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The Ban on Sales via E-pharmacy: Where is the Required Market Disruption?

January 12, 2020

[Kritika Dobhal is a student at National Law University, Jodhpur. The following article has been contributed by her with the guidance of Mr GR Bhatia (Partner, L&L Partners Law Offices).]

 

The e-pharmacy sector has suffered another blow with the recent order by the Drugs Controller General of India (DCGI) directing states and union territories to prohibit the sale of medicines through unlicensed online platforms. This move follows the order of the Delhi High Court granting interim injunction on the sale of drugs and prescribed medicines through online pharmacies, till the Centre finalises the regulations.[1]

 

A timeline of ups and downs in the e-pharmacy sector

 

In 2015, 27 online pharmacies, including Flipkart, Snapdeal and Amazon, were raided by the Maharashtra Government for selling prescription drugs online without the requisite licence. Subsequently, to promote the interests of the public health, the Indian Internet Pharmacy Association (IIPA) was formed which released its ‘Self-regulation Code of Conduct’ for the e-pharmacy sector. However, the crackdown by state Governments on the online drug sales continued. Thus, a legislative gap was realized in governing the sector. A major step towards the recognition and regulation of e-pharmacies came with the draft rules on the Sale of Drugs by E-Pharmacies, mooted by the Ministry of Health and Family Welfare in 2018 (Draft Rules).[2] These rules, inter alia, govern registration of e-pharmacies and dissemination of information collected by such pharmacies. Currently, these rules are being reviewed by a group of ministers led by Mr. Rajnath Singh.In the meantime,  online pharmacies, such as Netmeds, PharmEasy, etc., flourished and expanded their business with multiple rounds of investments.

 

Judicial proceedings against online pharmacies

 

Since the beginning of operations of e-pharmacies, objections were raised from various trade associations of stockists/ druggists/ chemists of the brick and mortar Pharmacies. In 2018, the Tamil Nadu Chemists and Druggists Association filed a case before the Madras High Court[3] praying for a ban on the sale of prescription medicines via unlicenced online pharmacies. The single judge bench of the Madras High Court noted the lack of notified regulatory framework for governing these e-pharmacies. The bench took note of the Draft Rules and directed the Central Government to notify the rules by the end of January 2019. Further, the e-pharmacies were banned from dealing in drugs and cosmetics till the Draft Rules were notified. However, the division bench granted an interim stay[4] on the ban ordered by the single judge bench.

 

A writ petition was filed by Dr. Zaheer Ahmed before the division bench of the Delhi High Court. Taking note of the interim injunction granted by the single judge bench of the Madras High Court, a similar injunction was granted by the Delhi High Court. This was followed by a contempt application on the ground that the e-pharmacies were in operation, despite the injunction.   

     

The air of uncertainty looming over e-pharmacies

 

Globally, there are three prevalent models for operation in the e-pharmacy sector – market place, inventory led, and franchise-led. The online pharmacies have consistently argued that there is no requirement of licence for them as they follow the marketplace model, akin to the food delivery applications. Their role is that of an intermediary and they are governed by the Information and Technology Act 2000. Further, even in the absence of any specific regulation governing them, the authorities under Drugs and Cosmetics Act 1940 (D&C Act) and Rules of 1945 (D&C Rules) are well equipped to take any action in case of contravention. On the other hand, it is argued that the operation of these e-pharmacies are in contravention of Rules 61 and 65 of the D&C Rules.

 

The order of the DCGI comes while the proceedings in the contempt application and writ petition are still pending before the Delhi High Court. In light of this, there is ambiguity regarding the scope of the order. The online pharmacies are under the belief that they are untouched by the order, especially when the prescriptions are checked and the medicines are delivered by registered pharmacists.

 

Global trend concerning e-pharmacy sector

 

Across the globe, the process of eruption of the e-pharmacy market has been organic, especially due to the ease for customers. The concerned authorities, while recognizing this, have tried to regulate the market and not curb it. For example, in the United Kingdom, a guidance for registered online pharmacies was released some time back.[5] The guidance report instructs the online pharmacies to provide prescription-only medicines after an appropriate consultation with the practitioner. Similarly, in America, internet pharmacies are permitted to operate, with a licence from every state they are operating. These licences are verified by the National Association of Boards of Pharmacy. An additional condition is imposed for a prescription drug, i.e., the prescription must be given by a doctor in-person. A similar condition is prevalent in Australia, where, for purchasing the drugs, valid prescription must be produced.

 

The need for market disruption

 

The competition watchdog, in multiple cases, has dealt with the anti-competitive practices prevalent in the pharmaceutical sector. The distinctive feature of the pharmaceutical sector is the widespread 'information asymmetry' and 'supplier induced demand'. These factors curb consumer welfare in the sector. The Competition Commission of India (CCI) has recognized that one of the reasons for the high prices in the concerned sector is the role played by the intermediaries.[6] The trade association of stockists/ druggists/ chemists control the entire distribution system for medicines and govern all the pertinent aspects such as discounting practices, appointment of stockists, and advertising the drugs by different manufacturers. This curbs price competition between traders. Therefore, one of the recommendations given by the CCI for disrupting this traditional market and bringing down the price of healthcare, is the emergence of e-pharmacy.

 

The premier benefit of e-pharmacy is transparency; it allows consumers to make an informed choice about the prices of different medicines, and availability of other medicines with the same salt. Further, since all medicine purchases are digitally stored, it is easy to track the supply chain, which, in turn, decreases the risk of counterfeit medicines, drug abuse, and self-medication. With the introduction of online pharmacies, the medicines will be available at a discounted price, which will induce the traditional retailers to match the price.

 

Another prevalent anti-competitive practice is that of exclusive vertical arrangement between hospitals and the in-house pharmacies. Currently, an investigation is pending into such practices undertaken by private hospitals in the NCR region. One of the enabling reasons for this practice is the prevalent information asymmetry. The window for such practice shuts down drastically when all the information about drugs is available at the click.

 

The way ahead

 

The debate concerning operation of e-pharmacy is one of ‘ease of purchasing of essential drugs’. Thus, an interim injunction is not an answer, especially when the government is under immense pressure from trade organizations in the traditional retail pharmacies. Due to the legislative uncertainty, start-up e-pharmacies are suffering. Therefore, it is suggested that the scope of the DCGI order is clarified and the ban should be lifted on the operations of the marketplace model based e-pharmacies. As was noted by the division bench of the Madras High Court, a sudden stoppage on the operations of e-pharmacies would result in grave hardship, inconvenience and health issues to the patients who have been dependent on the online platform for their medicines.

 

 

[1]Dr. Zaheer Ahmed v. Union of India and Ors., W.P.(C) 11711/2018, order dated 12/12/2018.

[2]G.S.R. 817(E), Part VIB, Sale of Drugs by E-pharmacy, notification dated 28/08/2018.

[3]Tamil Nadu Chemists and Druggists Association v. Union of India and Ors., W.P. No. 28716 of 2018, order dated 17/12/2018.

[4]CMP. No. 23341 of 2018 in W.A.No.2807 of 2018, order dated 02/01/2019.

[5]“Guidance for registered pharmacies providing pharmacy services at a distance, including on the internet”, General Pharmaceutical Council, April 2019.

[6]“Making Markets work for Affordable Healthcare”, Competition Commission of India, October 2018.

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