The Prime Minister’s Office (PMO) has rejected the Niti Aayog proposal to implement the trade margin cap at around 65 per cent from distributor onward in medical device supply chain and has asked to rework it.
“In a meeting that happened in PMO last month, the Niti Aayog proposed that a trade margin cap of around 65 per cent can be imposed but only from the distributor onward. The domestic industry has been asking for the margin cap to be imposed from the landing cost, or the ex-factory cost, onward. The Niti Aayog has been asked, therefore, to rework on their trade margin model and bring it back,” said a senior government official on the condition of anonymity.
According to the Niti Aayog, the trade margin is the difference between price at which the manufacturers or importers sell to trade (PTD or price to trade) and the price to patients (the MRP or maximum retail price). While both domestic and foreign medical device companies agree that the trade margin rationalisation is the way forward to control the MRP on devices, the foreign medical device companies believe that the trade margin cap should be imposed from the distributor onward only as it would not affect their expenses on “training clinicians on technology” and “providing technical support to clinicians or patients for the product”.
The domestic medical device companies, however, believe that importers are also traders and the journey of trade margin cap should begin from the ex-factory cost or the import price, also called the landing cost. India’s medical device market is worth about $6 billion, and is expected to grow to $50 billion by 2025. Currently, India imports around 80 per cent of its medical devices, a quarter of it from companies based in the United States.
Association of Indian Medical Device Industry (AIMED), which represents Indian medical device companies, wrote a letter to PMO on August 27 stating that “not only retailers and hospitals” but the importers too “enjoy irrational margins in the supply chain”. It added that “trade margin is difference between MRP and manufacturer’s price” and “Indian manufacturers need level playing field with overseas manufacturers”.
In order to make medical devices affordable, India had imposed price caps on coronary stents and knee implants in February and August 2017. Advanced Medical Technology Association (AdvaMed), which represents multi-national companies, has strongly opposed these caps stating that it has the “potential to block innovations and limit access to world-class medical care and options to deserving patients”. On June 8, 2018, the Niti Aayog had issued a consultation paper on “rationalisation of trade margins in medical devices”, asking all the stakeholders – including patient organisations, domestic and foreign medical device companies – to send their comments. The last date to submit comments was July 15, 2018.
The consultation paper stated: “In order to arrive at a well-informed conclusion, it may be necessary to look into the landed cost of the high value imported medical devices, their subsequent cost at the first point of sale i.e. stockist, and finally the MRP. While the National Pharmaceutical Pricing Authority has already called for such data from importer companies, the government would like to elicit the formal responses from all stakeholders wishing to contribute.”