4 min read.Updated: 30 Nov 2020, 09:50 PM ISTAjit Ranade
Arbitrary price caps tend to distort market mechanisms and also yield unpleasant side-effects
In February 2017, the National Pharmaceutical Pricing Authority (NPPA) reduced the top price of base-metal and drug-eluting stents by a whopping 85%. The price caps would make a basic stent available at ₹7,260 instead of ₹45,000. Stents are mesh tubes made of metal and inserted in blood vessels to improve blood flow. With India’s high prevalence of heart disease, this treatment has become widespread and reliable. Since they relate to critical healthcare, the government thought it fit to impose a price ceiling to make them affordable. But was this the best way to curb stent-price inflation? A prominent doctor and former medical director of Mumbai’s city government wrote that while the intent to control their prices was laudable, the way it was done was misdirected. Today it was cardiac stents, he added, tomorrow it could be orthopaedic implants and oncology drugs. He predicted that those who could afford better quality stents would go to Singapore, Bangkok or even Colombo for implants. Meanwhile, at home it would lead to underhand cash deals and other malpractices. Hospitals would find ways to charge through other means, like operation-theatre rentals and overheads. Foreign companies like Abbott, Medtronic and Boston Scientific asked for an exemption for high-end stents, failing which they would withdraw these products from the Indian market. This was like a threat. The government responded by resorting to an emergency clause requiring medical suppliers to sell at specified prices or less. Such actions don’t exactly inspire investor confidence. The operation of inserting a stent is often a life-saving procedure, and not being able to afford it becomes an emotive issue. So governments and politicians trumpet their victory over high prices through ceiling diktats. But such actions don’t work. Shortages, black markets and malpractices are an inevitable fallout. Is there any other way to achieve cost reduction? Just last week, the Chinese government announced a centralized government procurement scheme covering 10 varieties of stents. The bidding was won by eight companies, including two American, the very same Medtronic and Boston Scientific, and six other Chinese companies. The purchase order was 1.07 million units per year. And the price reduction? A whopping 95%. The lesson to learn is that this price reduction was effected without imposing any arbitrary price ceiling. The power of large-scale procurement, combined with competitive bidding, ensured it. This works better than price caps, assuming that the government has the resources to deploy for their purchase, storage and eventual recovery of costs from patients. In India, something similar was tried to scale up usage of light emitting diode (LED) bulbs. Here too, state procurement played a big role in slashing prices.
Recommended For You
Select your Category
Internet Not Available
Wait for it…
Log in to our website to save your bookmarks. It'll just take a moment.