Drugs & Devices: Chasing Never-Enough Profit And Price Control

On July 20, 2016, the Union Ministry of Health of India announced the addition of Coronary Stents to the National List of Essential Medicines (NLEM) 2015 with immediate effect, bringing them under the Drug Price Control Order.

Reacting sharply to this development, the medical device industry commented, with an undertone of threat, that this price cap could stop manufacturers from introducing technologically advanced stents in India.

However, without contributing to any further knee-jerk reaction, let me try to analyze in this article, whether the never-enough profit motive of the imported stent manufacturer prompted the Government to resort to price control for these life saving devices.

The use of stent:

In the treatment of coronary artery diseases, cardiac stents are now widely preferred in India, just as many other countries of the world. These are small expandable tubes, usually made of metal mesh, and are used to treat narrowed or weakened arteries in the body. 

One of its most extensive usages is in patients with Coronary Heart Disease (CHD), caused by the buildup of plaque, where stents are used to open narrowed arteries and help reduce the symptoms, such as, chest pain or angina, or to help treat a heart attack. This procedure of a percutaneous coronary intervention (PCI) is called angioplasty. 

According to the report of an experts’ sub-committee formed by the Government in October 2015, around 25 percent of deaths in India is attributed to Cardio Vascular Disease (CVD). Coronary Artery disease (CAD) is the commonest CVD accounting for 90-95 percent of all CVD cases and related deaths.

However, for a large majority of the Indian population, the cost of angioplasty is prohibitively high. A patient may have to shell out anywhere between around Rs. 60,000 and Rs. 150,000 for a stent coated with drugs, called Drug Eluting Stent (DES), to curb restenosis, according to published reports.

Even for most Government staff, the cost of angioplasty could well be several times more than their maximum reimbursable limit fixed for angioplasty. Thus, only around 3 out of 1000 needy coronary heart disease patients are treated with angioplasty in India, as compared to 32 in the United States.

An opportunity to shape up:

Despite DES being notified as drugs under the Drugs and Cosmetics Act, 1940, the coronary stents did not feature in the National List of Essential Medicines (NLEM) prior to the above notification, and therefore, were not covered by the Drug Price Control Order (DPCO), so far.

For a long time, this situation offered an important opportunity to the imported stent manufacturers to shape up with responsible pricing…but did they?

Why is angioplasty cost so high?

While trying to find out a credible answer to the above question, the following details on DES of Abbott Healthcare are worth looking at. This information was sourced from a Maharashtra FDA report, and referenced by Rema Nagarajan in her article published in the Times of India on September 25, 2014 to highlight why is DES so expensive for patients in India.

Although, pricing details are of 2014, nevertheless, it gives a flavor of the prevailing situation:

Cost Break-Up/Unit Cost per Unit (Rs.)
DES imported into India at 40,710
Sold to Distributor Sinocare at 73,440
Distributor Sold to Hinduja Hospital 1,10,000
Patient charged 1,20,000 (threefold increase of import price)

(Source: Maharashtra FDA report)

The saga of ‘Market driven pricing’:

Both the drug and the device companies apparently make valiant efforts to package such ‘arbitrary’ pricing as so called ‘Market Driven’ ones, though such price tags keep crippling many cardiac patients financially too. Ironically, the saga still continues.

Taking advantage of the free-pricing environment in India for Coronary Stents, to attain market dominance many global majors, possibly believe that they can print any Maximum Retail Price (MRP) on their import cost. It was happening even when the Government does not levy any customs duty on stents. Do these companies ignore its optics too? Who knows? 

Like most drugs, market forces do not play any significant role in the medical device pricing too, globally.

In June 2013, a research study published in the ‘American Heart Journal (AHJ)’, compared the use of Bare-Metal Stents (BMS), Drug-Eluting Stents (DES), and Balloon Catheters according to company presence in the hospital. It concluded that Medical Representative (MR) presence was associated with increased use of the concerned company’s stents during percutaneous coronary interventions. The effect was more pronounced with the use of DES, and resulted in the higher procedural cost of US$ 250 per patient.

In this particular study, it was found that DESs were used in about 56 percent of the cases, when the MRs concerned were at the hospital, against 51 percent when they weren’t there.

The situation is not terribly different in India too, where also the medical choices are often influenced by the drugs and device makers through, much discussed, dubious means.

The market:

According to a market research report of ‘Future Market Insights (FMI)’ dated May 09, 2016, the coronary stent market of India was of US$ 481 million in 2015, and by the end of 2016 is expected to reach at US$ 531 growing at a CAGR of 14.0 percent over the forecast period of 2016 – 2026.

This study segmented the market on the basis of the following product types:

  • Drug Eluting Stent (DES)
  • Bare Metal Stent (BMS)
  • Bioresorbable stent (BVS) 

DES segment is expected to exhibit the highest growth and the BMS segment a stable growth, during the forecast period. This is mainly attributed to the emergence of new and more effective stents in the market, the report highlights. 

