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OpEd: A Balanced TMR to Address Healthcares Twin Aspects of Affordability and Quality

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India’s healthcare industry is expected to cross the US$372 billion mark by FY 2022.

One of its fastest-growing sectors, India’s healthcare industry is expected to cross the US$372 billion mark by FY 2022. Increase in private investments since the government allowed cent percent foreign direct investment (FDI) in medical devices is seen as one of the policy decisions strengthening India’s dream of having a niche in quality care delivery. 

The decision is a result of understanding India’s need for superior quality critical diagnostics which cannot be met domestically considering we import almost seventy percent of life-saving devices. At the heart of any healthcare ecosystem, the polar realities of accessibility, quality, and affordability exist. While the critics of imported medical devices have cited high-cost burden and suggested imposing stringent measures such as irrational price caps, conscious-stricken policymakers have pointed at potential quality lapses as a result of price caps.

Take, for instance, the unsuccessful case of capping prices of coronary stents. While the objective was to curb high treatment costs and increase accessibility, the studies have suggested startling findings. Firstly, the global players began withdrawing their superior quality stents from the market as price caps disincentive innovation (i.e. skimming research and development (R&D) resources to continue to innovate) and, secondly, there was only a marginal increase in the number of angioplasties performed. In a study conducted across public hospitals by IQVIA, it was revealed that “eighty percent [of]  hospitals cited no significant increase in the number of angioplasty procedures performed, and even in the remaining twenty percent, the increase was marginal (two to five percent only).” Following multiple rounds of discussions between the industry players and the government, it was decided that there is a need for a pragmatic solution to the ever-increasing treatment costs and sustaining innovation. 

Also read: Price caps or trade margins, what causes India’s pricing woes?

Ruling out price caps as an ineffective tool to address India’s rising out-of-pocket-expenditure, a staggering 65 percent, the government decided to fix trade margins. Although TMR or Trade Margin Rationalisation is a globally accepted practice, in the case of an extensively import-dependent Indian healthcare sector, identifying the point of sale for fixing trade margins was an uphill task. Keeping both domestic and international manufacturers in a fair-trade play, the government, as a pilot project started with fixing trade margins in cancer drugs at thirty percent from the first point of sale (i.e. stockist/distributor).

Cancer is India’s major public health issue claiming lives of eight lakh Indians in 2018. The World Health Organization estimated approximately 1.5 million cases of cancer in India, projected to double by 2040. The disease is one among several terminal illnesses having 2.5 times higher treatment costs than the average hospitalization expenditure. Beginning in March 2019, the project saved Rs. 984 crore in the first four months against the government’s expectation of an annual saving of Rs. 125 crore. The success of the pilot project prompted the National Pharmaceutical Pricing Authority (NPPA) to inform at a workshop that TMR would now be extended to medical devices as well in the future in a phased manner.

The industry welcomed the latest development and it is now only a matter of time that not only patients get the benefits of superior life-saving devices, but even the manufacturers are encouraged to innovate in a fair-trade environment. Let’s understand how TMR can be a game-changer in ensuring a fair and mutually agreeable calculation, having the potential of reducing prices due to excessive mark-ups and simultaneously play host to innovation.

An Approach Backed by Rationale: What TMR Means for Medical Devices

Calculating fair trade margins for global as well as local manufacturers has been a hot debate for India’s policymakers. On one hand, we have trusted international brands who meet India’s rising demand for sophisticated medical care. On the other hand, the domestic industry cannot be relegated and needs a spot in the competition to come at par with their counterparts. Let’s not forget that the landed cost of medical devices do not cover additional expenditure borne by the importer in the form of training of biomedical engineers and development of storage facilities. Hence, it’s only fair that TMR (i.e. the difference between the price at which the manufacturers sell the drugs to stockist/distributors) and the maximum retail price be calculated from the first point of sale (stockist/distributor). 

Growing rapidly, the US$10 billion Indian medical devices industry is expected to reach a market cap of $20 billion in the years to come. For a highly capital-intensive industry with a long gestation period of R&D, the regulatory policies must point the needle in the favour of emerging technologies. Without favouring innovation, we cannot think of treating our patients and also reserve the expenses for developing the cures of tomorrow. Take, for instance, India’s immediate need for superior quality coronary stents. To treat millions of its heart patients, India relies heavily on imports. Since each patient represents a certain degree of different symptoms, a cardiac stent is configured accordingly to meet patient-specific needs. Whether it’s the material, thickness, design, or clinical relevance, R&D investments by major global players have led to developing safer, better and efficient variants of stents. From drug-eluting stents (DES) to biodegradable stents, it’s the intellectual labour of brands that have made the unthinkable possible — reducing angiographic restenosis and targeting vessel revascularization. 

With TMR to be followed in medical devices, manufacturers of essential devices such as coronary stents and other implantable devices will be able to expect a fair return on their investments and will be encouraged to innovate. TMR in medical devices will allow market-based differentiation of product prices, streamlining mark-ups, avoiding misuse, and reducing the chances of over-profiteering. As we speak, India’s patients need access to quality care and the manufacturers need a hospitable environment that rewards innovation and secures investments. A step in that direction, TMR is healthcare’s most viable option.

Dr Bhabesh Hazarika is an economist with the National Institute of Public Finance and Policy (NIPFP), New Delhi. His research areas include public policy, labour economics, health economics, and entrepreneurship. His current research focuses on public policy, impact evaluation, and public expenditure management

1 thought on “OpEd: A Balanced TMR to Address Healthcares Twin Aspects of Affordability and Quality”

  1. This is crap ! Is the learned economist selling his soul to overseas manufacturers lobbyists by lending his name to their authored article?
    Facts :
    1- Price Caps on stents was not irrational but rational and welcomed by Indian mfrs and patients who both gained from this by increased sales and growth in mfg capacity of Indian mfrs and lowered intervention costs for patients especially in tier 2 cities.
    2- When prices got capped its the irrational margin of some hospitals that got hit not manufacturers margins so why should manufacturers be crying and so to state it disincentivizes innovation is spreading misinformation
    3- NPPA is open to allowing a higher price cap for clinically superior stents so real innovation and not marketing spin innovation is being encouraged and patients being protected
    4- TMR was proposed by AiMeD and the basis needs to on 1st point of sale when goods enter supply chain ie when GST applied 1st time which is import landed price for imports and exfcy value invoiced price for Indian mfrs & not on basis of price to stockists if u wish Indian Mfg to b advantageous.
    Mr Economist u need to sit with me and get a lesson on market realities before espousing on behalf of foreign mfrs whose margins did not get hit but market share got hit post price caps and they are lobbying relentlessly in hope that other devices do not undergo a price cap.
    If they are so much worried for patients affordablity and interest what’s stopping them to self regulate? They print the MRP not the hospitals
    Rajiv Nath
    Forum Coordinator

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