Dichotomy of price control

December 13, 2018 0 By FM

India has followed a policy of price control of pharmaceutical products for long, and in recent times it has extended the ambit to include certain devices as well. Now, there is an imminent possibility of it expanding further to include more medical products and even medical services. The policy of price control on healthcare products and services has been a subject of debate for long. It has intensified in the recent past owing to the twin factors of India’s high dependence on private sector health care facilities (more than 60 percent of the surrendered care is through the private sector) and the increasing unaffordability of the same.
The proponents of price control have often to contend with stiff opposition from market players who argue that it impairs the industry’s ability to invest sufficiently in innovation, and as long as there are competitive forces at play in the form of multiple providers/vendors, prices will find a fair equilibrium. I have never been convinced by this argument of the opponents of price control, based on my observations of the realities in the market for more than two decades now. A careful analysis of the market prices will reveal that the burden of an inefficient research and development process and an aggressive commercialization agenda have contributed to market prices that are not fair to the consumer. This is further compounded by the fact that consumer choice is highly influenced by care providers, and as such, it is not a free market. Let me try and elucidate this through the events leading to, and following, the imposition of price control on cardiac stents more than a year back. The cardiac stent market in India is characterized by a mix of Indian (~15 players), MNC (5 players) and some emerging Chinese players. There are two types of stents prevalent in the market, viz. Drug Eluting (DES) and Bare Metal, with the DES having a share of ~ 90%.
It is evident from the data that any claim of the MNC players seeking to justify the price to patient / MRP as a legitimate cost for sustaining research and innovation is untenable since the post manufacturer “value addition” far exceeds the manufacturer’s (innovator’s) margins. It is essentially the cost of aggressive commercialization that the poor customer is paying in the name of innovation and quality, despite the market having reasonable competitive intensity. What happened subsequent to the price control, which essentially equalized the MRPs of Indian and MNC innovator players, is a great example of how little control the customer exercises in making the choice of healthcare products. Despite the price equalization, which should have effectively given a fillip to the MNC share with its perceived superiority of an originator, MNC’s market share fell. Even if the domestic players could offer little price advantage post price control, it was not material enough to affect a decision change by a consumer in the context of the overall cost of angioplasty and criticality of the product in the scheme of things. Importantly, despite the massive reduction in the price of stent, which was a critical cost driver for angioplasty, the procedure cost did not come down materially (less than 15 percent).
No less than the Prime Minister himself has spoken of stent price rationalization as one of the major successes of his government. But in reality, the intended beneficiaries are not really better off.
This exposes the complexity involved in matters of healthcare delivery. What may offer great optics from a political perspective is not necessarily a measure of the true effectiveness of the policy. It is imperative that the policy makers understand the complexity around the issues before formulating a policy, to
ensure that the intended benefit reaches the last mile. This is another important lesson for us to learn: Price control is an important tool and is also an attractive proposition as a populist measure, but price control alone, without accompanying measures for fortifying quality standards, may be counterproductive in the long
run. More on this in the subsequent columns.

The author has long-standing association with EY India but the views are strictly personal.