“Come into my parlour..” India’s strange #medtech pricing decisions

18 Oct

webCorrect me if I am wrong but I do believe that the Union Ministry of Health and Family Welfare just acknowledged that when prices of a product are fixed, manufacturers are discouraged from entering the market. And that competition brings down prices. Yes, you read that right, competition, and not price control.

In a revealing report, the newspaper Mint, quoting two government officials, said that the Ministry does not want to cap the prices of a bioresorbable stent – where there is no local manufacturing – while going ahead and fixing prices of the bare metal and drug-eluting varieties – where there is. This is in order to “foster competition in the manufacturing of the expensive bioresorbable stents and drive down prices.”

Punishing local manufacture?

This is getting a tad confusing. Let’s keep the bioresorbable stent – which is still a niche category – aside for now. Let’s look at the bare metal and drug-eluting stents which make up most of the market. A May 2015 news report in The Times of India, citing data from the the National Interventional Registry Council, said that almost four of ten stents used in India are locally manufactured.

Indian companies such as Meril Life Sciences, and SMT Pvt Ltd own 40 per cent of the Indian stent market, it said. Though, unsurprisingly, there is no data on how much locally-made stents have saved the healthcare system, the CEO of SMT, Ganesh Sabat, whom I met recently, told me his company prices stents at a discount of about 20-30 per cent to the imported competition.

Yet, these are precisely the categories which are to be price-controlled as per a recent government decision. What is the logic here? That since these chaps have been gullible enough to invest in manufacturing, they can’t very well get out of the market in a hurry and will have to operate at any price? Else, why keep bioresorbable stents – that are solely imported – out?

Irrational?

Don’t get me wrong. I am not arguing the affordability – or the lack thereof – of these stents to the consumer. I am just awed by the logic that drives these policy decisions. So from what I understand, the spider (Indian government) lays a snare (pricing freedom) until the fly (company) gets attracted (into local manufacturing) and then gets caught helplessly in the web (price control)? Excuse the dramatics, but I’m feeling inspired.

Except the industry is not a helpless little fly, is it? Indeed, the entire stent sector, both Indian and foreign, has been guilty of – if not committing – then definitely winking at some unfair pricing practices. While they have been trying to pin all the blame on the hospital sector, the fact is that not one of them, in my memory, has openly stood up and denounced either a hospital or a doctor for price gouging. That is, until they felt the noose tighten around their own necks and even now, no names, just general accusations about “the hospital lobby.”

So, they have in a way, had it coming. But,the government is in the business of rational policy making, not vendetta. So where is the rationality in this recent argument?

Do controls work?

Indeed, history has shown us time and again that price controls are not sustainable solutions. They create both business uncertainty and shortages. They lead to messy, and unending battles in court. While India began fixing drug prices decades ago, it was forced to keep paring the list of controlled drugs over time to encourage local industry. Even now, when 300-plus drugs are back under price control, it is anybody’s guess how long that will last. Already, a review of the price control regime is on the cards just three years after it was revamped.

Coming specifically to the homegrown medical devices sector, unlike the robust, indigenous drug industry which appears to have absorbed pricing shocks to an extent,  it is almost entirely made up of undersized manufacturers most of whom are focused on low-end products such as sutures and needles. High-end technology (think CT scanners and dialysis machines), or even those used in laboratories, is in the realm of deep-pocketed multinationals who mostly import. Even in exceptional cases such as stents where Indian companies have made a dent, imports dominate. India desperately needs a lot more investment in local manufacturing – whether by Indian or MNC players.

Yet pricing controls are bound to affect everyone including the marginal and upcoming local players. “What is the future of the industry? We don’t know,” said Sabat adding that much depended on the prices that the government finally came up with. Indeed, SMT is already present in export markets and hopes that will drive revenues going forward. It expects Europe to be its biggest market in the next two years and recently announced a research centre in Galway, Ireland.

At best, price control can be a short-term measure while the government finds more sustainable methods such as public procurement, and promoting made-in-India products in state-financed insurance schemes. China, for instance, provides more reimbursement for the use of Chinese stents over others.

At the risk of sounding repetitive, it also needs to urgently put in place rigorous standards for device approval so that Indian-made devices can operate credibly in the market and are not slighted or viewed with suspicion by doctors.

Importantly, it needs to decide what brings down prices most effectively and sustainably. Competition or price control.

