Govt Plans 30 percent Cap On Traders Profit On Medical Devices, NITI Aayog Wants It Higher

New Delhi, 19 July 2019:

The Narendra Modi government is ready with a proposal to cap trade margins on medical devices to as low as 30 per cent in a bid to make essential instruments such as pacemakers, catheters affordable to patients.

The trade margin is the difference between the price at which manufacturers sell drugs to stockists (and distributors) and maximum retail price (MRP) to patients.

The government’s think tank NITI Aayog has drafted the proposal for capping trade margins by using various simulations — within a range of 30 per cent to 85 per cent.

The draft has already been sent to the National Pharmaceutical Pricing Authority (NPPA), the central drug pricing authority, for final consideration.

The NITI Aayog has suggested a 50 per cent cap on the trade margins and is against 30 per cent limit, ThePrint has learnt.

“We have analysed various simulations and data sets to cap the trade margins on the medical devices with the aim of enhancing affordability of these medical devices,” Dr Vinod K Paul, a member of NITI Aayog, told ThePrint.

“We have analysed several set of trade margins to look for an ideal situation where interest of industry as well as patient will not be hurt. The final call will be taken by the regulator and the ministry concerned,” he added.

The aim of the draft is to reduce the margins given by medical device manufacturing firms to the hospitals who in turn sell these expensive devices to patients.

For instance, in the government’s limited analysis, the profit margins earned by hospitals on balloon catheters ranged between 25 per cent and 472 per cent, whereas on guided catheters ranged upto 50,529 per cent.

‘Notification may be issued soon’

The proposal has been forwarded to the department of pharmaceuticals (DoP) under the Ministry of Chemicals and Fertilizers. The DoP is the parent department for NPPA.

The DoP is in the final stages of discussion over the proposal and is likely to issue a notification soon.

“We are in the advanced stages of discussions and you may soon hear the announcement. We are currently debating on choosing 30 per cent price cap, which is against the advice of NITI Aayog. The margins in case of cancer drugs have been capped at 30 per cent. So, we are discussing the pros and cons with the NPPA over whether the same margin could be capped on medical devices also,” said a DoP official.

Formula to calculate margins

The DoP official quoted above said Paul’s team has advised “the MRP at price to stockist” trade margin cap formula for medical devices. Same formula was used by the government for slashing the trade margins on cancer drugs in March.

According to the proposal, manufacturers of medical devices will be required to disclose their price to stockists (PTS) — the price at which they supply to dealers — to the NPPA.

The difference between PTS and MRP should not be more than the approved trade margin.

“In the several discussions with NITI Aayog and DoP, three models to calculate trade margins were debated upon. One idea was to calculate trade margins from the import price while the other was to allow companies to show the mark-up over and above the landed cost,” an official said. “However, NITI Aayog has proposed point-to-stockist.”

‘Capping MRP is also important’

According to industry experts, margin capping would not curb high retail prices as it does not regulate the price charged until the product arrives at stockists.

“Imported medical devices involve an extra layer of profit-making because of the involvement of importers. It is a contributing factor in unethical marketing. Therefore, the ex-factory price should actually be equated to landed costs in any exercise of trade margin capping,” said Malini Aisola, co-convener of NGO All India Drug Action Network.

“Capping MRP is important as the problem of high costs cannot be addressed only through trade margin capping. In fact, margin capping could end up legitimising the real possibility of high landed costs and therefore higher selling price to the patient,” she added.

Medical device-makers echoed similar concerns.

“You can’t have importers having irrationally high margins as shown by the government’s analysis on catheters and non-importers complying with suggested margins. This tactical marketing warfare has cost the consumers dearly and harmed ethical marketing,” said Rajiv Nath, forum coordinator of Association of Indian Medical Device Industry, the largest lobby of medical device-makers in India.

“Any move to cap trade margins at distributors’ end will give a huge competitive advantage to importers (as they can show their landed cost high) and can save huge money for marketing and promotions,” he added.

SOURCE : The Print