Trade Margin capping on Medical Devices will bring in enforcement complexities

In the last few years, the National Pharmaceutical Pricing Authority of India has been working towards protecting the interest of the consumers and make medical devices more affordable. Having said that, the proposal of capping the trade margin on medical devices instead of putting a direct price cap on them might result in an enforcement nightmare for the Government.

Background

In 2017, LocalCircles worked with NPPA and the Department of Consumer Affairs to ensure all medical devices had MRP on them. Subsequently, an order was passed by NPPA making MRPs mandatory on medical devices and the same was notified under Packaged Commodity Rules 2017 amendment by Legal Metrology Department, Department of Consumer Affairs. Subsequent to that NPPA implemented price capping on heart stents and knee implants.

Recent Developments

The Government has been trying to bring in better transparency in the pricing of medical devices by controlling the price of cardiac stents, knee implants etc. The Niti Aayog along with NPPA is now considering putting a cap on the actual trade margin of medical devices in India instead of a direct price cap at between 30% and 50%, to make them more affordable for the patients and their families.

Issues Observed by Citizens on LocalCircles Platform

Reporting by the consumers on LocalCircles suggests that they have partially benefitted from the price capping of medical devices, though many hospitals have created packages such that the MRP or price of the stent is not disclosed in the bill. When asked about medical devices having MRP information (since it is mandated by law), 50% respondents said medical devices they came across in the hospitals, did not have MRPs while only 28% said the medical devices did have an MRP. 22% said they did not pay attention to it. More than 8,000 affected patients or their family members participated in this exercise.

Given that if someone or their family members is hospitalised for a critical procedure, it is difficult for them to even remember whether MRP laws are being followed or enquire about these issues from the hospital administration and hence it becomes the Government’s responsibility to ensure that the hospitals are compliant.

If this model is changed from direct price capping to capping of trade margin, the enforcement complexities will increase manifold as every medical company could have a different cost for the same products and this cost in theory could be dynamic based on customs duty, logistics costs, country from which it is imported, etc. With hundreds of line items, potentially going into the thousands, across the 24 medical device categories, an inspector will not be able to figure out whether MRP calculated is accurate or not. The state legal metrology inspectors currently only look at whether the MRP was complied to in the invoicing and a state drug inspector currently does not evaluate compliance on medical devices as their focus is drugs. Even if one of their mandates were to be expanded, training them at the state and local levels will require significant time and effort.

Way Forward

If the Government decides to implement trade margin capping, it must ensure all medical devices when they leave factory or arrive at a port in India, have MRPs on them and the cost and the MRP is captured in the systems of Central Board of Indirect Taxes & Customs. Big Data analytics should then be utilised to identify any red flags and drive enforcement. Such analytics be complemented with self-certified and externally audited annual submissions by each medical device importer and manufacturer to NPPA demonstrating compliance.

In absence of the above enforcement system, it is recommended that the direct price capping model be followed for price control of medical devices. We understand that the basic objective of the Government’s move to implement price control on medical devices is for them to become affordable for the common consumer. With the trade margin capping model given the lack of a robust enforcement model, we feel the risk of consumer not receiving the intended benefit is much higher than the direct price capping model.

LocalCircles has also shared these findings with the relevant stakeholders in the ministry as well as in Niti Aayog, and hopes that the findings listed above and the recommendation made will be considered as the price control mechanism for medical devices is finalised.