Pic sourced from Google Images

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4 Responses to ““Come into my parlour..” India’s strange #medtech pricing decisions”

  1. Anup Soans (@anupsoans) October 18, 2016 at 12:25 pm #

    The main issue when it comes implants like stents, is that the patient is rarely able to make an informed choice – a choice that benefits his health and his purse. The main factor in decision-making when it comes to use of stents is the margins and the commission that the hospital/doctor gets out of the transaction.

    Stent manufacture is not rocket science, why should locally manufactured stents cost ONLY 20 to 30% less? That is to make allowance for the huge commission paid to doctors.

    So, in effect that patient pays twice to the doctor – once for doing the clinical procedure and second in paying the commission by way of inflated MRP of the stent.

    Devices and diagnostics are sectors where maximum unethical practices takes place and need to be curbed.

    Price control is the right way to curb the unethical practices as it reduces the ability of the company to ‘bribe’ the doctor and hence less incentive to the doctor to implant stents even when not needed, often multiple stents.

    Deaths Linked to Cardiac Stents Rise as Overuse Seen http://www.bloomberg.com/news/articles/2013-09-26/deaths-linked-to-cardiac-stents-rise-as-overuse-seen

    Healing, or double dealing?
    Excessive and unnecessary use of stents is becoming increasingly common today. So look before you leap into that stenting procedure advised by a cardiologist, says Hemchhaya De http://www.telegraphindia.com/1110704/jsp/atleisure/story_14193789.jsp#top

    Are we facing a stent ‘overuse’? http://www.themetrognome.in/your-space-3/are-we-facing-a-stent-overuse

    Dealing With the Growing Threat of Medical Malpractice in India http://thediplomat.com/?p=92169

    ‘Doctors often scare people into unnecessary stenting’ http://timesofindia.indiatimes.com/india/Doctors-often-scare-people-into-unnecessary-stenting/articleshow/37164514.cms

    Liked by 1 person

    • Partha Basumatary October 18, 2016 at 1:23 pm #

      Concur with the view points of Mr. Soans. Open competition has not been successful in bringing down prices and the unethical practices.

      Price control should be the way to go considering the complexity. I remember conducting a market research project for a large stents manufacturer (MNC) to understand the ‘margins’ given to the distributors to triangulate and find out the ‘kick backs’ given to the doctors. The results were staggering and left me wondering how much the patient has to go through and pay to provide means to the unethical practices existing in the market.

      For the patient, it is a double whammy since he is paying for the kick-backs of the doctor and the margins of the hospital.

      Liked by 1 person

  2. Gauri Kamath October 18, 2016 at 1:18 pm #

    Hi Anup, Thanks for your thoughtful comment. Do not disagree for a minute that there is racketeering in the stents market at the cost of the consumer. But bringing stents under price control is a short-term measure that will not bear fruit in the long term. It might do damage by discouraging local manufacture. For MNCs, the market is not big enough to invest in mfg just to escape price control.
    Also, right now, the healthcare market is opaque and there are discretionary power centres at work that take expensive hc decisions that consumers have to live with. Price control does not change that.

    Like

  3. Ajay Pitre October 21, 2016 at 4:24 pm #

    Dear Gauri, Firstly I appreciate your continued interest in the subject….not sure how many would be prepared to have a free and frank discussion around this complex issue which i must say at the outset does not have a simplistic solution. However, as a nation, i believe we are grappling with varied problems – each of which pull us into different directions. What i am referring to is the problem of providing (quality) healthcare across all demographics – geographical / financial / age etc. Medical Devices & its pricing is just one small part, even if important. Just look at the often referred to objectives of Awareness, Availability, Access & Affordability (4 A’s)- can any one action address ALL these 4 ‘A’s in the short term? I do not believe so…..we need to prioritise one for the other in the short term and gradually move towards achieving all 4 – certainly possible in the long term with consistency of policy & approach of all stakeholders.

    Having said that, since you are raising the issue of price control of Medical devices, I feel however much we argue in favour of doing so, it is simply impractical. No medical Device is a single finite molecule. In fact for a given need there are multiplicity of medical devices that are offered as proven solutions – further each of the similar solutions have technological differences or differentiation if that’s haw you want to put it. How can you reduce all of this to the least common denominator? And if you do….you might realise that the ones you wished would benefit would actually not do so!

    Robust supported domestic Industry and free and fair competition without compromise of quality is the answer – but who is to bell the cat?

    Gauri as you know I do not normally engage in these blogs etc. However, knowing you personally and your sincerity towards the causes you engage in, i couldn’t resist. Tried to be as brief as possible and thereby some of what i say may not be very clear without details but treat it as some food for thought and debate! Best wishes!

    Liked by 1 person

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