Syringes and needles maker put trade margin cap of 75% after NPPA nudge

Pricing regulation on medical devices gains momentum

About a year since the National Pharma Pricing Authority (NPPA) put a price cap on coronary stents, medical devices industry is making a slow move to self-regulation by capping trade margins. Syringes and needles makers have put a cap of 75 per cent on trade margins, effective Republic Day, to avoid the wrath of pharma pricing regulator. The NPPA put a price cap on coronary stents and orthopaedic implants last year. 

Also, it forced over 15 other device makers to finally put a maximum retail price on devices for the first time to avoid overcharging by hospitals. 

Vimal Khemka, who runs a syringe and needles manufacturing facility at Haridwar (Veekay Surgicals ), sounds satisfied with the recent All India Syringes and Needles Manufacturers Association (AISNMA) decision to voluntarily cap trade margins of maximum 75 per cent over their discounted net ex-factory prices (including GST).

"The recent order is rational,” Khemka said. “There is as such huge competition among manufacturers and even among distributors. Having a uniform structure would prevent unhealthy competition and manufacturers would not have to 'under-cut' prices to remain competitive," he said.  

In a mail dated December 21, the AISNMA had told its members that Bhupendra Singh, chairman NPPA, had called up a meeting on December 18 to discuss matters "regarding MRP and all margins within different market segments for Disposable Syringes & Needles with Manufacturers and Importers as these had been reported to be excessively high and unreasonable." 

The letter further read: "He warned us that manufacturers should regulate price themselves otherwise the government would be forced to take steps as they have done to cap prices in the past for items like stents and orthopaedic implants."

It is after that the executive body and larger membership of AISNMA decided that with effect from consumer day (December 24), all members will print reduced MRP on basis of a voluntary capped trade margins of maximum 75 per cent over their discounted net ex-factory prices (including GST) and implement this latest by Republic Day, January 26, 2018. 

The Association of Indian Medical Device Industry (AIMED) is now in sync with the move.  

"We believe in trade margins cap of 50 percent to 100 cent depending upon value of devices between ex-factory price of domestically manufactured devices or landed price of imported medical devices," said Rajiv Nath, joint managing director of Hindustan Syringes & Medical Devices who is also founder & forum coordinator for AIMED.

Manufacturers say that the maximum margins are made by the last man in the supply chain, and this is typically the hospital. 

"They induce intense competition between manufacturers and distributors, in turn, to get products at the best price. We have been seeking that hospitals should bring in ethical code and customers should have a choice of brand and also the choice to procure from outside hospitals," said Nath.

He added that as such many brands already offer 60-80 per cent trade margins, and hence it is status quo for these brands. For those who have a high MRP, the move might cause some concern initially. 

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

Meanwhile, through a recent research conducted by multinational device maker lobby AdvaMed (Advanced Medical Technology Association), it has been also recommended that the government should try trade margin rationalisation instead of capping the ceiling price of medical devices. 

A spokesperson at AdvaMed said, "Unlike price caps which dis-incentivise 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." 

As the government moves near the general election and runs a campaign around providing cheap health care to the masses, many fear intraocular lenses as well as heart-valves to also undergo pricing reform either through self-regulation of cap on trade-margin or pricing cap by the NPPA.

However, Dr. D. Ramamurthy – immediate past president, All India Ophthalmological Society and Chairman of the Eye Foundation is still resisting any such move for intraocular lenses. 

“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 far and few, it might even be counter-productive for doctors and patients alike,” he said.

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