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At The Heart Of A Problem

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The first thing K.M. Gopakumar heard after he admitted his 78-year-old father to a reputed, charitable hospital in Kochi for an angioplasty in September was that he had to pay Rs 2.85 lakh for three drug-eluting stents (DES), at Rs 95,000 each.

Gopakumar, who is familiar with the medical devices market, contacted the hospital’s stents distributor for a discount. The distributor offered him the same brand — imported and sold by a leading foreign multinational company (MNC) — for about Rs 40,000 apiece, with the promise to give the third one free, that is, three stents for less than what the hospital was charging for one! But his attempt was unsuccessful, as the hospital did not allow him to procure stents from outside, citing hospital policy. Instead, it made a ‘special consideration’ — a ‘buy two, get one free’ offer at Rs 87,000 apiece.

Fearing delay, Gopakumar relented. However, soon after the angioplasty, he wrote a letter to the hospital complaining against its monopolistic practice of compelling patients to pay exorbitant prices for stents. He pointed out that Rs 87,000 was significantly more than the supplier’s rate. The hospital responded by saying that the effective price for the three stents, including the one that came for free, was reasonable. Since the effective price was a ‘consideration’ and not the ‘norm’, Gopakumar plans to take up the matter before the petitions committee of the Kerala legislative assembly in the public interest.

Across the country, prices for such devices and the cost of procedures differ, and it’s the uninformed patient who almost always draws the short straw. Worse, prices vary from hospital to hospital, and even patient to patient — as in the case of Gopakumar — due to the lack of transparency and uniformity in the pricing structure and the absence of government regulations.

With the alarming increase in the number of heart patients (cardiovascular diseases account for 52 per cent of the total mortality in the non-communicable disease segment in India, according to government data), the incidence of angioplasty and the market for cardiac stents have grown exponentially in the past few years. According to industry estimates, over 300,000 stents are implanted in patients every year in India. The market is dominated by global medical device majors such as Abbott, Medtronic and Boston Scientific who, between them, account for close to 80 per cent of the market. Global consultancy Frost & Sullivan estimates that the annual market for stents and angioplasty procedures is approximately Rs 1,200 crore, and growing at 15-20 per cent every year.

Wide Variation
With 70-80 per cent of all angioplasties being conducted in private hospitals (the remaining are performed under the Central Government Health Scheme, or CGHS, where there is a government-approved uniform ceiling price for each procedure and medical device), the cost of this procedure is market driven, industry observers point out. Leading stent makers, including representatives of global MNCs, say that companies should not be held responsible for the variable prices of stents. “Forty per cent of the cost to patient is what we get. The rest goes into markups in distribution channels, including hospitals,” says a company representative, not wishing to be named.

None of the leading private hospital players in cardiac care was willing to be quoted on stent prices. However, on condition of anonymity, representatives of some leading hospitals said that the confusion regarding prices and use of stents arose due to the unique nature of the procedure itself. “Pricing is largely dependent on volumes. That’s why there is a variance in pricing,” says a senior executive of a leading private healthcare institution, adding that when it comes to cardiac procedures, hospitals cannot take chances, and they have to go for quality, irrespective of the costs involved.

On the other hand, stent manufacturers say that the high price tag includes the hospital’s profit and the prescribing doctor’s commission. “It’s up to the hospital and the doctor to decide the final price,” says an official of a stent-making company.

The profit margin in stent implant procedures is so high that hospitals can ill afford to not play along. “If the sticker price of a stent is Rs 1 lakh, almost 60 per cent of that is shared between the hospital and the distributor. A small part goes to the doctors as well,” says a healthcare expert. “Even by rough estimates, the hospitals operate on a gross margin of 30-40 per cent. So, if the price of the stent to the customer is brought close to that of the distributor price, or the price paid by the hospital, it could result in a 10-12 per cent impact on the gross margins of hospitals,” says Jayant Singh, associate director, medical technology, healthcare practice, Frost & Sullivan.

“This would help patients who are paying heavily for the procedures and, in turn, may result in an increase in penetration of angioplasties,” he adds.

In fact, the revenue potential of all cardiac procedures, including angioplasty, is  substantial. For instance, India’s leading hospital chain — Fortis Healthcare, whose India business registered operating revenues of Rs 583 crore during the October-December 2012 quarter — attributes 34 per cent of its revenues to cardiac care. This segment has shown 17 per cent year-on-year growth.

The pricing debate has also resulted in MNCs being pitted against domestic players. Compared to the expensive imported stents that carry either US Food and Drug Association (USFDA) or European CE quality specifications, Indian stents, approved by the Drugs Controller General of India (DCGI), cost less.

Any move to bring in pricing discipline in this segment is seen by multinational players as an attempt to favour domestic industry and a move to discourage use of ‘better quality’ stents.

Quality Concerns
In fact, quality concerns are perhaps highest in the stent business. Healthcare players feel that debates over stents should only be on the basis of quality, and not price. “You are talking about a procedure done to a patient’s heart. It is not like a prescription pill. The priority is to know how safe the device is,” says a healthcare administrator, adding that in the case of stents, the final cost of the stent and the procedure depends upon a whole array of consumables used in angioplasty.  “If price is the only criterion, one could be compromising with lives.  And when you go for the highest standards, you are bound to use more expensive stents,” he says.

