Government’s ambitious mission of making quality healthcare affordable and promoting ‘Make in India’ is in jeopardy

The Global Healthcare Access and Quality Index (2018) ranks India at 145 among 190 nations, lower than Bangladesh, Sudan and Equatorial Guinea. It’s time that we change this landscape by ensuring affordable access to reasonably priced medical devices. Recent incidents reported by the media reveals unaffordable hospital bills and exorbitantly priced medical devices used in treatment which has created distrust in healthcare industry. The Government needs to protect consumers’ interest and allow domestic industry to flourish in a level-playing field with the multinationals. In the absence of fair competition, reasonable price controls are desired. One possible solution for ensuring reasonable maximum retail price (MRP) is keeping the trade margin at a rational level along the supply chain.

Trade margin is the difference between the price at which the manufacturers (indigenous /overseas) sell to trade and the price to patients (MRP). The market place is skewed where suppliers induce hospitals to buy and push their brands based on profit margins and not on basis of cost savings on the procurement cost by a hospital. The main aim of rationalisation of trade margins in medical devices should be to help consumers. It must also allow rationalised profits for traders, importers, distributors, and wholesalers and retailers and create equity for domestic industry vis-à-vis foreign manufacturers. There should be clear objectives for any policy intervention so as to avoid distress (to consumers), distrust (in industry) and disruption (to market).

The Government must ensure that the importers of medical devices are not kept out of the move to cap trade margins. Aren’t  MNC importers traders? You can’t have importers having irrational 200 per cent margin, as was indicated in a National Pharmaceutical Pricing Authority (NPPA) report analysing trade margins on catheters and guidewires and rest of supply chain only has a 35-50 per cent margin as is being recommended by MNC importers lobby. 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. This tactical marketing warfare has cost the consumers dearly and harmed ethical marketing.

In order to accord a level-playing field, the policy needs to equate an overseas manufacturer’s first point of sale at which their goods enter India (based on cost, insurance and freight) with the ex-factory price of the  Indian manufacturers. Medical devices usually go through four to seven points of sale along the supply chain  — from a distributor to a wholesaler to a retailer and a hospital — before they reach a consumer in a distant village. 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. There is also a need to allow for net profit by a reseller. The Indian Government needs to take policy decisions to give at least a level-playing field, if not a strategic advantage, to domestic manufacturers while safeguarding consumers.

The Government may consider to cap trade margins along entire supply chain of devices at a maximum of 85 per cent. This will help in reducing MRP of medical devices to less than half of the 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.

• Price controls can be done in a calibrated manner through:
• One per cent Goods and Services Tax (GST) on MRP as a tax-based disincentive;
• Capping trade margins to a rational level;
• Price caps on few priority devices.

A pro-active policy formulation to regulate medical devices differently than drugs should permit free market dynamics to succeed and keep regulations simple, protecting consumers, and incentivising ‘Make in India’.

(The writer is Forum Coordinator of Association of Indian Medical Device Industry)