Tech This Week | Regulating online pharmacies must be an inclusive exercise

The most exciting aspect of looking at tech policy is the sheer amount of sectors it intersects with. Given the nature of the pandemic, more of our world has moved online than ever before, and will continue to do so in the coming months. This applies not just to retail, entertainment, and communication, but also for medical needs. Over the past few weeks, we have witnessed a push in the online pharmacy space.

Reliance Industries has spent $83.06 million (₹6.2 billion) in cash to acquire a majority stake in Netmeds, an online pharmacy. Amazon has also launched its own online drug service. There are also other competitors in the space such as 1mg, Medlife, and PharmEasy.

As the number of COVID positive cases are on the increase in India again, importance should be accorded to safe access to medicines for consumer s and wider market place for pharmacies.

Innovation in the space is likely to invite regulation. Online pharmacy is an area that the Union Government has been looking at for a while now. The offline space is governed by the Drugs and Cosmetics Act, 1940 and the Drugs and Cosmetics Rules, 1945. The latter also applies to the online world thanks to a 2015 notice by the Drug Controller General of India. In 2018, the Government introduced a yet to be finalised draft amendment to the Rules.

One thing to keep in mind when it comes to regulating online pharmacies is that the stakes are very high. Not only is personal sensitive data of over a billion people at stake, but also real-life medical conditions to account for. Unanticipated and unintended consequences can directly lead to loss of life and well-being. What I am trying to say is that there are not a lot of chances afforded to get this regulation right. And the cost of each chance is very high.

The draft amendments broadly seem to be managing two sets of trade-offs. Let us get into them one at a time. Firstly, there is an inherent tension regarding whether more of a burden should be placed with a platform or with the seller. The rules state that e-pharmacies should include important information on their portals. This includes registration, the constitution of the firm including details of the directors, partners or persons having ownership, details of the logistic service provider, return policy, name and details of the registered pharmacist and so on.

Two issues arise in just this rule. First, it does not seem to take into account the role market place-based platforms are likely to play in this ecosystem. E-pharmacies are likely going to come up in the form of market places, with platforms willing to act as a service to connect buyers and sellers. Even if these platforms make it a condition for registration for sellers, the scale is going to make it nearly impossible for these details to be crosschecked and updated in a timely manner. And if something does go wrong, placing liability on the platform instead of the seller is going to seriously disincentivise the growth in this model.

Secondly, there are some complexities when it comes to the data being mentioned in these rules. Some of the information required is going to be static—for example, registration and names of owners and partners. However, the details of the logistic service provider, and possibly the return policy may change on a more frequent basis. It may be impossible for platforms to follow up and be liable for these changes. The better way to do this would be to decentralise the process so that each seller can update their details accordingly. On a related note, it is essential to pay attention to the fact that a lot of this data is going to be subject to a new privacy law soon. Given the sensitive nature of some of the details required, the policy may need to be revised accordingly.

The other trade-off the policy seems to manage is the ease of running an e-pharmacy. On the one hand, more regulation is good for safety when it comes to medical issues. For instance, if a Ministry of Aviation did not exist, you would not feel comfortable getting on a cheap flight. At the same time, too much regulation can make it hard and costly for companies to operate. In that case, there would not be any cheap flights and airlines would not be able to expand to more destinations.

This is where the trade-off rests for the draft amendments. They state that if two or more states cancel the licence of an e-pharmacy registration holder, the e-pharmacy registration granted by the Central Licencing Authority will also be cancelled. Since each state has its healthcare challenges, and health is constitutionally a state matter, there is merit in such an approach. But at the same time, there is little no clarity on how such a system would operate. Specifically, there need to be clear conditions on how State Licences will work and the power each state has in this area. Because for platforms that operate nationally, it can be hard to meet the conditions of each state when they are not specified.

More importantly, in terms of the sector’s broader structure and growth enablement, the definition of e-pharmacies adopted by the draft rules seems to neglect the presence of marketplace business model of e-pharmacies. Currently, companies in the Indian e-pharmacy space mainly operate three business models — marketplace, inventory-led hybrid (offline/online) and franchise-led hybrid (offline/online). The draft rules, however, define e-pharmacy only as a business of distribution, or sale, stock, exhibit of drugs through web portals. The present definition will be effective for inventory and franchise based e-pharmacies, but does not recognise the marketplace business model, leaving out a chunk of e-pharma players in India. In its current definition of an e-pharmacy, the government should also include “facilitators” of online sale of drugs, to provide an equal opportunity to all e-pharmacy players in India, and unlock the sector’s true growth potential.

The limitation of e-pharmacy’s definition also leads to confusion in applicability of other provision of the draft rules. For example, the draft rules require an e-pharmacy to supply drugs against a cash or credit memo generated through the e-pharmacy portal, and that such memos should be maintained by the e-pharmacy registration holder. This again ignores the varied business models of e-pharmacies, with some platforms only acting as facilitators of varying degrees of transaction without actually engaging in the monetary transaction involved.

The draft amendments and the e-pharmacy space needs to be more platform friendly as we advance. The government should work promptly on consulting with industry players and civil society on changes that are required in the draft rules for e-pharmacies and notify them on priority. Clarifying state rules, recognising evolving business models such as ‘marketplaces’ and easing the data compliance burden on platforms should be the first steps in working towards that.