Higher Levies Hit Cos Selling Ortho Knee Implants

Mumbai, 7 Feb 2020:

Companies selling orthopaedic knee implants have been hit by a double whammy in the Budget this year. With the introduction of a 5% health cess and ‘social welfare’ surcharge of 10% on imported medical devices, costs have gone up substantially across the board for medical equipment firms, which will increase prices for patients.

While most companies that sell eyeware, hearing aids and critical care devices have decided to hike prices to negate the impact of higher costs, MNCs selling orthopaedic implants — including Johnson & Johnson, Zimmer and Stryker — are in a flux. Hit by higher levies, companies selling knee implants said they find it unviable as they will not be able to increase the MRP, with their prices capped by the government.

“We are asking the government for a roll-back of the incremental duty as the cost of doing business has increased,” Medical Technology Association of India (MTaI) director Kaustav Banerjee said. He added if that may not be possible, then “we plan to approach the National Pharmaceutical Pricing Authority (NPPA) to allow us a revision in prices”.

The Drugs Prices Control Order (DPCO), 2013 allows companies selling knee implants to increase prices annually up to 10% every August, with the last revision in August 2019. It was in August 2017 when the NPPA had reduced knee implant prices by nearly 70% to make them accessible.

On most medical devices, with the imposition of a 5% health cess, the effective rate of duty has increased approximately to 12.5%, and, combined with a social welfare surcharge of 10%, the total burden increases to nearly 14%. At present, medical devices are taxed at slabs of 0%, 5% and 7.5%. The cost for most devices will go up in the range of 5% to nearly 18%, industry experts said. Stryker India MD Meenakshi Nevatia said, “But in current scenario, with margins at each level fixed and MRP fixed, this isn’t viable.” Further, companies are also seeking clarity on whether knee implants are exempt from the 7.5% customs duty, as a certain section of the industry feels that it is ambiguous. In case they are exempt, the cost impact on knee implant firms will be over 5%. Besides, joint replacement instruments will also be levied a higher levy, increasing the burden for patients. EY India tax partner (life sciences) Hitesh Sharma said, “The health cess may put a damper for consumers as they may have to bear the brunt of increased prices.”

The over $5-billion industry is heavily import-dependent with about 70-80% imports, including imaging equipment (CT and MRI scanners), cardiac stents, orthopaedic implants, syringes, surgical gloves, and critical care equipment cornering a large share. ET Healthworld