Opinion: Rajiv Nath
The government should provide a level playing field to Indian medical device manufacturers
Monday, October 8, 2018

Recently, there have been many reports about exorbitantly priced medical devices with 1200% or 1700% markups being used in treatment by hospitals, creating further distrust in the minds of the people about the healthcare industry. So, the challenge before the government is to protect consumers’ interests and, at the same time, provide a level playing field to the domestic device industry to compete with multinationals. Reasonable price controls are desired in the absence of fair- competition. One possible solution for ensuring reasonable MRP (maximum retail price) is keeping the trade margin at a rational level along the supply chain.
The trade margin is the difference between the price at which the manufacturers (indigenous /overseas) sell to trade and the price to patients (MRP).

The marketplace is unfortunately skewed where suppliers induce hospitals to buy and push their brands based on profit margins to be made, and not on basis of cost savings to be made on the procurement cost. The start-ups find it hard to sell their innovative, low-cost affordable products to hospitals if their pricing model does not offer adequate margins to hospitals, which they enjoy on imported devices.

The government must ensure that the importers of medical devices are not kept out of the move to cap trade margins. Are MNC importers not traders? You can’t have importers having irrational 200% margin as was indicated in NPPA report on trade margins,  while the rest of supply chain will have only 35-50% margin as was being recommended by MNC importers lobby. Everyone in a supply chain has intermediate costs, value addition and needs rational compensation.

In order to accord a level playing field, the policy needs to equate an overseas manufacturers’ first point of sale at which their goods enter India on CIF (cost, insurance & freight) import price basis with the ex-factory price of the Indian manufacturers. GST is applied for the first time on the first point of sale for both India and overseas manufacturers.

Medical devices usually go through 4 to 7 change of hands along the supply chain from a distributor to a wholesaler to a retailer and a hospital before they reach a consumer in a distant village. Each point in supply chain incurs various costs such as freight, inventory carrying costs, rental, salaries, marketing and sales overheads and service and statutory expenses of compliance.

The government needs to take policy decisions to give at least a level playing field, if not a strategic advantage to domestic manufacturers while safeguarding consumers.

It should consider capping trade margins along the entire supply chain of devices to 85% between indigenous/overseas manufacturers and MRP. This will help in reducing MRP of medical devices to less than half of current prices, while not being unreasonably detrimental to traders and hospitals. Additionally, the manufacturers will be encouraged to attract clients on competitive features, and hospitals will start buying on evaluating the cost of purchase and quality instead of considering margins to be made on higher MRP.
(The writer is Forum Coordinator, Association of Indian Medical Device Industry (AIMED). Views expressed are personal.)

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