Profit-making device

The Global Healthcare Access and Quality Index (2018) ranks India at 145 among 190 nations, lower than Bangladesh, Sudan and Equatorial Guinea. This ranking should drive the authorities and industry to change this landscape by ensuring affordable access to reasonably priced medical devices.

Recent incidents have also brought to light unaffordable hospital bills arising from exorbitantly priced medical devices used in treatment. The government needs to protect patient interest and at the same time allow domestic industry to flourish in a level-playing field with the multinationals. At present, in the absence of fair competition, reasonable “price controls” are a desired option. The marketplace favours MNC suppliers that induce hospitals to buy at high prices, while the latter too gains in view of the even higher MRP. This is where the policy proposal to rationalise trade margins along the supply chain comes in. Trade margins are defined as the difference between the price at which the manufacturers (indigenous/overseas) sell to trade and the price to patients (maximum retail price).

Capping margins

The government needs to ensure that 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 enjoying over 200 per cent margin, as was indicated in a National Pharmaceutical Pricing Authority report (dated February 12, 2018) analysing trade margins on catheters and guide wires and the whole supply chain have only a 35-50 per cent trade margin as is being recommended.

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 to buy at higher MRP.

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 import price) with the ex-factory price of 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 the supply chain incurs various costs such as freight, rentals, salaries, marketing, sales overheads, service and statutory expenses of compliance. There is also a need to allow for net profit by a reseller. The government needs to give at least a level-playing field, if not a strategic advantage, to domestic manufacturers to safeguard consumers. Else, India will continue to remain import dependent by over 70 per cent. It may consider capping the trade margins of all devices at a maximum of 85 per cent — the difference between the first point of sale and the MRP — for both overseas and Indian manufacturers.

This will bring down the MRP of 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 the competitive features of their products. Hospitals will start buying by evaluating cost of purchase and quality, instead of margins to be made on higher MRP.

The writer is Forum Coordinator, Association of Indian Medical Device Industry

COMMENT NOW