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Government Must Consider Trade Margin Rationalisation For Medical Devices Import

The United States has reportedly asked India to do away with price controls on high-end and premium medical devices. The American medical devices industry has been asking India to do away with price caps on all medical devices. Trade margin is the difference between the price at which overseas or Indian manufacturers sell to trade (price to trade) and the price to patients (maximum retail price), and TMR (Trade Margin Rationalisation) entails a cap on the profit.

Before US president Trump’s scheduled visit to India, where among several discussions the issue of price cuts of medical devices and intellectual property was on the agenda, India’s commerce minister Piyush Goyal said that the government will continue to implement price control measures for drugs and devices in India, to balance the needs of the economically weak population.

However, the government now needs to be more bold and pursue evidence-based policy-making by extending the advantages gained in fostering Make in India and protection to the consumers in the stents space to other medical devices after studying their MRPs and trade margins over the import landed price.

Importers of medical devices should also be included under trade margin rationalisation. How can we have imports with margins as high as 200%, as was indicated in a National Pharmaceutical Pricing Authority report analysing trade margins on catheters and guide wires?

Importers, in order to avoid customs duty, argue that intermediate costs like R&D and clinical evaluation are not part of the landed price. However, they also attract hospitals with high MRPs and higher trade margins. This tactical marketing warfare is highly unethical and has cost the consumers dearly apart from adversely impacting domestic manufacturers.

The main aim of rationalisation of trade margins in medical devices should be not only to help consumers, but also allow rationalised and reasonable profits for traders, importers, distributors, and wholesalers & retailers, and create a level playing field for domestic industry vis-à-vis foreign manufacturers. There should be clear objectives for any policy intervention to provide quality and affordability and avoid distress (to consumers), distrust (in industry) and disruption (to market). The market place is, unfortunately, skewed, where suppliers lure hospitals into buying and pushing their brands, based on profits to be made and not on the basis of cost savings to be made on procurement cost by a hospital, thus leading to an artificial inflation of medical device prices.

In order to accord a level-playing field, the policy needs to equate an overseas manufacturer’s first point of sale on which GST is charged the first time their goods enter India (based on cost, insurance and freight) with the ex-factory price of the Indian manufacturers. Medical devices usually go through four to seven points of sale along the supply chain—from a distributor to a wholesaler to a retailer to a consumer. Each point in the supply chain incurs various costs, such as freight, inventory costs, rentals, salaries, marketing and sales overheads and service and statutory expenses of compliance. Everyone in a supply chain has intermediate costs and value addition—so, what value are importers are adding, and what’s a rational margin for them?

Price Caps are needed over the initial consumer protection safety net of capped trade margins when, for identical product specifications, there continues to be blatant price disparity. Businesses need profits to grow and serve their clients adequately, but profiteering should be a strict no-no for healthcare delivery.

Based on the successful capping of stent prices, the government must pro-actively make policy to guarantee at least a level playing field, if not strategic advantage to domestic manufacturers while safeguarding consumers. Devices are not drugs, though both are medical products. These differ in approaches to their marketing—any move to bring in trade margin rationalisation that’s based on price-to-stockist instead of the first point of sales (when goods enter India) may not meet the objectives of “boosting domestic manufacturing, and ending exploitative MRP & unethical marketing”.

Also, there is a need to counter attempts to spread misinformation vis-à-vis any kind of government policy to control prices of medical devices. When MRP or trade margins are capped, the manufacturers’ margins are not impacted. So, fear-mongering over detrimental impact on quality and innovations in medical devices on account of price control policy, which hurts the interest of consumers, needs to be curbed.

There is an urgent need for the government to move towards ending the >80-90% import dependence on medical devices—our import bill on the head already stands at Rs 38,837 crore—expediting steps for patients’ protection, bringing in stronger quality & safety regulations, judicious price controls to make medical devices and quality treatment accessible, and promoting indigenous manufacturing.-Financial Express