India: An Examination Of The Proposed Essential Commodities (Control Of Unethical Practices In Marketing Of Drugs) Order, 2017

Last Updated: 28 November 2017
Article by Saman Ahsan and Akshay Mahajan

Most Read Contributor in India, December 2017

The laws governing the pharmaceutical sector in India have been developing over the years and as a part of such development and regulation, the Government of India has proposed the Essential Commodities (Control of Unethical Practices in Marketing of Drugs) Order, 2017 (Order) to eradicate bribing of doctors and health professionals by way of, inter alia, gifts and payments for travel and food. Though the Order has not yet come into force, its proposed provisions have been examined in this article. The possible areas which require consideration from the Government are discussed hereunder:

  • Objective of the Order is not aligned with the Essential Commodities Act, 1955: It is pertinent to note that the objectives of the Essential Commodities Act, 1955 (the Act) are specifically to control production, supply and distribution of essential commodities and not to regulate the marketing of drugs. The objective sought to be achieved by way of the Order is evidently outside the scope of the Act. In this regard, it is relevant to note that the purpose sought to be achieved by the Order is aligned with the objective of the Drugs and Cosmetics Act, 1940 which includes, inter alia, regulating the distribution and sale of drugs.
  • Focus on disclosures rather than penalty as mandated under the Physician Payments Sunshine Act, 2010 (Sunshine Act) in the United States of America (USA): It is recommended that similar to the Sunshine Act followed in the USA, the proposed Order may be revised to lay emphasis on disclosures rather than the imposition of penalties. Accordingly, instead of imposing a blanket ban on gifts, as is sought to be done, the Order may mandate pharmaceutical companies to be transparent in their dealings with physicians and disclose to the regulatory authority, any gifts given above the recommended thresholds.
  • Culpability of Chief Executive Officer (CEO) or Managing Director (MD): The proposal of making the MD or CEO of a company responsible for ensuring adherence to the Order may be reconsidered, given the wide scope of duties and responsibilities entrusted in them with their position. Instead, it is recommended that pharmaceutical companies may be directed to mandatorily appoint a 'Compliance Officer' for the purposes of ensuring adherence to the Order. Further, an exception may be made with respect to levying of penalty, in the event where the said compliance officer of a company has put in place and sufficiently monitored adequate checks and balances to prevent violation of the Order.
  • Definition of Agent: The term 'Agent', as defined in paragraph 2(b) of the Order, is very wide and aims to include any personnel, company, society, non-government organisation or other institution, which has been employed or authorized, by third party who call on any healthcare facility regarding the promotion of drugs of a pharmaceutical company. It is recommended that the liability of pharmaceutical companies must be restricted to acts or omissions done by agents employed or authorised by such companies directly.  It is, therefore, suggested that the term 'third party' may be defined separately in the Order, and any liability arising in respect of offences committed by agents of such 'third parties' is thrust upon such third parties alone and not the pharmaceutical company in question.     
  • Providing Free Samples: The Order prohibits a pharmaceutical company or its agent to offer free samples to any medical practitioner. However, an exception to this rule has been created by allowing pharmaceutical companies to provide free samples up to a full course of medication for a maximum of three patients. Three patients is a small number for any medical practitioner to understand and analyse the effects of a new drug on patients. It is pertinent to note that a new drug may have different reactions on different persons due to drug hypersensitivity. Therefore, it is suggested that free samples may be increased from three patients to a reasonable number of patients, as would be required by the medical practitioner based on a case to case basis.  
  • Prohibition on Gifts: Paragraph 3 of the Order prohibits offering of gifts, cash cards, hampers or any article that may generate monetary benefit or allow gains in kind to a medical practitioner or any retail chemist or pharmacists or their 'family members' by any pharmaceutical company or its agents. In this regard, the following recommendations have been made:

    1. Instead of a blanket prohibition on exchange of gifts, as defined in the Order, either disclosures or a reasonable threshold, above the proposed threshold of INR 1000, may be put in place from a practical perspective.
    2. The term 'family members' is very wide and may be defined to avoid ambiguity.
  • Mandatory Consultation by the Ethics Compliance Officer: Paragraph 4 of the Order imposes a penalty on a company or its agent which fails to comply with the provisions of sub-paragraph (a) (b) (c) or (d) of paragraph 3 of the Order. The above-mentioned penalty is required to be in consonance with the provisions of the Act, or the Drugs and Cosmetics Act, 1940 and the Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954, which may also include imprisonment. Paragraph 5, inter alia, provides for the appointment of an Ethics Compliance Officer (ECO), who shall not be below the rank of a Joint Secretary to the Government of India. Given that the ECO is not medically qualified, prior to passing any order under Paragraph 4 of the Order, it should be mandatory for the ECO to consult a committee consisting of persons with a medical background, having sufficient and sound understanding of the pharmaceutical industry. Additionally, it may be clarified that the penalties imposed by the ECO must be for offences other than misbranding, which has already been penalised by way of Section 18 of the Drugs and Cosmetics Act, 1940.
  • Disproportionate Penalty and discretion of ECO in reducing penalties: Paragraph 5(4) of the Order lays down the procedure for levying penalty by suspending the marketing of the highest selling product for any non-compliance of the provisions of the Order by a pharmaceutical company or its agent. This provision appears to be highly onerous. It is recommended that the current provision suspending the highest marketing drug may be amended to restrict the same to a fixed monetary penalty or alternatively confine the penalty only to the drug in question. Moreover, the ECO may be provided with a discretionary power to reduce the penalty depending upon the facts and circumstances of the case and culpability of the pharmaceutical company. 

Basis the above points, it may be inferred that while the proposed Order is a step in the right direction, it is important that the Government also considers the legitimate interests of corporations to balance the interests of all stakeholders involved. 

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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