Trade Margin Rationalisation lays the roadmap for robust healthcare ecosystem.
By Amir Ullah Khan
Development economist & research director, Aequitas
Trade tensions between the US and India peaked when the Trump administration revoked the trade benefits given to India under the ‘Generalised System of Preferences’ in 2019. With the ongoing US-India trade deal conversations and the combined efforts of PM Narendra Modi and President Donald Trump, a balanced policy approach seems to be the only solution for the two, with a focus on innovation and patient safety. Reportedly, there have been positive developments in the India-US trade deal, with speculations to replace the practice of blanket price caps for high-end medical devices and the option of Trade Margin Rationalisation (TMR). There has been substantial progress on trade negotiations with a win-win for both. This comes as a relief for people who have vouched for the quality and innovation of medical devices as both suffered a backlash due to price control. With a focus on innovation resulting in better clinical outcomes through this deal, the government is enabling an innovation-friendly and sustainable environment to ensure access to affordable and quality healthcare.
I believe TMR lays the roadmap for creating a robust healthcare ecosystem ensuring patient safety and promoting innovation. This will lead to revolution in the medical devices industry (safeguarding safety is more of a regulatory function performed by the health ministry before a product reaches the market). The deal, once finalised, will contribute towards reforms in medical devices by ending downstream mark-ups and unethical business practices. By using landing price as the base for trade margins, there will be more transparency in the pricing of technology and would usher in more market stability through enhanced predictability.
It will help both Indian and global manufacturers get a level-playing field. The deal will also help resolve pre-existing glitches and differences over price capping. Rationalising trade margin of medical devices will not only bring in affordability, but also accessibility to latest technology and paving way for premium devices into the Indian market.
This deal would act as a catalyst for FDI in India, and will bring us closer to an innovation equilibrium between the current and future needs of Indian citizens and help overcome challenges by providing access to innovation, quality and affordable healthcare in the country. To sustain this equilibrium, we have to preserve the incentives to innovate.
It becomes crucial to understand how earlier a continuous deliberation between experts from the medical devices industry and the government on price control led to the recognition of TMR—which stands for the difference between maximum retail price and the price at which manufacturers sell drugs to stockists/distributors. The significance of trade relations between the two countries can be judged from the fact that the US was the second-largest trading partner for India in goods in 2018 and the single-largest export destination for Indian exporters. Bilateral trade between the two reached $142.1 billion by 2018, when the US had a trade deficit of $24.2 billion with India. As per the 2019 National Trade Estimate Report on Foreign Trade Barriers, India’s tariff rates on other members of the WTO remain the highest for any major economy.
Considering the difference between manufacturing costs and retail prices, price capping mechanisms have been regularly hitting the pharma and medical devices industry. A country that meets 80% of its demand for medical devices through imports cannot suddenly disregard the innovative capabilities of imported technology over cost. Thus, India should adopt a holistic TMR approach towards improving health infrastructure and not just follow a narrow approach when calculating margins.
The nuances of the medical devices industry—innovation, transparency, quality, the clinical and technical support of manufacturers, accounting for massive investments—cannot be ignored. Only a robust and balanced TMR will address the hardships of end-users, address the commercial and industrial concerns of hospitals and providers, be remunerative to vendors, and help the government in its quest for universal healthcare for all at affordable prices.
(Views expressed are author’s own)