A 'preferential purchase policy' for medical devices sector

In its quest for making healthcare affordable, accessible and non-exploitative, the government has initiated possibly its most controversial reform with the slashing of stent pricing while also attempting to correct the skewed market place. Earlier, high priced imported stents had enjoyed an unfair competitive advantage over equivalent Indian products and were favoured because of the more lucrative margins they offered to the hospitals.

The price capping has taken away this unfair advantage and protected both patients and domestic manufacturers. The primary challenge before the government remains further bolstering Prime Minister Narendra Modi’s ‘Make in India’ programme to create a level-playing field for domestic medical device manufacturers. This, in addition to achieving long-term self sustainability and access to low-cost, affordable and high quality home-grown products within India.

Although Indian medical devices market captures just 3% of the world stage estimated at $350 billion, it is expected to achieve 10-15% growth annually from its current market share of $10 billion. Unfortunately, it suffers a huge import dependency in medical devices, which is pegged to over Rs 25,000 crore and translates to over 70% general import dependency and 90% in medical electronic devices.

On the other hand, India is a major exporter of medical devices, crossing $1.3 billion. Though Indian brands have good acceptance internationally and exports are growing, the same India-made devices lose out to imported devices due to flawed certification and tendering norms, a skewed market place and an image perception challenge.

The Indian medical device market is fed by MNC importers, original equipment manufacturers (OEM), Indian micro, small and medium enterprises and a few midsized corporations which have faced brutal and unfair competition from their foreign counterparts. However, they have still managed to bravely stay afloat.

In this scenario, the Indian government needs to address five strategic factors as part of a coordinated game-changing national medical devices policy to turn ‘Make in India’ a reality. These factors comprise: tariff correction with nominal 10% duty protection; mandatory MRP on unit pack of sale (and tax-based disincentive or self-regulated price capping); a self-certification based regulatory mechanism with voluntary Indian Certification for Medical Devices (ICMED) and, preferential market access. Besides these, it is critical to incentivise R&D and innovative indigenous product development.

Like the ‘Buy American’ policy of the US, many countries have similar policies to encourage domestic production while others like Malaysia, Uganda, Jordan and China provide 15% (or even higher) price preference in public health procurement to medical devices made in their own country. This means that all technical parameters remaining the same, they will opt for a device that is made in their own country as long as it is not priced 15% higher than the competing imported devices.

In the US, the ‘Buy American’ provisions under the American Recovery and Investment Act, 2009 support its domestic manufacturers and use provisions of the Trade Agreements Act to disallow foreign, low-priced competitors from China, India and South Africa from supplying to their defence forces in procurement.

The ‘Preferential Purchase Buy Indian Policy’ is a strategic driver that will not only fuel the domestic economy to higher ground, but also benefit the consumers and stakeholders. Consequently, this will result in employment generation and fostering innovation and competition in the medical sector, where technology keeps evolving. It has been introduced by Department of Expenditure by amending Clause 153 of its General Financial Rules and translated into notifications by the ministries of steel, petroleum and even the Metro as Make in India enablers.

The government, which has shown its keen interest in exploring ways to boost domestic production and sale of medical devices, can make significant strides by revamping the public healthcare system with a “Buy Indian and Preferential Purchase Policy” for ‘Made in India Medical Devices’ and opting for a sustainable low priced competitive bidding process that does not just opt for the lowest price bid but factors in quality, past performance, domestic content and indigenous product development.

Voluntary compliance

Preference can be given to those with over 45% value addition and substantial transformation done in India to boost domestic manufacturing. Another vital component in the new slew of reforms can be incentivising voluntary compliance to an ICMED Certification with a 15% preferential pricing for Indian-origin medical devices with ICMED certification to fight unfair competition from China, wherein they have 17% subsidy.

A further incentive should be given to those carrying the Indian design mark — a scheme of Department of Industrial Policy and Promotion for recognition of indigenous product development and R&D. These steps will have a long-term impact on business and consumers and stave off irrational aspects in the current system. Now that the Quality Council of India has created the ICMED scheme for enabling low cost access to world class voluntary certification for Indian manufacturers, it will lend greater credibility to the Indian products rather than getting expensive overseas certifications.

The other aspect to consider is that it will save the Indian manufacturers the unnecessary hassle of getting an expensive overseas certification and falling short of competition on their home soil as the higher-priced MNCs have managed to stake claim on many government tenders which carry unfair exclusionary and mandatory compliance clauses to include US Food and Drug Administration (FDA) approval.

It makes no sense to apply for an FDA approval by a business firm which is focused within the Indian industry in its initial formative years and not targeting the US market. Consumer and medical users will be able to have the confidence on ICMED certified products and manufacturers will be motivated to invest in quality.

Having implemented the five policy enablers as indicated above, no one can stop India from being one of the top five medical devices suppliers in the world. With the government paving the way for preference for locally made and affordable ICMED certified medical devices, ‘Make In India’ will create a benchmark which the private healthcare sector can emulate to help it become an attractive low-cost medical tourism destination.

(The writer is Forum Coordinator, Association of Medical Devices Industry)

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