Medical device makers see gains in self-regulation

Syringe and needle makers cap trade margins at 75% after NPPA nudge

About a year since the National Pharmaceutical Pricing Authority (NPPA) capped the prices of coronary stents and orthopaedic implants, the medical devices industry is slowly moving towards self-regulation. Syringe and needle makers have decided to cap trade margins at 75 per cent, effective from January 26. VEENAMANI, SOHINIDAS& ANEESHPHADNIS write

About a year since the National Pharmaceutical Pricing Authority (NPPA) capped the prices of coronary stents and orthopaedic implants, the medical devices industry is slowly moving towards self-regulation. Syringe and needle makers have decided to cap trade margins at 75 per cent, effective January 26, to avoid the NPPA’s wrath.

To avoid overcharging by hospitals, the NPPA had also forced over 15 device makers to put maximum retail price tags on devices for the first time.

Vimal Khemka, who runs Veekay Surgicals, a syringe and needle manufacturing facility at Haridwar, said the decision by the All India Syringes and Needles Manufacturers Association (AISNMA) to voluntarily cap trade margins at 75 per cent over their discounted net ex-factory prices (including goods and services tax) was rational. “There is huge competition among manufacturers and among distributors. A uniform structure would prevent unhealthy competition, and manufacturers would not have to under-cut prices to stay competitive,” Khemka said.

In a mail, dated December 21, the AISNMA intimated its members about a meeting with NPPA Chairman Bhupendra Singh “regarding MRP and all margins within different market segments for disposable syringes and needles…as these had been reported to be excessively high and unreasonable”. The letter said: “He (Singh) warned that manufacturers should regulate prices themselves, otherwise the government would be forced to take steps, as they did earlier for items such as stents and orthopaedic implants.” It was after this that the AISNMA decided all its members would print reduced MRPs on the basis of the new trade margin cap of 75 per cent from December 24, and implement it by January 26.

The Association of Indian Medical Device

Industry (AIMED) is now in sync with the move. “We believe in trade margin cap of 50-100 per cent, depending on the value of devices between ex-factory price of domestically-manufactured devices and landed price of imported devices,” said Rajiv Nath, joint MD of Hindustan Syringes & Medical Devices, who is also the founder and forum coordinator for AIMED.

Manufacturers say that the maximum margins are set by the last man in the supply chain, which, typically, is the hospital. “They induce intense competition between manufacturers and distributors to get products at the best price in turn. We have been seeking that hospitals should bring in ethical code and customers should have a choice of brand and also the freedom to procure from outside hospitals,” said Nath. He said that many brands already had 60-80 per cent trade margin cap, and, hence, it would be status quo for them. The move might cause some concern initially for those that sell at high MRPs.

A manufacturer typically makes less than 10 per cent margin, while the margin for a dealer or distributor varies from 2-20 per cent depending on payment terms. Nath said that this 75 per cent margin includes the stockist margin, the distributor margin, the seller margin, apart from logistics costs (in some cases the cost of transportation is more than the cost of the device) and the inventory carry cost.

A recent research conducted by multinational device maker lobby AdvaMed (Advanced Medical Technology Association) has recommended that the government should try trade margin rationalisation instead of enforcing price caps.

An AdvaMed spokesperson said, “Unlike price caps, which disincentivise innovation, fixing trade margins would restrict how much a product’s price can be raised from the import of manufacturing cost, but innovation would still be rewarded.” With the general elections nearing and the government focusing on campaigns around providing cheap health care to the masses, manufacturers fear intraocular lenses (IOLs) as well as heart valves might also undergo pricing reform either through self-regulation of trade margin or pricing cap by the NPPA.

D Ramamurthy, chairman of the Eye Foundation and a past president of All India Ophthalmological Society, is, however, resisting such a move for IOLs. “Unlike in the case of heart stents or orthopedic devices, where the issue leading to price control was that of a shortage of high-quality Indian-made devices, the case is quite the reverse in the IOL segment,” said Ramamurthy, explaining that the market is dominated by Indian players whose products cut across all price ranges. So, the question of patients not having access to high-quality IOLs does not arise. “Not only would the benefits of such an act be few, it might even be counter-productive for doctors and patients,” he said.

Meanwhile, the pricing cap on stents has helped domestic manufactures, as their market share has gone up by 4 per cent, the NPPA has said.