Vidya Sagar, chief scientist of Relisys Medical Devices, a Hyderabad-based stent-making firm, explains that the quality concerns arise out of a lack of clinical trial data. “They (MNCs) have a lot of randomised clinical trial data from a lot of countries. It makes their case (quality claims) very strong. They are also very strong in adverse event reporting, where even negligible and marginal risks are also captured,” he says.

It is on the basis of this scientific data that MNCs command a premium for their stents. Sagar, whose company also sells products with CE certification, feels that the lack of clinical data is primarily because Indian regulators do not demand such data on a large scale. “Inadequate adverse-event reporting and lack of transparency need to be corrected. We need to do it in a full-fledged manner, though it involves huge costs,” says Sagar.
He says that Relisys is among the few players that focus on clinical trials. But, while agreeing on the need for clinical data, Sagar disagrees on the assumption that it will result in a higher price tag. “Our product with an MRP of Rs 90,000 is sold for Rs 25,000 to the distributor. Our bare-metal stent starts at Rs 13,000. And we have CE marking,” he points out.

According to him, the firm’s DES carries a high MRP to maintain price parity with global players. “When we go to other countries, CE marking is required and we should also price our products at rates comparable to those of MNCs,” he explains. In developed countries, the expenses on stent implants are borne by insurance firms, unlike in India, where they come out of the patient’s pocket.

Despite repeated attempts and email queries, the dominant multinational players did not share their views on the stent-marketing practices followed in India.

Interestingly, not all medical devices come under the purview of the DCGI. Only select devices — notified as drugs — are covered under the Drugs and Cosmetics Act. As a result, the devices are view through the regulatory prism that is used to monitor the quality of drugs, something the industry feels is not right. “Medical devices are an entirely different ball game. They need to have a separate set of rules and regulations. In fact, the government is in the process of finalising a new set of regulations for the sector,” says an official with the regulator.

Rajiv Nath, coordinator  of the Association of Indian Medical Device Industry (AIMED), feels there is a flaw in the argument that stents with Indian regulatory approval are inferior. The Indian regulator’s approval is proof that the device meets the minimum quality standards required of it, he says. “It (DCGI approval) is not saying which one (stent) is better. The regulator’s job is to ensure minimum safety requirements. Beyond that, the manufacturer can put additional features and charge more. But to say it is inferior in quality or is unsafe is incorrect,” he adds.
“If the price of a stent is Rs 1 lakh, 60 per cent is shared by the hospitals and distributors. A small part goes to doctors as well” (BW pic by Ritesh Sharma)

Shock Tactics
Arbitrary pricing in the stent segment is a serious issue since heart diseases are becoming widespread in India. According to a Planning Commission working group, one in four Indian families, with a member who has heart disease or suffered a stroke, will face an expenditure jolt, pushing 10 per cent of such families into poverty.

It is in this context that Gopakumar feels CGHS’s recent move is particularly important. On 21 February, the health and family welfare department under the health ministry notified a downward revision of the ceiling prices for all coronary stents used in CGHS beneficiaries. All central government employees and pensioners and their dependents are covered under this scheme.

The decision came as a shock to the MNCs as the differential pricing they enjoyed until then was taken away in one fell swoop. If there were three slabs for every type of stent earlier (depending upon the certification the product had — a USFDA-approved stent got the maximum reimbursement, one with a European CE came next and DCGI-approved got the least), the current order provided for a single slab for each category (see Game Changer?). The decision was partly due to the Centre’s attempt to reduce its reimbursement burden and partly due to the increasing availability of lowcost stents. 

The medical device committee of the American Chamber of Commerce (Amcham) was quick to respond to the Centre’s move. “The committee understands the importance of healthcare affordability and the government’s efforts in this direction. However, decisions like this will impact the quality and reach of healthcare to the people. Patients will not be able to get the latest technologies and medical products available in the market. CGHS can adopt a consultative process supported by evidence-based reimbursement policies for driving better health outcomes,” said its chairman Manoj Gopalakrishna.

AIMED’s Nath feels that while the decision may motivate some hospitals into shifting to domestic stents, it is completely incorrect to say that quality will suffer. Relysis’s Sagar says the rate revision by the CGHS will not affect companies’ business. “If MNCs are complaining, it’s just because they do not want to cut down their profit margin,” he says, citing an example where a global company matched its price of Rs 12,000-14,000 a stent in the case of bare-metal variants. “We have to benchmark our standards with those of the MNCs. And the only way to do that is through comparative clinical trials,” he adds.

Gopakumar, however, feels that the Centre should bring stents under a price regulation mechanism, a move dreaded by private players. “The CGHS pricing pattern should be followed by the other public procurement agencies too. The insurance sector should also take note of this development,” says Sagar.

Incidentally, a few years ago, the government had initiated a move to bring all implantable devices under the purview of the Drugs (Price Control) Order, notified under the Essential Commodities Act. “The move was frozen after the healthcare industry fought against it with all its might,” points out an industry expert. Separately, the health ministry is planning an amendment to the Drugs and Cosmetics Act to strengthen quality regulation of medical devices approved in the country.

Although it is too early to predict whether the CGHS decision will trigger a change in open market prices, its should come as no surprise if one begins to see price sensitivity, fairly common in the medicine business, in the stent business as well. 


(This story was published in BW | Businessworld Issue Dated 03-06-2013)