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This article is more than 2 year old.

Excessive pricing of medical devices is stifling India’s growth story

Mini

There is an urgent need for the government to move towards ending over 80 percent import dependence, expedite steps for patients’ protection, stronger quality and safety regulations, judicious price controls to make medical devices and quality treatment accessible and affordable.

Excessive pricing of medical devices is stifling India’s growth story
I feel extremely aggrieved to see India being ranked 145 among 190 nations, lower than even Bangladesh, Sudan and Equatorial Guinea in the 2018 Global Healthcare Access and Quality Index. To change this landscape, we need to provide quality and affordable healthcare and reasonably priced medical devices. In recent times, exorbitantly priced medical devices and medical treatment have caused distrust in the healthcare industry, adversely impacting healthcare business environment in the country. In this context, the government needs to protect consumers’ interest as well as allow domestic industry to flourish in a level-playing field with multinationals. Excessive pricing is stifling India’s manufacturing growth story. In the absence of fair competition, reasonable price controls are desirable. One possible solution for ensuring reasonable maximum retail price (MRP) is keeping trade margin at a rational level along the supply chain.
 
The trade margin is the difference between the price at which the manufacturers (indigenous/overseas) sell to trade and the final price to patients.
 The main aim of rationalisation of trade margins in medical devices should be not only to help consumers, but also allow rationalised and reasonable profits for traders, importers, distributors, and wholesalers and retailers and create a level-playing field for domestic industry vis-à-vis foreign manufacturers. There should be clear objectives for any policy intervention to provide quality and affordability and avoid distress (to consumers), distrust (in industry) and disruption (to market). The market place is, unfortunately, skewed where suppliers induce hospitals to buy and push their brands based on profit margins to be made and not on basis of cost savings to be made on the procurement cost by a hospital, thus spiralling prices of medical devices leading to an artificial inflation.
Importers have been lobbying to be kept outside the purview of trade margin rationalisation. By accepting their demand, the government would be doing a great disservice to the domestic device manufacturing industry. There is a need to tread the line carefully between boosting domestic manufacturing and promoting ‘Make in India’ or encouraging more imports and promoting ‘Make Outside India’. Unless the anomaly between importers and domestic manufactures is corrected, Indian manufacturing will remain at a strategic disadvantage and India will remain dominantly import dependent.
When it comes to trade margin rationalisation, importers of medical devices should also be included. Aren’t MNC importers traders too? How can we have importers having irrational 200 percent margin as was indicated in the NPPA report analysing trade margins on catheters and guide wires and rest of supply chain only 35-50 percent margin as was being recommended by MNC importers’ lobby?
Medical Devices usually go through 4-7 change of hands along the supply chain from a distributor to a wholesaler to a retailer and a hospital before they reach a consumer. Each point in supply chain incurs various costs such as freight, inventory carrying costs, rental, salaries, marketing and sales overheads and service and statutory expenses of compliance and then there is also a need of net profit by a reseller.
Tactical marketing warfare 
Everyone in a supply chain has intermediate costs and value addition. It needs to be ascertained what value addition, if any, importers do and what's a rational margin for them. Importers in order to avoid customs duty, argue that intermediate costs like R&D and clinical evaluation are not part of the import landed price. However, they also induce hospitals with higher MRP and higher trade margins. This tactical marketing warfare is highly unethical and has cost the consumers dearly as well as adversely impacted domestic manufacturers.
For the sake of parity and level-playing field, the policy needs to equate an overseas manufacturers’ first point of sale at which their goods enter Indian Union on CIF (Cost, Insurance and Freight) import price basis with the ex-factory price of the Indian manufacturers. GST is applied for the first time on the first point of sale for both India and overseas manufacturers.
The government may consider to cap trade margins along the entire supply chain of specific devices to a maximum of 85 percent. This will help in reducing MRP of many medical devices to less than half of current prices while not being unreasonably detrimental to traders and hospitals. Additionally, manufacturers will be encouraged to attract clients on competitive features and hospitals will start buying on evaluating cost of purchase and quality, instead of considering margins to be made on higher MRP.
Based on evidence of  successful price caps of stents, the government must pro-actively make cohesive, industry-friendly policy giving at least a level-playing field, if not a strategic advantage to domestic manufacturers while safeguarding consumers. Devices are not drugs though both are medical products but differ in approach in marketing - any move to bring in trade margin rationalisation that’s based on price to stockist (PTS) instead of first point of sales (when goods enter India ), may not meet objectives “to boost domestic manufacturing, end exploitative MRP and unethical marketing”
The government to define the following:1. First point of sale for manufacturer is price on which GST is charged first time.2. On overseas manufacturer GST is charged on import CIF landed price in Bill of Entry.3. On indigenous manufacturer GST is charged on ex-factory price post discounts.4.. Indigenous manufacturer should be equated with overseas manufacturer and not with importers.
Price controls can be done in a calibrated manner through,
  • 0.5 – 1 percent GST cess on MRP as a tax- based disincentive;
  • Capping trade margins to a rational level; &
  • Price caps on a few priority devices.
  • There is an urgent need for the government to move towards ending over 80 percent import dependence, expedite steps for patients’ protection, stronger quality and safety regulations, judicious price controls to make medical devices and quality treatment accessible and affordable and promote indigenous manufacturing.
    Also, there is a need to counter attempts to spread mis-information vis-à-vis any kind of government policy to control prices of medical devices. When MRP prices  or trade margin are capped the manufacturers margins are not impacted so fear-mongering regarding detrimental impact on quality and innovations in  medical devices on account of price control policy stipulations will not be in the interest of consumers or domestic manufacturers. Such mis-information by any particular lobby should be discouraged and countered effectively.
    Here are some interesting facts:
    1. When GOI regulates the maximum retail price reasonably e.g. price caps on stents, it was welcomed by Indian manufacturers and patients who both gained from this.
    2. When stent prices got capped it’s the irrational margin of some hospitals that got hit, not of manufacturers.
    3. The NPPA is open to allowing a higher price cap for clinically superior stents so real innovation and not marketing spin innovation is being encouraged and patients being protected.
    4. Rajiv Nath is the Forum Coordinator of Association of Indian Medical Device Industry (AIMED).
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