Is self-regulation in #medtech doomed to fail?

27 Dec

The offer by needle and syringe manufacturers to voluntarily cap trade margins at 75 per cent after meeting with the National Pharmaceutical Pricing Authority apparently validates the view that without the actionable threat of price control, the healthcare sector cannot be trusted to self-regulate.

“The NPPA advised manufacturers to consider regulating price themselves; otherwise, the government would be forced to take steps as they have done to cap prices in the past for items like stents and orthopaedic implants,” reported the newspaper Mint quoting a person aware of the matter who spoke on condition of anonymity.

I asked, Rajiv Nath, President, AISNMA, the association of homegrown manufacturers that made this offer, in an e-mail : why wait for an NPPA ultimatum? If a cap was implementable, why not just go ahead and do it? I have published responses to these and other queries in their entirety in the interest of clarity. But before that, my take based on these responses and the media coverage on the issue.

-Unlike the drug industry which has overcome differences (more or less) to put a united face on price control in discussions with the government, the med-tech industry – in this case, represented by the syringe and needle-making sector – appears to have been unable to reach common ground on the issue. Shortly after AISNMA’s offer, the MNC association MTaI declined to join in stating that “self-regulation based on a small group was not sustainable.”

-Unless they do so, they stand exposed, all of them, to India’s broad brush strokes strategy which fixes prices for entire product segments in accordance with the rules of DPCO, 2013 much like it did for stents and orthopaedic implants. While associations might not hold complete sway over their members, if they are able to get a significant majority to swing in the same direction, it is as a good a beginning as any.

-Ideally, I’d even suggest that instead of undermining each other, it might be more productive for the two sides to put a united face before hospitals (not just the NPPA) who profiteer from the inflated MRPs that patients have to cough up and bring them to the discussion table. But that shows a naive disregard of the realities of a competitive marketplace where allowing hospitals and traders high margins is a legitimate sales strategy.

Note that Nath told Mint, “Hospitals are buying medical devices from those manufacturers who keep high MRP of their products despite low ex-factory prices.” Yet, in his e-mail to me, while he said that AISNMA would not hesitate to name and shame those companies that did not self-regulate, his response to whether this could be made to work with no check on the buyers (hospitals), was rather generic.

-And finally, having issued an ultimatum, I wonder how long before the NPPA is willing to wait for harmony between the two before it acts. And having acted on needles and syringes, will it and – in the interests of fairness – should it, stop there?

Moving on, here’s the e-mail Q&A.

-Why did AISNMA members need the NPPA’s support to cap margins? Couldn’t the members have come together and done it anyway?

In the past, as AiMeD (another domestic manufacturers’ association) we tried twice. The first attempt was 2-3 years ago and then earlier this year. We could not succeed as MNC manufacturers refused to cooperate and join in. They said that discussion on pricing is against competition law. We said we are not making a  cartel to increase prices but to reduce MRP to benefit consumers. Hospitals favoured brands with very high MRP and retailers in metros – due to high overheads – also favoured brands with high MRP.  AiMeD asked the Secretary, Dept. of Pharmaceuticals (DoP) to play referee in Feb 2017.  After lots of follow ups the DoP held two meetings this year, in the current quarter, to discuss trade margins. But MNCs and domestic manufacturers though agreeable on the concept to cap trade margin, had differences of viewpoint on methodology. Meanwhile the NPPA Chairman called a meeting and various newspaper stories pricked our conscience and we collectively decided that if DoP was taking too long to assist then as AISNMA, we may unilaterally consider self-regulation as suggested by the NPPA Chairman.

-How will you ensure that all your member companies comply?

15 of our Members have consented so far. This constitutes \over 80% market share. Only Lifelong has still not consented.

-How do you expect non-AISNMA companies i.e. MNCs to respond?

We have written to BD, B Braun and NIPRO to cooperate similarly to help consumers and clean up the market. Other than inducement to attain or retain a hospital account manufacturers / importers don’t really gain from high MRP. Advantage is also not to distributors / dealers but to the end of the supply chain viz. the hospital or chemist. If any Indian or foreign manufacturer does not comply we plan to name and shame these companies.

-When was the first time you drew the NPPA’s attention to these margins and what was your specific request to them? 

AiMeD wrote to the Department of Consumer Affairs and DoP  government in Nov 2014. The feedback from many ethical manufacturers was that price control of MRP was a key factor to help consumers and to boost domestic manufacturing and is also part of the Draft Medical Devices Policy recommendations by Dept. of Pharmaceuticals, but not implemented.

 1) Enforce MRP on Unit Pack of all Medical Devices, as in the case of imports they mostly label the MRP on Shelf Box and not on Unit Pack by saying that most devices are not Consumer Goods but Hospital Institution Supplies and therefore (labeilling on unit pack) was not mandatory. We got a clarification issued by the Dept. of Consumer Affairs this year and a new notification makes it mandatory for all devices, including those notified as drugs, to have MRP w.e.f. 1st Jan 2018.

 2) AiMeD proposed a formula of capping trade margin at 50 per cent for expensive medical devices with an ex-factory price of over Rs. 1 lakh, at 66 per cent for devices with value of over Rs. 1000  and at  75 per cent for those less than Rs 1000. For orthopaedic implants, considering the very high level of personalised service support the request was for 50 per cent trade margin for over Rs. 1 lakh, 100 per cent margin for over Rs. 1000 and 150 per cent for less than Rs 1000  (To be made applicable, on all medical devices notified as drugs).

 Note : Trade Margins cover the cost of logistics, cost of inventory carrying and warehousing and credit sales between various points of the supply Chain, service support costs and gross profit of the Distributor / Dealer / Thaileywallah and Chemist / Doctor / Nursing Home / Hospital.

 3) AiMeD requested that for the Medical Devices (not Notified as Drugs) the Govt. of India / Finance Ministry may consider putting a 1% GST Cess on MRP to act as a disincentive for manufacturers and importers to put high Price MRPs as this would be penalty payable by the manufacturer and by importers and reward the ethical manufacturer with Low MRP Brands.

Has any of your members or AISNMA itself named specific hospitals who profiteer from disposables to authorities and requested investigations against them? Could you elaborate.

No. Not yet, but all 5 Star hospitals negotiate discounts with their suppliers and can consider to sell below MRP and they don’t.

Do you believe that the medical device and technology sectors are in a position to self-regulate if there is no check on your buyers i.e. hospitals/traders. And what sort of check do you want on these two stakeholders.

Regulations are needed to safeguard consumers and discipline market players. Consumers are caught between a defunct public healthcare system and an unaffordable private healthcare sector which initially provided delight and succour but now is increasingly seen to be exploitative .

 

 

 

 

 

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