Trade Margin Rationalisation: Fair trade with TMR on the anvil?

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New Delhi | Published: September 25, 2018 12:51:47 AM

Innovation will form a major part of the move towards universal health coverage; TMR will propel this innovation.

Trade Margin Rationalisation: Fair trade with TMR on the anvil?

Innovations in healthcare, the dynamics of quality treatment and affordability for patients—you cannot foster one and stifle the other. For a country that relies on global players for 75% of all its medical device needs, decisions like trade margin rationalisation (TMR) are capable of shifting the dynamics of the healthcare regime here. With a population of 1.32 billion and spiralling out-of-pocket expenditure in India, the government is standing at a threshold where affordable and accessible healthcare decisions required to be taken, keeping in mind the need for world-class innovations for better patient outcomes.

Doing what actually matters

Today, more than 80% of imports are in medical electronics, hospital equipment, surgical instruments, implants and diagnostic reagents. India’s medical device market stands at $5 billion, making the country a robust market for investment by multinational corporations. With price control policies, the government is in the middle of a healthcare reform that is perceived to improve affordability, and accessibility to a certain extent, but not at the cost of encouraging innovation and quality medical care. But if the cap on trade margin at 65% comes into play, it will open India’s doors to newer technologies and make it a hub of global innovation.

Many companies have endorsed this approach even in the past, for the simple reason that TMR will set a specific and limited price margin between the price of trade and maximum retail price (MRP).

A new twist to an old tale

Until some time ago, the government was contemplating three different formulae to calculate MRP. The trading margin is the difference between the price at which manufacturers/importers sell to stockists and the amount charged to consumers. In its initial discussions on the subject, the government was tilting towards margin controls based on landed cost—an overly narrow approach that did not take into account a foreign firm’s various expenses in India. These expenses include training clinicians on technology, providing technical support to clinicians or patients for the product, financing sales and collection costs in India, paying Indian corporate taxes, and other routine expenses for developing and serving the market in India.

The new direction is not just about considering TMR, but also about ensuring the transparency in pricing. The new approach could have the government follow NITI Aayog’s formula—adding the trade margin to the price at the first point of sale (stockist) to decide MRP of a device. The medical device industry had pointed out earlier that if margin controls are not implemented from the first point of sale, it could hit innovations coming to India, as the trade margin proposed earlier was estimated to reduce the price of medical devices by 73%.

The National Pharmaceutical Pricing Policy, 2012, also cemented that the method of land cost-based price capping is futile. It highlighted how it would disincentivise industry to invest in capacity-building and lead to a future where newer technologies will not reach Indian shores, putting patient lives at risk.

Take, for instance, the case of blanket price caps for heart stents. There are different variants in the market according to the varying pathological presentations of coronary artery disease. The choice of the best cardiac stents should be driven by the clinical judgement of cardiologists and not restricted by the choices available. Patients with complex co-morbidities being a case in point. The needs of someone suffering from obesity or diabetes could be different from someone living with hypertension. Various factors come into play when the type or quality of a stent is decided. While one-price-for-all focuses on affordable treatments, it does not promise best option to different patient needs, potentially threatening safety.

Building a quality market

From product design to manufacturing, storage to post-marketing surveillance, global regulators including Indian regulators are demanding a robust quality management system (QMS) from the industry. Take, for instance, Europe, which is making CE certification more stringent from this year. The terms and conditions to maintain the USFDA certification require better innovations and investments. This is why technology costs are rising. But that is the price you pay for treatments that save lives and reduce costs in the long term.

With the new TMR approach on the anvil, we are looking at the future with market-based differentiation of product prices. At the same time, the proposal will control the level of mark-ups to avoid abuse. Indian subsidiaries of global medical device makers perform a critical function of training and skilling healthcare workers across the country. TMR based on first point of sale will enable companies to continue investing in this respect.

There is a need to look at the bigger picture that stands above the narrow approach to reducing healthcare cost. If we want to retain and encourage global or even local research-based firms to sell and manufacture in India, we need to create a market that rests on sound health economics, skill development, and innovation policies. As India walks towards the future with universal health coverage on its mind, innovation will form a significant part of it. And TMR will propel these innovations. It is time for the government to engage with the industry in a meaningful dialogue where the two look out for ways to make healthcare better and sustainable for patients—not just restricting the price.

By- Sanjiv Kumar. The author is director, International Institute of Health Management Research, Delhi.

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