The market is dominated by the imported stents. Abbott, Medtronics, Meril Lifesciences and Boston Scientific, hold together around 60 percent share of the Indian market.

In India, nine of the 11 domestic stent manufacturers are located in Surat and Vapi of Gujarat. These stents are picking up the market share currently hovering around 30 percent, costing even less than half, as compared to the imported ones.

The Government stepped in:

When the industry did not seem to shape up, despite the regulatory opportunity available to keep the stents out of the NLEM, the media started writing about it, strongly and quite frequently. These were intended to bring some sanity into the imported and advanced Coronary Stent pricing system. Still nothing changed, and the Government had to step in.

Ultimately, in October 2015, the Union Ministry of Health constituted a sub-committee of expert cardiologists under the chairmanship of Prof. Y.K. Gupta, Head of the department of pharmacology, All India Institute of Medical Sciences (AIIMS). The mandate of this sub-committee was to examine the issues relating to the essentiality of coronary stents, and recommend whether the coronary stents should be included in the NLEM.

Accordingly, after a series of in-depth discussion with various stakeholders, which included stent manufacturers and the patient groups, the sub-committee recommended the inclusion of two categories of coronary stents, namely the DES and BMS in the NLEM. This suggestion was in response to “the enormous need of percutaneous coronary intervention, or angioplasty with stent.”

By a notification on July 20, 2016, the Ministry of Health announced that the sub-committee has submitted its report to the Government, and after thorough examination of the report, its recommendations have been accepted for implementation with immediate effect.

This decision of the Government is expected to set the stage for the National Pharmaceutical Pricing Authority (NPPA) to work out ceiling prices, which are expected to be 40 percent to 70 percent less than the current prices for these stents.

Conclusion:

For the last several years, many stakeholders, including the media and the Government, have been expressing grave concern over the exorbitant prices of the Coronary Stents.

Earlier in 2015, following a petition, even the Delhi High Court directed the Government to monitor the prices of stents in the market.

Indian drug price regulator, the NPPA, and some state FDAs too flagged the point that although locally manufactured stents are much cheaper, doctors and hospitals continue to use the imported ones, for various commercial and other reasons. As a result, the situation remained the same, adversely affecting the health of a large number of cardiovascular patients in India.

The last week’s decision of the Indian Government for inclusion of coronary stents in the NLEM, needs to be viewed under the backdrop of steep increase in the incidence of CHD in India. It clearly poses a significant public health hazard, where the cost of stents becomes a key treatment barrier for the majority of the patients incurring out-of-pocket health expenditure.

Price control of drugs and devices may not be the best way to improve their access to the most of the Indian population. Nevertheless, considering the high out-of-pocket expenditure for health care in the country, instead of behaving responsibly, doesn’t the drug and the device makers’ mindless chase after ‘never-enough profit’ objectives, often prompt the imposition of regulatory price control?

The fact that many global drug and device manufacturers, even after posting over 30 percent standalone net profit growth in India, continue cribbing incessantly about the stifling Regulatory and Intellectual Property Right (IPR) environment in the country, vindicates the above point well, possibly beyond any reasonable doubt.

By: Tapan J. Ray  

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

 

 

Union Budget 2014-15: Ticks The ‘Top Priority’ Boxes on Healthcare

The Union Budget 2014-15, especially for healthcare, needs to be analyzed against the backdrop of what the common patients have been going through in the healthcare space of India, over a period of time.

In that context, I would quote new sets of data from a consumer expenditure survey carried out reportedly by the National Sample Survey Organization (NSSO) in 2011-12, capturing the following disturbing facts for a period between 2000 and 2012:

  • Total family spend on medical bills increased by 317 percent in urban areas and 363 percent in rural areas for institutional care, while ‘at-home’ medical expenses increased by about 200 percent in both urban and rural areas.
  • For institutional care in hospitals and nursing homes, costs of tests increased by a hopping 541 percent in urban areas. Even for the at-home patient, costs of diagnostic tests increased by over 400 percent in the same period.
  • Increases in doctors’ fees in hospitals were 433 percent in rural areas compared to 362 percent in urban cities,
  • Hospital charges went up by 454 percent in rural areas compared to 378 percent in urban areas.
  • Medicine costs in hospitals went up by 259 percent in rural versus about 200 percent in urban areas.
  • The number of families that reported expenditure on hospitalization dipped from 19 percent to 14 percent in urban areas and from 19 percent to 15 percent in rural areas. Lack of proper facilities at accessible distances was reported to be a key factor in dipping cases of hospitalization in rural areas.
  • Conversely, families that spent on patient care at home increased from 61 percent to 75 percent in urban areas and from 62 percent to 79 percent in rural areas.

