Correct 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?
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