How to Rationalise trade margins in medical devices: NITI Ayog asks public for comments

New Delhi: Niti Aayog has released medical device concept note on its official website and has invited suggestions for rationalization of trade margins in medical devices. Stakeholders can submit their comments or suggestions by 15 June 2018 at medical.devices.consultation@gmail.com.

The Aayog put forward a note titled ‘Rationalisation of Trade Margins in Medical Devices—A Concept Note’ with a view to achieving the overall goal of affordable Healthcare for All adding that the Government intends to make available critical and lifesaving medical devices to the needy masses at affordable prices.

“The aim is to ensure reasonable prices to consumers and at the same time allow reasonable profits to all stakeholders in the medical device industry, including those involved in the supply—chain by rationalizing trade margins and thereby passing the benefits of the reduced cost to the final consumer,” the note added.

The trade margin is the difference between the price at which the manufacturers/importers sell to trade (price to trade) and the price to patients (maximum retail price).

The note pointed out that the issue of unreasonably high trade margins in medical devices has been adversely affecting both the industry as well as consumer interest. “Various representations regarding rationalization of trade margins on medical devices from industry/trade associations/indigenous manufacturers/importers have also been received.

The government has had stakeholders consultations on this subject beginning from October 2017 to ascertain their viewpoints,” the note said.

According to the note, Only 23 medical devices have been notified as drugs and are regulated under Drugs and Cosmetics Act, of these, only 4 devices viz. cardiac stents, drug-eluting stents, condoms and intra uterine devices are included in the national list of essential medicines and by virtue thereof are subject to notified price ceilings.

Besides, knee implants have been brought under price control under para 19 of the Drugs (Prices Control) Order 2013. The remaining medical devices are under no price regulation.

How to Calculate Trade Margin?... Asks Niti Ayog

While there has been more or less a consensus on the concept of regulation of Trade margin on medical devices (as distinct from trade margins in pharmaceutical products) as also on the quantum of the margins ; there is a debate on the location of the “First Point of Sale” (from where to calculate the Trade Margins?) in case of imported medical devices. Suggestions in this regard include

OPTION 1

One view is that importers are also traders and the journey of trade margins should start from the import price itself. It means, the MRP will be decided as follows:

MRP = Landed Cost + %age of Trade Margins (as decided by the government)

OPTION 2

There is, however, another view that after importing, many expenditures are incurred by the importing companies in clinical education on deployment and use of such devices, therefore, it not the starting point of trade and therefore, rightfully the trade margins should start, as in other cases, from the First Point of Sale, that is, the Stockist. In this case, the MRP will be decided as follows:

MRP = Price at the First Point of Sale (Stockist) + %age of Trade Margins (as decided by the government)

OPTION 3

A still third view is that the companies may be allowed to separately show the markup due to services rendered viz. clinical education etc. over and above the landed cost. In other words, the companies will arrive at the MRP as follows:

MRP = Landed cost + mark-up due to services rendered + %age of Trade Margins (as decided by the government)

In order to arrive at a well-informed conclusion, it may be necessary to look into the landed cost of some high value imported medical devices, their subsequent cost at the First Point of Sale, i.e. Stockist and finally their MRP. While The National Pharmaceutical Pricing Authority has already called for such data from importers companies, the government would like to elicit the formal responses from all stakeholders wishing to contribute, on:

(i) the concept of trade margin regulation as such;
(ii) the margin caps i.e., the maximum margin to be allowed;
(iii) clarity on First Point of Sale in case of imported products;
(iv) classification of Medical Devices with reference to the cost of
Servicing, logistics, inventory and other heads.
(v) any other issues pertaining to the present concept paper.

The Niti Aayog said that stakeholders can submit their comments or suggestions by 15 June 2018 at medical.devices.consultation@gmail.com.

As per the note, the medical devices industry has been growing at a rapid pace and is currently estimated to have a market size of $10 billion and it is likely to reach a size of $20 billion in next couple of years.

“It has been the effort of the government to encourage the medical devices industry and keep it by and large a free and unregulated industry,” the note said. India imports over 75% of all its medical device needs.