Context: Government plans to reduce prices of medical devices:

• India is set to cap trade margins on medical devices, abandoning the current price control mechanism, as it seeks to curb profiteering as well as allay concerns of device makers, particularly importers of stents and knee implants, who have complained that price caps hurt innovation, two people aware of the matter.
• After having brought down the prices of drugs, the government has medical devices on its agenda.
• It will soon announce its decision on the method of rationalizing trade margins for medical devices from the first point of sale.

Using Medical Devices from First Point of sale:

• According to the report of the committee of high trade margins in the sale of drugs, released by the department of pharmaceuticals in 2016, the price to the distributor for both global and indigenous companies was considered from the first point of sale.
• This report clearly identifies that it is the margin between the price to the distributor and maximum retail price (MRP) that results in the escalation of the latter, and recommends that this should be capped.
• The data published by the National Pharmaceutical Pricing Authority (NPPA) also available in the public domain shows that margins are indeed skewed towards hospitals.

Based on the recent Recommendations:

• According to NITI Aayog’s formula, the maximum retail price (MRP) of a device will be decided by adding the trade margin to the price at the first point of sale (stockist).
• The trade margin is the difference between the price at which the manufacturers/importers sell to stockists and the price charged to consumers.
• Therefore, Prime Minister Narendra Modi is likely to accept government think tank NITI Aayog’s recommendation to cap trade margin at 65% for medical devices.

Failure of Previous Attempts of idea of price capping:

• Till 2012, the practice followed by the NPPA was a maximum allowable post-marketing expense (Mape) over standardized manufacturing cost or over landing cost of the product
• According to the observations documented in National Pharmaceuticals Pricing Policy, 2012 (NPPP-2012), the manufacturing cost/landing cost methodology of price capping had led to “possible manipulation” of cost data, resulting in entry barriers
• The idea of price capping based on manufacturing cost/landing cost as per Drug Price Control Order 1995 was an unmitigated disaster.
• The emphasis on price control starting at the bulk drug and formulation stages resulted in drug manufacturing shifting away from notified bulk drugs and formulations under price control.
• In fact, only 47 bulk drugs out of the 74 notified in the first schedule of the DPCO 1995 were in production by 2012. As a result, patients were adversely affected.
• However, experts suggest that the price caps of medical devices not consider to be a good idea:
• The global research-based companies need to invest and support clinicians in education and skill building. Every year, around 2.3 million healthcare professionals are trained by these companies. We need to do much more if we are to have universal coverage.
• They need to be aware of the availability of various medical devices for different conditions before treating a patient so that they can guide patients and form an effective referral chain to super-specialty care.
• If a patient feels a certain medication is not effective, he will go back to the doctor to change it, but this is not the case when it comes to medical devices
• The risk factor is high, as medical devices can’t be replaced without re-operating on patients
• The demand for medical devices comes from doctors at the primary, secondary and tertiary healthcare levels.

Recent Government Initiatives on Healthcare sector:

• The government focused on the healthcare sector, launching the world’s largest government-funded healthcare programme, Ayushman Bharat.
• Besides providing health insurance to 100 million poor families, the government also plans to open 150,000 health and wellness centres to provide comprehensive healthcare with free diagnostics and treatment.
• For the success of these initiatives, a lot of skill-building activities are required. At this stage, if the rationalization of trade margin is not calculated from the first point of sale, companies will stop investing in these activities. That would increase the chances of the scheme failing.

Way Forward:

• In-patient hospitalization expenditure in India has increased nearly 300% during last ten years. (NSSO 2015). More than 80% of the expenditure are met by out of pocket (OOP).
• If companies will stop investing in these skill-building, training and research activities, with the government still undecided which way to go, the department of pharmaceuticals’ recommendation on trade margin rationalization from the first point of sale is the most viable solution.
• It will not only allow global companies to sell innovative products, but also enable them to invest in skill development along with therapy awareness, while still ensuring affordability by correcting the skewed margins in the supply chain.
• Therefore, in the long run, government, private institutions and corporate companies should be aim at making path breaking interventions to address health holistically, in primary, secondary and tertiary care systems, covering both prevention and health promotion.