Companies should be allowed fair RoI for investing in R&D, setting up world-class manufacturing, and training clinicians
Bejon Kumar Misra
The government has finally put healthcare front and centre, with a bold set of policy and regulatory activities. It has realised that a strong intervention on Universal Health Coverage (UHC) is the only solution to tackle poverty and improve the quality of life of our citizens. It includes calls for substantially increased health expenditure as a percentage of GDP, UHC and quality healthcare available to all. The Ayushman Bharat, announced in this year’s Union Budget, promises an insurance benefit cover of Rs 5 lakh per family, per year, for 40% of our population, apart from other benefits. It is perhaps the greatest example in recent times to prove that the government is serious with healthcare, and its subsequent uplifting. The National Health Policy 2017 (NHP) envisages the private sector as a strategic partner in meeting these goals.
The global medical technology industry applauds this effort and is more than willing to do its part. However, the government has mandated a series of price cuts on life-saving and life-improving medical devices, such as cardiac stents and orthopaedic implants. This has dealt a serious blow to private sector players who have invested heavily in innovation and establishing an Indian patient-centric presence; for them, this move seems unviable because of several valid reasons.
While the government’s intent to expand patient access to the best available healthcare is commendable and paramount, intent alone isn’t enough to ensure a good outcome. To advance the benefits of medical technology, we must have the right public policies to support investment, innovation and patient access. Today, the government is at a crossroads, and the path it chooses will decide if Indian patients can demand and receive quality treatment at affordable prices, or if they must face an uncertain future marred by inferior care—with inadequate or inappropriate technology, and frequent shortages, thus denying access and choice.
Recent price cuts on medical devices suggest that, at least for now, India has chosen to go along the path chosen by the previous government, which substantially expanded the scope of price controls on medicines. This is not surprising. From the government’s point of view, price controls offer the comfort of precedence and familiarity, and simplicity, with immediate results in the form of lower MRP.
Nevertheless, the government already knows where this road leads to. Time and again, excessive price controls that do not allow for a fair competition to the producer have resulted in lowered investment in research and development, reduced quality and lower production, leading to unethical trade practices and choice to the consumers. They have created companies focused on competing almost entirely on cost, with little interest in quality and innovation. Indeed, this reality is what led to the gradual shortening of the list of drugs under price controls from the 1970s to 2010s. After all, of what use are lower prices to patients if the products are inferior or simply unavailable?
Looking at the recent example of price controls imposed on coronary stents for heart disorders, at least three manufacturers of high-quality stents with demonstrable value to patients have since requested to exit the market. These companies are feeling neglected and cornered. Reports suggest that, in spite of price cuts, the stent placement procedure costs continue as before, with hospitals merely assigning the costs elsewhere in the package offered to the patient. If this isn’t a failure to achieve the desired outcome, what is? At the end, who suffers? It’s the patients.
Now, consider the alternative. This is the complex but far more rewarding path of looking at various aspects of healthcare costs in the context of innovations to improve longevity and quality of life. It is one where the government sees the industry, patient groups, research institutions as a partner in its objective, as signalled by the NHP, and acts in line with this vision. At an operational level, it means sussing out the hidden factors influencing healthcare cost inflation—such as margins to the middlemen—and fixing them while rewarding patient-friendly innovators.
For some categories of medical devices, these margins—which represent the difference between the price to wholesaler and the MRP—may be rationalised and made robust without violating any antitrust laws. Such measures are bound to achieve the far-reaching and long-lasting benefits of quality at affordable cost envisioned in government policy actions.
In my view, the medical device industry has always been eager to engage with the government and patient groups on these and other potential solutions. Building a sustainable business can be done neither by solely focusing on profitability, nor charity. There must be a balance between both the aspects, with patient-centricity being the driving force to uplift the state of healthcare in the country.
Of late, trade margin rationalisation (TMR) has come up as a key subject, on which both the government and the industry are working to reach a consensus and facilitated by patient groups. If TMR sees the light of day and is implemented in the rightful manner, it can resolve a plethora of concerns for the medical devices sector, apart from doing away with the troubles of price controls. Trade margin controls based on the first point of sale would nullify the need for arbitrary price control as they would permit manufacturers of medical devices to continue to innovate and compete based on the value of the technology. This will ultimately benefit the patient population in India.
In countries like China and the US, medical device associations have ably supported government efforts to tamp down on healthcare corruption—an indirect cost inflator—by formulating comprehensive codes of ethical conduct. Similarly, the government should engage with the leadership of medical device companies and patient groups to attempt to develop an India-centric formal endorsement of the code, rather than an arbitrary policy decision, which is not in the interest of a growing healthcare delivery system.
The clock is ticking for Indian healthcare. Science and technology is advancing daily to deliver life-changing innovations for patients. These have the potential to yield substantial savings to healthcare systems through less invasive procedures and reduced hospital stays, and/or eliminating the need for future procedures. Companies should be allowed a fair return on investment for heavily investing in research and development, establishing world-class manufacturing in India and elsewhere, and training clinicians to deliver such innovations in the interest of patients.
The Author is Founder, Patient Safety and Access Initiative of India Foundation