Access to affordable essential medicines and breaking the cycle of noncompliance with price controls in India Monday, 13 March 2023

When managers for pharmaceutical firms decide not to comply with price control measures to improve access to essential medicines in developing countries, they encourage other pharmaceutical companies—large and small—to also become noncompliant. Therefore, promoting compliance with price controls by a small number of market leaders is vital to breaking the cycle of noncompliance with price controls committed by other pharmaceutical firms  Dr Mirko Benischke, Associate Professor of Global Strategy at Rotterdam School of Management, Erasmus University (RSM) and Dr Ajay Bhaskarabhatla from the Erasmus School of Economics (ESE) identify the ‘jumping on the bandwagon’ effect of firms deciding to act in noncompliance with price controls because they see other firms acting that way and the forces that strengthen such firm behavior.

This research could have implications for policymakers because when firms undermine global efforts by violating price controls, they make medicines unaffordable for ordinary people. The paper, Negative incentives and regulatory capture: noncompliance with price ceilings on essential medicines in India, was published in the Journal of Management Studies.

Failed price controls

Benischke and Bhaskarabhatla studied the conditions under which firms were likely to violate price controls – regulatory mandates under which firms are not allowed to charge above a certain price for a certain medicine – for essential medicines in India. Access to essential medicines is viewed as a human right; however, despite decades-long efforts by the World Health Organisation, rising medicine prices continue to pose a significant challenge, especially in low- and middle-income countries such as India.

Indian authorities introduced price controls for 255 essential medicines to combat increasing prices and ensure essential medicines are affordable for the population. But the researchers knew from anecdotal evidence that these price controls in India were unsuccessful.

In some countries, policymakers have attempted to improve access to essential medicines; price controls are one of the mechanisms they use. As Benischke and Bhaskarabhatla observed, pharmaceutical firms play a critical role in global efforts to ensure affordable access to essential medicines.

“We wanted to study why these price controls were unsuccessful, with a focus on the implementation period. That is, we wanted to explain why firms decided to violate these price controls once they were implemented,” said Benischke.

Bandwagon effect

The researchers analysed whether pharmaceutical firms complied with price controls across 255 medicine markets. They analysed 10,306 medicines sold by 503 pharmaceutical firms.

They found that pharmaceutical firms are more likely to violate price controls when the medicines are sold in markets where there are other pharmaceutical firms that are already noncompliant; in other words, the more pharmaceutical firms that are noncompliant in a given regulated market, the more likely other firms are to also violate those price controls. It seems that some firms are keen to jump on the bandwagon of non-compliance.

What’s more, they found that large firms and firms with a broader range of products (i.e., more diversified) are more likely to violate price controls when the number of other noncompliant firms increases.

Breaking the cycle of non-compliance

The good news is that the researcher’s findings imply that managers who are serious about their own companies improving access to essential medicines in developing countries can break the cycle of noncompliance among other companies by being compliant themselves. Providing affordable access to essential medicines in developing countries is an important and integral part of the global effort to achieve the Sustainable Development Goals.

Implications

So what does it mean for policymakers if pharmaceutical companies play a critical role in global efforts to ensure affordable access to essential medicines? Policymakers need to be certain they are equipped with the resources necessary – and have the backing of legislation – to enforce health policies that pharmaceutical companies might oppose.

This implies that the implementation phase is important too, particularly when it comes to achieving the SDGs, say the researchers. It might need even more than just extra focus on the policy-making process to successfully crack noncompliance with price ceilings.

You can read the complete published paper here: https://onlinelibrary.wiley.com/doi/epdf/10.1111/joms.12885

Rotterdam School of Management, Erasmus University (RSM) is one of Europe’s top-ranked business schools. RSM provides ground-breaking research and education furthering excellence in all aspects of management and is based in the international port city of Rotterdam – a vital nexus of business, logistics and trade. RSM’s primary focus is on developing business leaders with international careers who can become a force for positive change by carrying their innovative mindset into a sustainable future. Our first-class range of bachelor, master, MBA, PhD and executive programmes encourage them to become to become critical, creative, caring and collaborative thinkers and doers. Study information and activities for future students, executives and alumni are also organised from the RSM office in Chengdu, China. www.rsm.nl

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