Bypassing logic on stents PDF Print E-mail
Wednesday, 26 April 2017 05:14
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Ishaan's edit

Can’t stop firms from exiting due to price caps


Are prices of medical stents high because it costs a lot to produce them, or it is because commissions are paid to everyone involved in the heart operation, from the hospital to the doctors and more? The answers will vary depending on whom you speak to, including across even the fraternity of doctors. Even though an IMS Health study had, last year, pointed to stent prices falling 30-50% over the previous four years while angioplasty prices had not fallen, it is not surprising the government should choose to put a cap on the prices of stents. While the government is free to take any decision on pricing, the corollary to this is that, if producers are happy with the policy, they will expand operations; to the extent, they find the policy oppressive, they are free to curtail operations. In a bizarre move, though, according to a news report in The Times of India, with some stent manufacturers keen to withdraw premium stents from the market, the government has directed these firms to maintain their production of stents using its powers under Section 3(i) of the Drugs Price Control Order (DPCO)—while the current order will be in force for six months, it could be extended. During this period, companies have been asked to submit a weekly report of the stents produced and distributed along with the plan for the next week.

Given how drug price control has, in the past, led to a situation in which DPCO drugs production has either contracted or not grown as fast as non-DPCO drugs, the government action is understandable since a stent shortage is not something it would want. But while applying this over the short-term to ensure there is no immediate shortage of stents is one thing, this cannot be a permanent strategy. If manufacturers don’t feel the market is lucrative, they simply have to be allowed to exit—indeed, since using Section 3(i) is coercive, should they choose to go to court, chances are stent manufacturers may get relief on these very grounds.

What is even more worrying than the government action in the case of stents is that policing pricing seems to increasingly becoming the default policy response. In the case of medicine pricing, in any case, most of the industry’s domestic production is under some form or the other of price control. In the case of agricultural goods, to cite another industry, as prices start rising, the government routinely lowers storage limits for wholesalers/distributors to ensure prices come down as more stocks get dumped into the market; even export bans are put to keep local prices down. Perhaps the next step in this bizarre drama will be for the government to ask for a bill of materials and then specify both margins and mandatory production levels across a larger set of industries.



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