Affordable Medical Devices: Will Price Capping Help?

By Lisha Ruparel

Is price capping the best method to achieve affordable healthcare without hampering quality and innovation or reorganizing the healthcare industry?

We all love to imagine that we live in utopia, the perfect world where there is equity and equality. Each and every citizen has access to healthcare and education to achieve a society which is developed and progressive. In order to achieve that goal, we need to focus on making healthcare accessible and affordable for each and every citizen. How do we achieve that? Reduce the cost of healthcare? Provide free healthcare? These questions have plagued policy makers, governments in all parts of the world. In a bid to reduce the cost of healthcare in a country like India the Government has imposed price caps on medical devices like cardiac stents, orthopedic implants. Is this the right manner to tackle rising healthcare costs?

India is experiencing a rapid transition of disease profile from communicative diseases to the rising burden of chronic non-communicative diseases. Healthcare insurance penetration in India is very low as compared to other countries. The economic and social impact of rising healthcare expenditure has prompted the Central Government to adopt drastic measures in order to curb costs. To achieve this objective one of the methods adopted is price control of medical devices along with other initiates like the health insurance scheme like Ayushman Bharat.

The medical devices market size, valued at US$ 4 billion in 2016, is expected to reach US$ 11 billion by 2022, backed by rising geriatric population, growth in medical tourism and the growing demand for quality healthcare services.

However, India’s drug pricing authority – the National Pharmaceutical Pricing Authority (NPPA), notified the Medical Devices Rules, 2017, allowing the NPPA to notify 15 medical devices as drugs, effectively bringing them automatically under price control regulation. The government has equated high margins charged for some medical devices with “illegal profiteering". In some cases these margins can exceed 400 percent. According to the estimates of the National Pharmaceutical Pricing Authority (NPPA), patients across the country have saved around Rs 150 billion under the government's initiative of ensuring affordable, quality medicines for all, Minister of State for Chemicals and Fertilizers Mansukh L. Mandaviya said in a statement.

Price capping from an economic perspective may have negative effects for the product. Low or no profit margin can hamper the innovation and research for the particular product and may also prove as a deterrent to companies introducing newer products.

Dr.Dasilva of Mahavir Hospital, Surat says “The price capping of medical equipment needs to be taken into consideration holistically. Price control will prevent companies from introducing new products as the price cap does not allow them to recover costs spent on research and development, marketing costs and various other costs. The cost of some implants was high which has come down to affordable levels and has benefitted patients. At the same time the hospitals had to increase the cost of procedures as their profit margin from the implants were impacted.” He further says the hospitals had to maintain inventory of the stents without earning any profit thereby increasing their inventory carrying cost. 5% of GST is levied on these essential products which could be waived off by the Government which could reduce costs, he added.

The Government had fixed the price ceiling in 2017 based on the landed cost of the devices. Since then the Indian rupee had depreciated substantially and inflationary trends has affected the margins of the imported devices further.

Mr. Pavan Choudary – Chairman and Director General MTaI says, “Run of the mill price capping, in our view, spawns unintended consequences and market distortions.” MTaI is of the opinion that cost of healthcare should come down through a widely-accepted methodology that does not hinder the market penetration of technology intensive, sophisticated medical devices.

MTal has been discussing with the government on such methodology, recommended originally by a Department Of Pharmaceuticals report, and later endorsed by Niti Aayog which is called Trade Margin Rationalisation (TMR). This approach can effectively address the issue of high margins in the healthcare space without hampering the efforts of MedTech companies at Healthcare Worker Training or their ability to bring in innovative products to the Indian patients. MTaI believes TMR should be done with Stockist as the first point of sale, as recommended in the Department of Pharmaceuticals’ report on high trade margins, to create a level-playing field for all players in the industry. Price capping without consideration of quality differences in medical devices will not encourage launching of technology intensive products, where the costs of development is high.

A blanket cap on prices of any medical device is not the solution for reducing the cost of healthcare as it may restrict the availability of quality medical devices to Indian patients. Such a move may send out the signal that years of research, development and innovation are not required irrespective of the added efficacy or safety they may bring.

Interestingly, it seems, India’s price-cap measures in coronary stents seems to be incentivising domestic stent makers who have lower costs than imported stents. India has also seen the entry of Chinese and German low-cost firms introducing their products in India who are fast capturing market share in reorganising Indian stents market. This move has inadvertently brought about disruption in the medical device industry which was previously dominated by a few brands.