Cartel of Doctors, Pharma, Diagnostic Labs fleecing patients: Madras HC take suo motu cognizance

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The Madras High Court on Monday took suo motu cognisance of unethical practices in the medical industry. As recorded in the order passed by the Bench of Justices N Kirubakaran and P Velmurugan,

“… it is complained that drugs are overpriced and unnecessary drugs are being prescribed by a section of medical practitioners at the instance of pharmaceutical companies, apart from prescribing unnecessary tests, scans, X – Rays etc., for commission from diagnostic laboratories. It is being said that Medical Mafia is controlling the pharmaceutical field and they are responsible for overpricing of the drugs.”

The case prompting the observation was a an appeal by the Income Tax department against an order of the Income Tax Appellate Tribunal (ITAT), which had ruled in favour of a Pharma company, Fourrts (India) Labs Pvt. Ltd.

The tax dispute emerged after income returns submitted by Fourrts for the assessment year 2012-2013 came under scrutiny. The company had claimed a deduction of Rs 5,45,77,209 as Licences & Taxes and Rs 42,81,986 towards “Sales and Promotion Expenses” including payments to doctors for the promotion of the Company’s brands of medicine.

It was also noted that in the previous year, the National Pharmaceutical Pricing Authority [NPPA] had ordered Fourrts to refund the excess amount collected by overcharging drugs higher than those fixed or notified by the Government, within interest. Whereas Fourrts contended that the same could not be considered a penalty and that the same was a refundthe assessing officer disagreed on this aspect.

The assessment order was challenged by the Fourrts before the Commissioner of Income Tax (Appeals), who dismissed the appeal. The appellant, however, succeeded on second appeal before the ITAT. The High Court was approached by the Income Tax Department on further appeal.

While the Court admitted the appeal, the Bench also opined that the case raises larger issues which the Court ought to consider suo motu.

Though the case on hand is a Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961 this Court suo motu invokes Article 226 to consider the larger issues of bribing of doctors and overpricing of drugs by Pharmaceutical Companies, as they directly affect citizens violating their rights under Article 21 of Constitution of India. This Constitutional Court cannot restrict itself to the issue involved in the appeal and it is duty bound to issue remedial directions to address the above larger issues.”

In particular, the Bench took critical note of the continuing prevalence of medical malpractices such as professionals taking bribes and gifts to promote or overprice particular medical drugs or services, despite laws barring the same.

“Here is a case which demonstrates unethical practice of paying doctors and overpricing of drugs by a Pharmaceutical Company…

… From the facts mentioned above, it is clear that even though it is prohibited under law, the pharmaceutical companies are still promoting their drugs by providing gifts, travel facilities, hospitality, cash or monetary grant to the doctors to promote their brand medicines. It is also proved that drugs are overpriced illegally by the companies. It is shocking and surprising to note that the company claimed deduction from Income Tax for the amount spent towards sale promotion expenses as well as for licences & Taxes.”

Opining that there should be an integrated approach to tackle such malpractices, the Court proceeded to suo motu implead the Ministry of Health and Family Welfare, the Ministry of Pharmaceuticals, the NPPA, the Medical Council of India and the Ministry of Chemicals and Fertilizers as respondents. In the course of the order, the Court also remarked that,

The Central Government has to frame statutory ‘Uniform Code of Pharmaceutical Practices’ at the earliest.”

Before parting with the order, the Court posed the various queries to be answered by the respondents. The queries concern:

  • action taken against those who violate the laws prohibiting the receipt of gifts, bribes etc for the promotion of medical drugs, the law against overpricing of drugs etc.
  • details of pharmaceutical companies who have claimed deductions in tax returns for sale promotion expenses.
  • whether the Income Tax Department is regularly informing the Central Government and NPPA about the pharmaceutical companies which claim such deduction.
  • details of doctors who accepted the hospitality from Fourrts to the tune of Rs. 42,81,986 during the assessment year 2012-13 and if the action was taken against them.
  • how many complaints have been received for overcharging of medicines in the the past five years.
  • how much was recovered as the amount accrued due to overpricing of drugs from pharmaceutical companies, importer, distributors etc.
  • When would the “Ministry of Pharma and Medical Devices” as announced by the Union Minister for Chemicals and Fertilizers in February 2018 be formed.
  • when the Central Government would make “Uniform Code of Pharmaceutical Marketing Practices (UCPMP)” statutory as prepared by the Pharmaceutical Department (DoP) to control unethical marketing practices in pharmaceutical industry.

The matter has been scheduled to be taken up next on January 20.