Apprehensive that pharma companies may stop or reduce production of essential drugs after they come under price control, the government is mulling steps to ensure that companies maintain present levels of output of these critical drugs.

Sources said, the recent decision to put a price cap on 348 drugs was accompanied by a concern that the manufacturers could lose interest in these medicines owing to reduced margins of profit. It was based on past experience, when the drug price control was first enacted.

The Group of Ministers (GoM) that took the landmark decision last week, directed the Department of Pharmaceuticals (DoP) to ensure that present production levels were maintained after the price control.

As a follow-up, sources said, the government could fix mandatory level of production in these drugs for each company in business. The level could be decided by either an average output of the last three years of these companies, or of the last year before the price control kicks in.

The fear over companies retaliating with decreased production revolves around the fact that price control would check profit margins. Once the essential medicines are brought under the Drug Price Control Order, they cannot be sold at a price higher than that fixed by the government. These drugs, with annual sales of around Rs 29,000 crore, account for about 60% of the domestic market.

The GoM has decided on a "weighted average price formula", which means the average price of all the brands sold in individual segments with a minimum market share of 1%, will be the maximum retail price under price control.

"We will ensure that accessibility and availability of essential drugs does not go down," an official said.

The GoM has also decided that the prices of medicines, which are part of the price control order of 1995 but not in the National List of Essential Medicines 2011, would be frozen for a year and thereafter a maximum increase of 10% per annum.

Out of the 348 medicines, the prices of 37 drugs are controlled by the National Pharmaceutical Pricing Authority (NPPA). The government, through the NPPA, controls prices of 74 bulk drugs and their formulations.

The Supreme Court on Wednesday sought details of steps taken by the Centre to check the price of 348 drugs on the National List of Essential Medicines (NLEM) and said the government must consider the old method of price control while specifying the cost of these medicines. The court said though the judiciary need not govern the country, it must step in whenever required and suggested that the government needed to keep in mind the benefits of the 1995 Drug Price Control Order, under which the production cost, transport, marketing and minimum profit were taken as major components while calculating the retail price of essential drugs.