After analysing the margins or profits of various players involved in the trade of orthopaedic implants, National Pharmaceutical Pricing Authority (NPPA) has found that “involvement of hospitals and doctors” has been the “biggest reason for the price distortion” and is the “root cause of unethical practices” in the sector.
“Involvement of hospitals and the doctors was found to be the biggest reason for price distortion and the root cause of unethical practices … This was clearly stated by the industry representatives but feared to go public,” the NPPA stated in a detailed note, which included the minutes of the August 14 meeting where the price cap on knee implants was decided.
On Wednesday, the Centre announced the price cap on knee implants in the range of Rs 54,720 to Rs 1,13,950, exclusive of GST, in an “immediate intervention” to “check unethical profiteering and exploitative pricing at the cost of the patients in an unregulated market”.
During its investigation, the NPPA found that the trade channel for orthopaedic implants is unlike that of other drugs as they are not sold through retailers or chemists. “Broadly, most of the importers/manufacturers have their distributors/stockists which in turn provide the implants to the hospitals. Hospitals get these implants on substantially reduced prices from companies or distributors while their billing to patients is based on printed MRP (maximum retail price) which is hugely inflated,” the NPPA stated in its detailed note.
To decide the knee implant price cap, the NPPA had consultations with various stakeholders such as domestic and foreign orthopaedic device manufacturers; orthopaedic industry associations; orthopaedic surgeons and civil society groups. Consultation with the distributors was not done by the NPPA.
During these consultations, “both the orthopaedic implant importers and Indian manufacturers emphasised the need for higher prices and mentioned that huge margins are to be paid to distributors and hospitals (including doctors) in the existing business model”, the NPPA mentioned in its detailed note.
“On being questioned why companies were offering huge margins in trade which could be passed on to consumers, all of them expressed that if they do not pay these margins, distributors and hospitals will not buy their products and rivals will benefit. When asked what stops them to act as a group since all MNCs (multinational companies) put together have a monopoly market control and reduce MRPs and each industry plays fair, their response was that they have been trying it but not succeeding and that hospitals are to be brought on board which is difficult at their level,” the NPPA stated.
The NPPA also held consultations with orthopaedic surgeons. “During discussions with few eminent and conscientious orthopaedic surgeons they did not rule out the existence of unscrupulous hospitals and surgeons especially in private sector who are unduly benefiting from the existing market system”.
Association of Healthcare Providers India (AHPI), which consists of majority of private hospital chains in India, and Indian Orthopaedic Association (IOA) gave a joint representation to the NPPA. Both the organisations suggested to the NPPA that “hospitals should have some ‘margins’ since it provides sterilisation facilities and does provide space for storage for disposable”.
After analysing all the arguments and data provided by the aforementioned stakeholders, the NPPA found that “the margins were exorbitant and irrational, indicating unethical ‘profiteering’ at every level and mostly at the level of distributors and hospitals. It also proved that the existing trade channel has failed to eliminate the chances of unfair trade practices”.