The Indian Government recently announced a significant price capping on the cardiac stents available in the market. Prices are expected to be reduced by as much as 85%, which will surely fill the hearts of patients with extreme joy, and considering the huge cardiac patient pool in the country, this is promised to be a significant move towards the government’s push to provide the health care for everyone in the country.
However, the news—which brought smiles on patients’ faces—didn’t gain similar reactions from other stakeholders involved in the value chain of getting the devices to patients.
There are concerns mentioned by many of the stakeholders in this space. The concerns encompass controlling procedure costs, encouraging new technologies with price premiums, the challenges of working with distributors, and the impact price caps have on manufacturers.
We will touch upon all of these in this round-table discussion surrounding three major questions arising in the medical device industry today.
Q: The National Pharmaceutical Pricing Authority (NPPA) is only controlling stent device prices, but what hospitals charge—which contributes to the overall procedure cost—are controlled by Medical Council of India Act and Clinical Establishment Act 2010. So far, however, the procedural cost and its ceiling have not been addressed conclusively by the Government. That being said, will the benefit of the device price cap reach the patients?
Swarnadip: I believe it should. But because the patients get the devices only through a complete procedure, if the procedural cost—including charges by the doctors—are not regulated by the authorities, the whole concept of making stents available for all will lose its purpose.
But on the contrary, doctors in the country say that regulation of device prices is good enough because the regulation of procedure costs would be too discouraging as the optimum cost of the doctors and hospitals are typically based on supply and demand. Basically, whoever charges too high will see less demand and lose business.
Harsh: I second your thought, Swarnadip. If the procedure cost is not regulated, the benefit of the device price cap would never reach the patients. But the requirement of doing so becomes even more necessary now as previously, distributors and hospitals were levying high margins on stents—even up to 900%—and the recent capping on device prices would surely encourage hospitals to manipulate the overall procedure cost to maintain their profit levels like before.
Megha: Yeah, I have the same feeling. In general, the “procedure package” cost is one of the unguarded cost areas in Indian hospital settings. Most of the multispecialty and cardiac specialty hospitals in India calculate the total cost of PCI procedures in a “package”, which includes the cost of stent(s)/balloons, hospital stay, cost of medicines and consumables, related investigation charges, doctor’s fees, catheterization lab charges, etc.
In fact, recently, a discussion took place in the parliament where a panel has recommended to take steps towards regulating and fixing prices for all medical procedures. So it looks like the related concerns are thought through and raised to the government so that the benefit of device cost capping can reach those who need it.
This is a real positive sign, I must say!
Q: There is a growing concern among those in the hospital authority that technologically advanced devices may stop coming in because of the price cap as manufacturers may not prefer a slash on the price premium for advanced products. So will this move thwart our exposure to new advanced technologies in India?
Harsh: Definitely. This price capping will affect the market of technologically advanced devices in the country as companies cannot afford to sell innovative technologies like BVS and other future generations of stents under the given price limit as instructed by the NPPA. In fact, some health care providers feel that the stent price capping may even result in reverse medical tourism due to concerns over the quality of stents available in the Indian market.
Megha: Yes, though the price cap is extremely significant for the larger patient population—since coronary artery disease has become an epidemic in India—industry sources indicate that the Indian government should have considered the technological and innovation differences within each generation of stents. Industry sources also noted that going forward, this will have huge impact on the launch of and access to next-generation/innovative coronary stents in India.
In fact, as per the recent news, three major companies, Abbott, Medtronic, and Boston Scientific, have filed applications to the NPPA to withdraw their new-generation stents from the country, explaining that the current stent price cap would make the sale of these products unviable in India. However, the Indian government rejected the applications from these companies, citing clauses from DPCO (Drug Price Control Order) 2013. Whether the pressure by top MNCs will force some policy refinements or if the government will be ready to let go of new-generation stents—that is something to keep a close eye on in the near future.
Swarnadip: I agree that this might discourage manufacturers—mostly MNCs—from launching their premium products. However, I also think this kind of step may encourage the local manufacturers—and currently only a couple of them are known in stent market, like Sahajanand Medical Technologies, Meril Life Sciences and Multimedics—to come into the foray soon, especially seeing the opportunity. Though the skillset of manufacturing a technologically advanced product like a stent will remain a challenge, there will at least be some efforts to improve the quality of stents manufactured by local companies and even encourage them to develop more technologically advanced stents, which in turn will help the industry grow in the country.
Q: This move will surely cut down on profit margins for manufacturers and distributors. Considering that the distributors are mostly the suppliers of top MNC-manufactured stents in the country, how will the price cap impact distributor sentiments?
Harsh: This move will surely have a more crucial and negative effect on distributors and the manufacturers that operate through local distributors. As per one of the leading stent distributors, Indian stent distributors have to incur high interest rates on a large amount of capital invested, along with losses of some stents in their inventories due to expiry dates, as well as transport and storage costs that tally to around 25% of an additional cost burden for distributors. Although distributors were profiting from high margins—up to 600%—on stents, which was not fair, the new mandate of 8% margin—sharing between distributors and hospitals will definitely be a turnoff for the stent distributors in the market.
Megha: Definitely. The industry is extremely disappointed with this price ceiling, especially when none of the manufacturers and distributors got any “breathing time” since the order was enforced, effective immediately starting on February 14th, 2017.
Swarnadip: This is a pivotal point, especially because we have an almost negligible number of local manufacturers when it comes to technologically advanced devices like stents. India imports the stents manufactured by top MNCs, which raises the price because of high import duties. And considering that there are no manufacturing facilities established by the foreign companies like Abbott, Boston Scientific, or Medtronic, the distribution channel becomes even more important. In that kind of a scenario, if distributors get very low margins, that would only discourage them from doing business in India.
But on the contrary, major distributors say they are happy with the NPPA guidelines, though there is a need for minor tweaking as no hospitals pay on a per-purchase basis but instead pay on interest—which means that distributors have to bill them when the stents are implanted/used, not before that—and this becomes quite challenging for distributors as the stock, based on the demand, stays with them. This in turn increases their inventory costs, and they do not get money from the dispatched stock as well. So to balance this, they will need margins similar to the past in order to run their operations.
So, to wrap things up, we think the current step taken by the Indian government is only a small step towards making health care accessible for all. Moving ahead, there may be several policy refinements or newer strategy implementations in the cards, which could eventually benefit the huge patient population in India.
Keeping our fingers crossed!