Before PM Modi’s stent cap move, distributors, hospitals fetched whopping 196% and 654% profit margins

By: | Updated: February 22, 2017 10:28 AM

Stent pricing has become one of the most talked about issue during the campaign for the Uttar Pradesh Elections 2017 with Prime Minister Narendra Modi raising it to woo voters in the state.

Stent pricing has become one of the most talked about issue during the campaign for the Uttar Pradesh Elections 2017 with Prime Minister Narendra Modi raising it to woo voters in the state.

Stent pricing has become one of the most talked about issue during the campaign for the Uttar Pradesh Elections 2017 with Prime Minister Narendra Modi raising the issue to woo voters in the state. Regulator National Pharmaceutical Pricing Authority (NPPA) has directed hospitals to prominently display revised price list of stents while ordering manufacturers and importers to report to it in case of withdrawal or non-availability of products. “All hospitals which are billing to the patients must display the revised price list of the cardiac stents on a conspicuous past of the premises of the hospitals in such a manner so as to be easily accessible to public…,” NPPA said in a notification. NPPA further said that state drug controllers have also been sensitised on this issue and would be inspecting more hospitals in the coming days to check the compliance with its price cap order issued last week.

So, what is coronary stent? In a simple way, a coronary stent is a tube-shaped device placed in the arteries that supply blood to the heart. It keeps the arteries open in the treatment of coronary heart diseases. The maximum retail cost of a stent currently ranges from Rs 25,000 to Rs 1.98 lakh.

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What is the issue with its pricing? After analysing the margins or profit of various players involved in the stents trade, NPPA has found that they were “exorbitant and irrational”, indicating “vulgar profiteering” by every player but mainly by the hospitals. While the average maximum margin for manufacturers on a commonly used drug-eluting stent (DES) was 27 per cent, the distributors and hospitals were earning an astonishing average maximum margin of 196 per cent and 654 per cent on it, respectively, according to The Indian Express report.

The Government on February 14 reduced prices of coronary stents by up to 400 per cent, capping them at Rs 7,260 for bare metal ones and Rs 29,600 for the drug eluting variety.

“The level of average margins ranging between maximum 436 per cent (for BMS) to 654 per cent (DES) at the level of hospitals indicated a failed market system where asymmetry of information has resulted in unethical practices…,” the NPPA noted. The maximum trade margin for distributors was found to be 194 per cent for BMS and 196 per cent for DES. “In comparison, the margin at the level of manufacturers/importers was modest, in terms of average maximum of 56 per cent (for BMS) and 27 per cent (for DES),” the NPPA stated.

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The detailed note explained as to how the stent price cap was decided. It included the presentations given by various stakeholders — Indian stent manufacturers, multinational stent manufacturers, importers, civil society representatives, hospital associations, nursing home associations, distributors and various industry associations. While giving their arguments, Indian manufacturers, multinational manufacturers and importers emphasised “the need for a higher price cap and mentioned that huge margins are paid to distributors and hospitals (including doctors) in the existing business model”.

The hospital associations, nursing home associations and related institutions claimed in front of the NPPA that they “needed to invest substantially on capital investment — construction and running of the healthcare facilities” and therefore, there is the “need to realise returns for various services including cardiac procedures and any margin taken by them is only legitimate returns…”

During discussions, the hospital and nursing home associations themselves “expressed apprehension that capping of stent prices may not result in passing on of benefits to consumers, as charges of other heads might increase, include multiple ‘stenting’, prolonged hospitalistion and even angioplasties getting converted to bypass surgeries, etc.” This apprehension was expressed by civil society groups as well.

The NPPA noted that healthcare providers were against the idea of price cap or treating them as “retailers”. However, the NPPA did not find any merit in keeping margin for hospitals as they are not “legal entities as retailers and the margins at the levels of Price to Hospitals are too exorbitant…”

Moreover, the NPPA stated: “It was unanimously held that since hospitals are not doing any value addition in the supply chain nor having any financial stake in the trade, hospitals need to be dissociated from the trade channel for the fixation of the prices of coronary stents, except for minimal hospital handling charges, which could be reasonably built within the ceiling price.”

The ceiling price of Rs 29,600 for DES included the ‘overall trade margin’ that was decided at 8 per cent. The NPPA felt that this 8 per cent adequately covered profits for distributor and ‘hospital handling charges’, which did not need to be separately indicated or accounted for.

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