New Delhi: The government is planning to control prices of medical devices by restricting their trade margins, a departure from the existing mechanism of capping prices, two people aware of the matter said. There has been more or less a consensus among government think tank Niti Aayog, the health ministry, department of pharmaceuticals and the department of industrial policy & promotion on regulating trade margins on medical devices, the people said, requesting anonymity.

Once the new mechanism is decided, it will apply to devices such as cardiac stents and knee implants, prices of which were slashed by as much as 85% using powers under the Drugs Price Control Order (DPCO), 2013. The move had drawn severe criticism from the medical devices industry, which claimed that the government move would curb innovation.

There are three separate formulae under consideration and one of the three will be decided for calculation of maximum retail price (MRP) in the next few days.

One view is that trade margins should be calculated from the import price itself. It means the MRP should be decided by adding the landed cost to the percentage of the trade margin. The percentage will be decided by the government.

There is another view that many expenditures are incurred by the importing companies, including clinical education on deployment, and therefore, trade margins should start from the first point of sale, that is the stockist. In this case, MRP will be decided by adding the price at the first point of sale (stockist) to the percentage of the trade margins.

A third view is that the companies may be allowed to separately show the mark-up over and above the landed cost. The companies will therefore arrive at the MRP by adding the landed cost to mark up due to services and percentage of trade margins.

“Out of three mechanisms, one will be chosen and once it’s done, medical devices will come out of the ambit of DPCO," said one of the two people cited before.

At present, 23 medical devices have been notified as drugs and are regulated under the Drugs and Cosmetics Act. Of these, only four—cardiac stents, drug-eluting stents, condoms and intra-uterine devices—are included in the National List of Essential Medicines and are therefore subjected to notified price ceilings. Last year, knee implants were brought under price control under para 19 of the Drugs (Price Control) Order, 2013. The remaining medical devices are not under any form of price regulation.

“If trade margin is capped below 50-75%, it will lead to shortage of devices in supply chain, and manufacturing will be adversely impacted as manufacturers will further lose competitive advantage to deep-pocketed MNCs who already use huge margins for sponsorship of conference and foreign trips of doctors in the garb of training," said Rajiv Nath, forum coordinator of Association of Indian Medical Device Manufacturers.

The medical device industry is likely to double to $20 billion in the next couple of years, according to a consultation paper on medical devices by Niti Aayog.