How does overpricing of medicines affect the fiscal sustainability of publicly funded health insurance like Ayushman Bharat?

In September 2026, the Supreme Court heard petitions about overpriced essential medicines. It noted that when treatment is funded through schemes like Ayushman Bharat, "the taxpayer pays" [1]. Inflated drug prices therefore become a direct fiscal cost and weaken the scheme's long-term sustainability.

How overpricing strains public insurance

• Costlier claims: Medicines are built into PM-JAY's hospitalisation packages. High MRPs raise claim costs and create pressure to revise package rates upward.
• Margins, not manufacturing cost: DPCO 2013 caps prices only for scheduled (NLEM) formulations [2]. For non-scheduled drugs, companies set the MRP themselves and are limited only to a 10% annual increase [3]. Trade margins remain largely uncapped.
• Proof of the gap: In 2019, a 30% trade-margin cap on 42 anti-cancer drugs cut the MRPs of 526 brands by up to 90%. It saved patients about ₹984 crore a year [4], which shows how much of the price was mark-up.
• Weak recovery: NPPA recovered only ₹133.19 crore from 436 overcharging cases in 2020–25 [5]. Most of the money lost to overpricing is never recovered.
• Opportunity cost: A fixed budget buys fewer treatments, which leaves less room to expand coverage.

Spillover to households and future fiscal burden

• Out-of-pocket expenditure (OOPE) fell from 62.6% to 47.1% of total health spending between 2014-15 and 2019-20 [6]. Medicines are still its largest single component [7].
• Outpatient medicines largely fall outside PM-JAY's hospitalisation cover. Overpricing therefore pushes families into catastrophic spending.
• Patients who skip costly chronic-care drugs often return later as costlier hospital cases, and the scheme pays for those too.

Way forward

• Make Trade Margin Rationalisation a standing rule within DPCO instead of a one-off intervention [4].
• Expand Jan Aushadhi, whose operators work on a fixed 20% margin [7]. Link empanelled hospitals to its generic supply.
• Strengthen State Price Monitoring and Resource Units and complaint-based detection [5].

Overpricing turns private mark-ups into public liabilities, draining both the exchequer and household budgets. Structural margin caps, generic procurement and stronger monitoring can make every rupee of Ayushman Bharat go further. That would advance the right to health under Article 21, the Directive in Article 47, and SDG 3.8 on Universal Health Coverage.