Against the above backdrop, within 45 days after coming to power, in his maiden Union Budget Proposal for 2014-15, the Finance Minister of India has ticked most of the right boxes of national health priorities for India. It may not be a dream budget covering everything and all expectations; nonetheless, the budget reflects the intent of the government for the coming years.

Without going into minute details of the Union Budget in general, in this article, I shall dwell on its impact on the healthcare arena of India, in particular.

Key focus areas for healthcare:

Broadly speaking in the healthcare space what impacts the stakeholders most, besides others, are the following and no responsible government can afford to wish these away:

  • Access
  • Affordability
  • Capacity Building
  • Innovation
  • Ease of Doing Business

Within these five key areas, the Finance Minister appears to have focused on the four, namely – ‘Access’, ‘Affordability’, Capacity Building and overall ‘Ease of Doing Business’ in India.

I shall deliberate on each of these points briefly in a short while.

An example of pre-budget expectations of a pharma industry association:

With the current healthcare issues of India in mind and the above priority areas in the backdrop, I read recently in a business magazine, the expectations of one of the pharma industry association’s from the Union Budget 2014-15. Without being judgmental, I am now quoting those points for you to evaluate any way you would like to.

The key expectations of that pharma association were reportedly as follows:

1. Weighted Tax Deduction on Scientific Research:

“Currently there are no specific tax benefits available to units engaged in contract R&D or undertaking R&D for group companies. Benefits should be provided for units engaged in the business of R&D and contract R&D by way of deduction from profits”.

2. Clarity on taxing giveaways to doctors:

“The ambiguity of the CBDT circular in this regard has created widespread concern in the industry. As an interim measure, the CBDT may consider constituting a panel with adequate representation from the industry and Departments of Revenue and Pharmaceuticals to define expenses as ‘ethical’ or ‘unethical’ and lay down guidelines for implementation”.

3. Tax holiday for healthcare infrastructure projects:

It is necessary to extend the tax holiday benefit to hospitals set up in urban areas to enable companies to commit the substantial investments required in the healthcare sector”.

4. FDI – Ambiguity on coverage (e.g. whether allied activities such as R&D, clinical trials are covered):

“Currently, there are no specific guidelines laid down on whether the FDI provisions are applicable to pharmaceutical companies undertaking allied activities e.g. R&D, clinical trials etc”.

5. Excise Duty on Active Pharma Ingredients (APIs):

“The excise duty rate of APIs be rationalized and brought on par with pharma goods i.e. excise duty on the inputs (API) should be reduced from 12% to 6%. Alternatively, the Government may introduce a refund mechanism to enable Pharma manufacturers to avail refund of excess CenVat Credit”.

Other issues that this particular pharma association had penned in its pre-budget memorandum of 2014-15, were as under:

  • Adoption and implementation of uniform marketing guidelines (e.g. the Uniform Code of Pharmaceutical Marketing Practices circulated by the DoP)
  • Rationalization of clinical trial guidelines
  • Updating of governing laws such as Drugs & Cosmetic Act to reflect the current industry scenario
  • Stakeholder consultation while introducing and implementing drug pricing guidelines

Interesting?

This memorandum is indeed interesting…very interesting, especially when it is taken as comprehensive and well-publicized expectations from the Union Budget of a pharma association in India. This pre-budget memorandum is just an example. Other pharma associations also had put on the table, their respective expectations from the government in the budget.

I gave this example, just to highlight what the new government has actually delivered in the charted priority areas in its warm-up maiden budget proposal, for the benefit of all concerned.

Pragmatic healthcare push in the Union Budget 2014-15:

I felt good to note, within a very short period, the new government could fathom the real healthcare issues of the country, as mentioned above, and proposed to deploy the national exchequers’ fund, probably following the good old saying “put your money where your mouth is”.

Initiates a major step towards ‘Health for All’:

In that direction, the government in its budget proposal has given a new thrust towards ‘Health for All’. For this purpose, two critical initiatives have been proposed:

Free Drug Service:

Free medicines under ‘Health for All’ would also help addressing the issue of poor ‘Access’ to medicines in the country.

Free Diagnosis Service:

Besides ‘Access’, focus on diagnosis and prevention would consequently mean early detection and better management of diseases.

Thus, free medicines and free diagnosis for everyone under ‘Health for All’ would help reducing Out of Pocket (OoP) expenditure on healthcare in India quite significantly. It is worth reiterating that OoP of over 70 percent, which is one of the highest globally, after Pakistan, pushes millions of people into poverty every year in India. This proposal may, therefore, be considered as a precursor to Universal Health Care (UHC).

Increase in FDI cap on insurance sector:

The Finance Minister has proposed an increase in the limit of Foreign Direct Investment (FDI) in the insurance sector from the current level of 26 per cent to 49 per cent. However, the additional investment has to follow the Foreign Investment Promotion Board (FIPB) route. Though this change is not healthcare sector specific, nonetheless, it would ensure deeper penetration of health insurance, improving access to healthcare.

