#MedicalDevice pricing in India:”Don’t use a shotgun to kill an ant,”says industry veteran

4 Aug

Ajay PitreLate last month, the Maharastra Food & Drug Administration wrote to the National Pharmaceutical Pricing Authority (NPPA) to include medical devices in the Drug Prices Control Order (DPCO) which gives the NPPA its power to fix drug prices. Since the NPPA has been on overdrive, recently adding 108 drug formulations to the list of 348 already under price control, this sort of development can no longer be dismissed.

Medical devices are definitely a not-insignificant part of overall healthcare cost but should their prices be fixed by the government and should it be under the same set of rules as drugs? I spoke to Ajay Pitre to understand this issue better.

Pitre co-chairs the Medical Device Forum of the Federation of Indian Chambers of Commerce and Industry (FICCI) and was the past Chair of the Medical Technology division of the Confederation of Indian Industry (CII). The man is a tireless advocate for the Indian medical technology (MedTech) industry and its potential to bring affordable and relevant technology to patients within and outside India. Pitre is MD, Pitre Business Ventures and former owner of reputed orthopaedic implants maker Sushrut/Adler Group.

It is Pitre’s opinion that “flogging” the medical devices industry may seem a convenient option but will only cause more chaos while achieving little. He calls for a holistic approach  and a dialogue to create solutions that includes those who ultimately hold real sway over how medical devices are priced to patients. Namely, the hospitals.

-Do you think the prices of medical devices in India need to be regulated in some form?

From the patient’s perspective, the prices of medical devices are a little bit of an unknown quantity. Patients need some element of security that they are being charged right. However from a MedTech industry perspective, realisations and pricing in India have been reducing across categories because of low penetration and intensifying competition. Prices have come down over the past few years on some key products such as knee replacement products and cardiac stents. More and more, international players are interested in the Indian market because affluent markets are saturated. Everybody is hoping that the Indian market will grow. The low ability to pay and the absence of reimbursement mechanisms, however, is one reason for low penetration. The other reason is that consumption of medical devices is a function of healthcare delivery capacity and awareness. Relative to the size of the needy population, therefore, the market is still rather small.

-Should the Drug Prices Control Order (DPCO) be used to control the prices of medical devices?

A patient should not be duped for lack of knowledge so some element of control is essential. But when it comes to medical devices, the patient is a payer with no way to choose what to buy. That decision is taken by the hospital/service provider. Let’s take the example of government-funded health insurance schemes for Below-Poverty-Line (BPL) families. If the government says it will reimburse (an empanelled) hospital Rs 100,000 for a knee replacement, what does the hospital do? It finds out if it can deliver the service within that amount. As part of its calculations, it might decide that it wants the knee implant (with certain acceptable quality requirements) to come in at Rs 25,000. If there are suppliers that can deliver, the hospital will go ahead thereby also assuring the implant provider a certain off-take based on roughly how many BPL patients it will treat. So whatever control is put on pricing, it has to be at the level of the cumulative cost to the patient. Of course, if these expectations are unrealistic for healthcare service providers, no one will agree to deliver.

Now, considering that a MedTech company cannot decide what is the exact price to be charged to a patient, how can the industry indulge in ‘profiteering’? Also, consider this. You see different patients being charged different prices within the same hospital – a desirable overhang of a socialistic approach to deliver as per paying capability. This is seen not just as acceptable but actually laudable. However, medical technology companies do not have that choice. They are contracted by the hospital to the lowest possible price that can be negotiated. Why can’t the industry be made a partner? Fix a price at which you want general ward patients to be supplied and for special ward patients let the device manufacturer decide the price.

There is another problem (with fixing device prices via the DPCO). In medical devices, there are multiple variations of a product because of technology, design and other variables. You may have a stent made of different materials, coated, not-coated etc. How will you control pricing? You could use a standardised type but the industry will then move to the others. If you go into all the details it will be too large an exercise. Is it worth it? Because if you do that, and fix the price of every single product in any category there won’t be an industry left and no chance of either introducing innovation or committing to it. It’s like using a shotgun to kill an ant.

-How does one address the problem of kickbacks to the specialist doctor being made part of the price of a medical device thereby inflating it?

Honestly, kickback or not, the end result is cost to patient. Whether the doctor takes it from the right hand or the left, it means little. Start controlling that overall cost and everything will fall into place.

-What is the solution that you would propose to the question of affordability of medical devices?

First, healthcare providers have to decide what their objectives are and how they are going to deliver them. The government has to clearly understand and clarify for everybody whether it is going to be a payer, a provider or a hybrid. If it is going to be a provider, it has to invest. If it is going to be neither, then it has to defer to market forces and then should not complain that the market is greedy. Private investment flows where returns are relatively attractive. If the government decides to be a payer and healthcare service providers are clear that they have to be providers then they have to create capabilities to deliver. At that point, involve the supply industry and say, “lets work together.” There are efficiencies to be had in bulk purchase. Suppose the government starts making large-scale contracts why won’t it get a better price? Instead, they are not willing to pay a farthing. In my personal experience, there are government hospitals that don’t even keep an inventory in trauma care products such as orthopaedic implants which are akin to emergency supplies. When the product arrives from the distributor, they undo the packaging, autoclave the product and give the parts that they have not used back to the distributor who just passes it on to the next patient. That is not how products should be used. If there are reasons why an implant has to get out of the factory in a certain manner it means that is how it has to be used (through the supply chain).

-Do you think encouraging  an indigenous medical devices industry could help to foster competition and drive down prices? Is the government doing enough on this front?

It is not just required but mandatory considering the size of the problem India has to address if it is serious about its mission of Universal Health. However, there is no seriousness or interest in doing that. Enough has been spoken on the subject. If the government wants to it can easily do it. But I have not seen a single concrete action that shows any support to domestic industry.

 

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3 Responses to “#MedicalDevice pricing in India:”Don’t use a shotgun to kill an ant,”says industry veteran”

  1. ThinkerTank August 4, 2014 at 12:12 pm #

    Thanks for this article. Very irritating to think the government can do so much, but does next to nothing. Very interested to know – what is your view on the latest drug price cuts by NPPA?

    Like

    • Gauri Kamath August 4, 2014 at 12:14 pm #

      Do check out the earlier post on NPPA pricing.

      Like

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  1. Medical device pricing in India:"Don't use... - August 5, 2014

    […] Medical devices are definitely a not-insignificant part of overall healthcare cost but should their prices be fixed by the government and should it be under the same set of rules as drugs? I spoke to Ajay Pitre to understand this issue better.  […]

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