As the US-India trade deal inches closer we need to look into creating strong policies that promote innovation coming to our shores
Healthcare in India is in dire need of policy disruptions by looking into the future with a mechanism that will transform the way the country treats its patients and regulate drugs and medical devices. A balanced policy approach seems to be the only solution, with focus on quality treatment and patient safety, working towards the overall development of the healthcare sector. With the US-India trade deal inching closer towards clinching a milestone that would benefit bilateral ties between the two countries, the current time is particularly important for healthcare in the country. That takes us to the question, what does the US-India trade deal mean for the medical device sector? If approached right, the deal will benefit India, giving the industry the much-needed impetus and encourage innovation in medical devices to address the unmet needs of this sector. The importance of trade relations between the two countries can be better understood from the fact that the US was the second-largest trading partner of India in 2018 and the single-largest export destination for India. The bilateral trade between the US and India reached $142.1 billion by 2018 when it had a trade deficit of $24.2 billion with respect to India.
According to the National Trade Estimate Report on Foreign Trade Barriers, 2019, India’s tariff rates on other members of the WTO remain the highest of any major economy. With the ongoing trade negotiations between the two countries, there are speculations that suggest that a move to remove blanket price caps for high-end medical devices could be on the anvil, with the authorities inclining towards a scientific method like Trade Margin Rationalisation (TMR) to encourage fair trade. The move will not only aid innovation in medical devices but also create an environment that prospers growth in the sector. Even as media reports suggest a 30 per cent cap on trade margins, domestic players have written to the Prime Minister to take a step against TMR.
What does TMR mean for India? The country needs to understand that TMR is nothing but a bridge between quality and affordability. Let’s understand how. Trade margins essentially mean a price cap on the upstream margins rather than products downstream. The idea is to incentivise innovation coming into the country. It is the difference between the price at which the manufacturer sells to trade and the price borne by the patients (MRP). As the Government looks at TMR as a possible scientific approach to give the domestic and international players a level playing field to address the existing gaps in the healthcare system, it is important that this is done with the right approach. For instance, if calculated at the landed cost, it will discourage investors as it will not consider, a foreign firm’s expenses in India. It is an overly narrow and unfair framework that could negatively impact investment in enhancing capabilities and bringing quality products to Indian shores. Hence, for TMR to be fair, it is imperative that the Government considers the global company’s subsidiary as a domestic firm, with added costs not borne by the typical domestic firm, for purposes of the trade margin approach. What we need to understand at this juncture is that India depends on 80 per cent imports of medical devices to meet its existing needs. Now, for companies to continue investing, we need to take into account the expenses borne by them on financing sales and collection costs, training clinicians, providing technical support to clinicians or patients for the product and more. They also pay Indian corporate taxes and other normal expenses for developing and serving the market here. Now, if their efforts are not incentivised, it will discourage innovation from coming to our shores. For instance, doctors rely on globally-accepted standards of quality equipment coming from innovators around the world. If a patient needs a gold-standard heart stent and it is not available in the market because of an unfavourable regulatory or pricing regime, it will hit patient safety. For over two years now patients have been distanced from global innovation in health technology and premium quality stents and implants due to a price cap imposed on them. As we look at TMR as a possible solution, it is imperative that we look at measures like TMR from an approach that offers transparency in the pricing matrix. If the Government wants to check if intermediaries are making excessive profits by raising service charges to offset any reduction in revenue from sales of medical devices, a mechanism should be devised to counter it. We are just a decade away from 2030 — a target India has set for itself to achieve Universal Health Coverage. To achieve the same, the promises of affordable and accessible healthcare will take a hit if India is not able to provide its patients with the devices they need to address their concerns. We need to look into creating strong policies that promote innovation coming in to raise the standard of healthcare. The equipment used to derive conditions of the patients needs to be accurate beyond doubt. The world is looking at us as a medical hub and we must encourage it. We need better healthcare polices to address the evolving needs of our population. At a time when advanced technology is fighting disease burdens globally, we cannot turn a blind eye to these innovations.
(Singh is a public health expert, UNICEF and Khan is a development economist and former policy advisor, Gates Foundation)