Other key 2014-15 Union Budget proposals:

Other key proposals include:

  • Universal access to early quality diagnosis and treatment to TB patients
  • Two National Institutes of Aging (NIA) at AIIMS, New Delhi, and Madras Medical College, Chennai. NIA aims to cater to the needs of the elderly population which has increased four-fold since 1951. The number of senior citizens is projected to be 173 million by 2026.
  • Four more AIIMS-like institutions in Andhra Pradesh, West Bengal, Vidarbha in Maharashtra and Purvanchal in UP, for which Rs 500 Crore has been set aside.
  • Additional 58 government medical colleges. The proposal also includes 12 government medical colleges, where dental facilities would also be provided.
  • 15 Model Rural Health Research Centers (MHRCs) in states for better healthcare facilities in rural India.
  • HIV AIDS drugs and diagnostic kits have been made cheaper through duty rationalization.
  • For the first time, the budget proposal included central assistance to strengthen the States’ Drug Regulatory and Food Regulatory Systems by creating new drug testing laboratories and strengthening the 31 existing ones.

Focus on biotechnology:

The Finance Minister proposed a cluster-led biotech development in Faridabad and Bangalore, as well as agro-biotech clusters in Mohali, Pune and Kolkata.  It is a well-established fact that a cluster approach ensures that academia, researchers and the companies engage closely to create strong synergies for innovation and growth.

The announcement of Rs 10,000 Crore funds for ‘startups’ is also expected to help ‘startups’ in the biotech space.

Withdrawal of exemption of a service tax:

As a part to widen the service tax net, the Finance Minister has proposed withdrawal of exemption on service taxes in case of technical testing of newly developed drugs on humans. This has attracted ire of the pharma industry, just as any withdrawal of tax exemption does.

Re-arranging the proposals under high impact areas:

As indicated above, if I now re-arrange the Union budget proposals 2014-15 under each high impact areas, the picture would emerge as follows:

Access improvement:

- “Health for All” – Free drugs and diagnostic services for all would help improving ‘Access’ to healthcare by manifold.

- Universal access to early quality diagnosis and treatment to TB patients would again help millions

- Deeper penetration of health insurance and its innovative usage would also help a significant number of populations of the country having adequate ‘Access’ to healthcare.

Affordability:

- HIV AIDS drugs and diagnostic kits have been made cheaper through duty rationalization.

- “Health for All” – Free drugs and diagnostic services for all would help answering the issue of ‘Affordability’, as well.

Capacity building:

- Two National Institutes of Aging (NIA) at AIIMS, New Delhi, and Madras Medical College, Chennai.

- Four more AIIMS-like institutions in Andhra Pradesh, West Bengal, Vidarbha in Maharashtra and Purvanchal in UP, for which Rs 500 Crore is being set aside.

- Additional 58 government medical colleges, including 12 colleges where dental facilities would also be provided.

- 15 Model Rural Health Research Centers (MHRCs) in states for better healthcare facilities in rural India.

- Central assistance to strengthen the States’ Drug Regulatory and Food Regulatory Systems by creating new drug testing laboratories and strengthening the 31 existing state laboratories.

Innovation:

- Cluster-led biotech development

Ease of doing business:

- Numbers of common pan-industry initiatives have been enlisted in the general budget proposals, many of which would improve overall ‘Ease of Doing Business’ in the healthcare sector too.

A concern:

Despite all these, there is a concern. In the Union Budget proposals 2014-15, the health sector attracted a total outlay of Rs 35, 163 Crore, which is an increase from the last year’s Rs 33, 278 Crore. I wonder, whether this increase would be sufficient enough to meet all healthcare commitments, as it does not even take inflation into account.

Conclusion:

Taking all these into consideration, the Union Budget proposals for 2014-15, in my view, are progressive and reformists in nature. I am quite in sync with the general belief that the idea behind any financial reform of a nation is not to provide discretionary treatment to any particular industry.

With that in mind, I could well understand why this budget has not pleased all, including the constituents of the healthcare industry and would rather consider it only as a precursor to a roadmap that would follow in the coming years.

However, given the monetary and fiscal constraints of the country, the Union Budget 2014-15, with its key focus on healthcare ‘Access’, ‘Affordability’, ‘Capacity Building’ and overall ‘Ease of Doing Business’ in India, sends right signals of moving towards a new direction, for all. Opportunities for ‘Innovation’ and growth in the biotechnology area have also been initiated, which expectedly would be scaled up in the coming years.

Currently, the general belief both globally and locally is that, this new government has the enthusiasm, will and determination to ‘Walk the Talk’ to make India a global force to reckon with, including its healthcare space.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.