpur, or to Delhi and Mumbai for treatment. The Bihar Medical Services and Infrastructure Corporation Limited handles procurement for public facilities, and a wider network of Jan Aushadhi Kendras and free drug schemes in government hospitals can reduce costs. Clear price disclosure by private hospitals in Patna and other cities would have a direct effect on families in the State.

Comparative Perspective

Several countries regulate not only ex-factory prices but also distribution margins. France and Germany set regressive pharmacy margin structures, and the United Kingdom’s Drug Tariff and Voluntary Scheme for Branded Medicines Pricing control National Health Service spending. Thailand uses compulsory licensing and central procurement to lower prices, and Brazil’s national regulator, CMED, sets maximum prices with formal margins. These examples suggest that regulating the entire chain is feasible and consistent with viable industry.

Way Forward

The Centre should consider extending a uniform, moderate trade-margin cap to all NLEM drugs and to a wider list of high-cost drugs, with a sunset review to check availability. The Trade Margin Rationalisation approach for anti-cancer drugs should be extended to cardiovascular and diabetes drugs. Mandatory printing of PTR or a maximum acquisition price on packaging, along with the right of patients to buy medicines from any pharmacy, should be introduced. The NPPA needs stronger digital tools, including a real-time database tied to GST and e-invoicing data, to track prices. Hospitals should be required to publish rate lists, and the Clinical Establishments Act should be adopted uniformly. Bulk procurement, greater use of Jan Aushadhi and public-sector production of key medicines would supplement regulation. Finally, the review should be participatory, with the industry, patient groups and States consulted.

Relevance for UPSC and SSC Examinations

UPSC: GS-II (health, government policies and interventions, role of the judiciary, welfare schemes); GS-III (pharmaceutical sector, inclusive growth, price regulation); GS-IV (ethics in public policy, corporate responsibility); Essay (health as a public good). SSC: Economy and Polity (Article 21, Article 47, Essential Commodities Act, NPPA, Jan Aushadhi). Key terms: DPCO 2013, PTR, MRP, NLEM 2022, NPPA, Trade Margin Rationalisation, Essential Commodities Act 1955, PMBJP, PM-JAY, out-of-pocket expenditure, Article 21.