Price Capping: Boon Or Bane To Health Innovation?

The decision to cap the price of cardiac stents was made following the release of data by the National Pharmaceutical Pricing Authority (NPPA), revealing that profit margins from the manufacturer to the patient were as high as 1000 percent. This was in most cases due to a markup in price at each stage of retail – at the import stage or from the manufacturer, often through numerous middlemen to the supplier of the hospital, then from the hospital to the patient.

The increase in price was then borne by the patient, at the time — and without safety nets such as Ayushman Bharat — a price that was frequently paid out-of-pocket (out-of-pocket spending on health accounts for the majority of expenditure on health in India, with noncommunicable conditions such as heart disease partially driving this trend). As such the price capping measures — which have since been extended to other devices and with intentions from the Centre to extend further to lists of “essential medical devices” — were implemented seemingly with the best intentions of bringing down the costs for the average Indian patient.

However, such a move is not without consequence. At the time, objections were made claiming that the price cap could stifle innovation or flood the market with cheaper Chinese imports. To what extent have these concerns manifested in reality?

Price capping: An industry nightmare?

Of major concern within industry circles was the financial viability of their products on the Indian market following price capping. Stents come in a variety of forms, with some being very basic and others utilising more inventive ways of improving treatment outcomes.

Bare metal stents (BMS), for example, are simple metal frames that are inserted into the blood vessel. More complex designs include bioabsorbable stents — which degrade over time and so do not need to be removed — and drug-eluting stents (DES) which typically secrete drugs intended to block cell proliferation over a long period of time to prevent scar tissue buildup.

These differing types of stents come at vastly different prices, with BMS capped at Rs 7,500 and bioabsorbable stents capped at Rs 60,000. In this sense they are reflective of the innovation and manufacturing costs associated with the product. However, some argued that any newer stents, making use of newer technology, would not be profitable on the Indian market — or even run at a loss. As a result, many at the time claimed that Indian innovation would be stifled, and that more advanced foreign products would not make it into India.

To a degree these fears were proven correct. Abbott Healthcare removed several of its cardiac stents from India, citing lack of profitability due to the price caps. While at the time this sparked concern that the more popular imported stents would be all but unavailable in India, the predicted cascade of importers withdrawing from India never occurred.

A similar price cap is set to be placed on hygiene products, with similar reactions from industry leaders. They argue that hygiene products differ from many medical products that often use similar materials and production techniques for the more expensive products, and that any cap on price would make premium hygiene products all but unavailable.

The cap on hygiene products is set to cover “essential products” such as sanitary napkins, hand washes, disinfectants and adult diapers. The difference in raw materials in the premium and better quality products would severely impact profit margins, with some likely to be deemed unviable in India’s market following the capping.

Such a concept applies to other medical devices such as knee replacements — another target of price capping. Reductions in profit margins can result in manufacturers attempting to cut corners, leading to less safe products or use of inferior materials. In both a hygiene and medical context this can result in dangerous products or procedures. One common fear at the time of the price cap was that inferior and cheaply made Chinese products would dominate the market simply because their low production costs allowed them to remain profitable.

The domestic market has seemingly flourished

While Chinese products have increased in prevalence in the Indian market since the price cap, the increase has remained minimal. The major change has been a reversal of favourability in imported versus domestically produced stents — a change which has puzzled cardiac experts.

Before the price cap imported stents were priced significantly higher than domestic products. This can be attributed to the import costs and price markups associated with each stage of sale before arriving at the hospital. Despite this, the products were often more widely opted for by patients, possibly due to the perception that FDA-approved imported products were of a greater quality. Despite these stents now being capped at the same price as domestic stents — therefore making them cheaper than before — their use has decreased.

Dr Somalaram Venkatesh writes in The Healthcare Blog about his confusion on the issue. “If all stents cost the same, and if the government capped the trade margin uniformly at eight percent, why should sale of Indian stents go up,?” he queries. “In the days when the imported stents cost many times that of Indian stents, they were clear market leaders. Now, with no difference in price, shouldn’t we be choosing FDA-approved US-made stents, with better track records and larger published experience over the FDA unapproved Indian ones?”

Domestically produced stents have expanded across the market by between ten and twenty percent, a gap created through the reduction in imported stents. This could be a sign of foreign companies’ reluctance to sell at the lower prices, although it may simply be a case of patient preference, as no other large-scale announcements of foreign product withdrawals have taken place.

The Indian products, though not FDA-approved, have been claimed to be performing well. Dr Venkatesh has noted rates of issues and failures with the stents have remained unchanged according to the cardiology community. However, he notes the slightly more challenging procedures due to “stiffer, less flexible stents” and  “rough-cut delivery systems” associated with the domestic products — indicating potentially lower quality products.

Benefit to the patient has been marginal

In terms of benefits to the patients themselves — arguably the principal objective of price capping — it would seem the situation has remained largely unchanged. As with many drugs and medical devices that are price capped, hospital profit margins suffer. Other government policies concerning health, including Ayushman Bharat, have prompted similar criticisms.

In order to counteract the potential for profit reduction from the price capping, some hospitals have used the loophole that only the devices and drugs themselves are covered under the price cap. As such, a hospital may simply increase the charge of the surgery, or bill excessively for disposable items used during the surgery to recover costs.

Some hospitals have taken to other measures to cut costs, such as reusing catheters and guidewires. If proper sanitation protocols are not followed, this could result in contamination, a prospect that could be lethal given the intrusive nature of the surgery. Given India’s high burden of hospital-acquired infections, this is an alarming possibility. As such, costs to the patients have remained similar and the potential for risks due to cost cutting have increased, making the decision to cap the prices of devices such as stents a contentious issue at best concerning patient outcomes and benefits.

Indian manufacturers have perhaps benefitted most due to increased use of domestic products — much in the way that the Indian generics market flourished. The long-term impacts are yet to be seen, as more and more treatments and medical devices are capped the cost of healthcare to the consumer may be brought down. Such an outcome may, however, require greater government oversight into other costs surrounding surgery and treatment and enhanced vigilance surrounding the risk of complications owing to cost cutting practices within the hospital environment. – Health Issues India

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