The market for stents has expanded, not shrunk, after price control

While multinational Abbott remains the market leader, Indian players have also established a toe-hold; only the middleman and the patient in corporate hospitals have been hit

Just about 17 months after the Union government brought stents and orthopaedic implants under price control, three unexpected developments in the health care industry have puzzled experts and patients alike.

Growth in the use of stents has been healthy in spite of the earlier fears expressed by hospitals that manufacturers of the device, particularly the multinational firms, would withdraw the products since the price control was so ‘draconian’, and that patients would end up suffering due to lack of choice. The reality is that stent manufacturers continue to do good business today.

It is the distributors of these devices, however, who have taken a big hit, as their margins have been squeezed. This is because both domestic and international medical device companies are now increasingly going to the hospitals directly.

But patients continue to complain that there has been no perceptible decline in their hospitalisation costs as far as procedures involving the use of stents or implants in corporate hospitals are concerned. This is because these hospitals have decided to raise the costs of other services, presumably to make good the loss of revenue on account of the reduced prices of stents and implants.

  

How the business was done 

The growth driver in India is, unfortunately, the disease profile of its population. Price control has actually given the companies a boost, since demand has grown after prices came down. The significant intermediary, the distributor, who paired up with the hospitals to play up the prices, has been all but eliminated following the government diktat.

“The nexus between the hospitals, MNC manufacturers of medical devices and distributors was broken,” says Gurmit Chugh, CEO Translumia, a domestic stent-manufacturing company. The distributors are the ones who lost under the price control regime, despite the fact that the pharmaceutical companies rooted for them.

But first, let's take a look at how the medical devices industry sold stents prior to NPPA's Feb 2017 order. The company would introduce its medical device to the doctor, a key opinion leader (KOL). The KOL would then conduct clinical trials required to prove the safety and efficacy of a product for the medical devices company. Naturally, he was inclined towards introducing the product in his hospital as well. Once the KOL gave his seal of approval following the clinical trials, the product would be introduced in the hospital and find place among the devices favoured for use on the patient.

These medical device companies would then appoint distributors to keep stock of stents which they supplied to doctors as and when required. The companies would take money upfront for the stock sold to the distributor, who held inventory and waited sometimes up to a year to get his payment from the hospital. Naturally, the companies allowed the distributor to charge a huge margin, and the distributor also offered a big 'cut' to the hospital. A few doctors themselves owned stent-distribution companies, while in several other cases, a doctor would favour a particular stent because he got healthy incentives for his choice.

The patient had no option but to go with the stent/device favoured by his caregiver.

No MNC lost after price control

The new reality is that nobody wants to leave the market. Abbott, the largest stent supplier in the country and the one that made the most noise about price control, threatened to walk out of India and even withdrew a few products. Today, price control is in and Abbott still retains pole position according to data released by the National Interventional Council, Cardiological Society of India.

Actually no multinational lost money after price control. The landed cost of imported stents has not changed and the government reviewed costs before taking a final call on price control. All stent manufacturers make about as much money now, on the sale of each device, as they made earlier. In fact, Indian stent manufacturers, who were offering their products cheaper in order to offer a better deal to hospitals, have upped their prices under the NPPA prescribed ceiling.

Most companies have started bypassing distributors, who according to a domestic stent manufacturer, “went around in Jaguars earlier, (but) now they have no business". He adds: "With eight per cent margin, I am going direct to the hospital. I cannot afford a distributor.”

The domestic manufacturer's response 

Indian stent manufacturers wasted no time. Many already had offices in different states earlier, and were quick to expand their geographical reach once the order kicked in. Sahajanand Medical Technologies, the second-largest stent seller in India and the largest domestic manufacturer, has 27 offices across the country and does 90 per cent of its business directly with hospitals. Meril Cardiovascular, at third spot, has 60 per cent of its business coming from direct sales to hospitals across the country,

Indian stent manufacturers believe the price control issue in India was needlessly blown out of proportion by the MNCs. According to Ganesh Sabat, CEO, SMT, "Prices in India are better than those in Europe. Germany, Italy, UK all buy stents at a lower price than in India.”  He should know. SMT won a tender to supply 10,000 stents to an Italian hospital group, beating Boston Scientific. His price of 321 euros was on par with that of Boston Scientific.

Hospitals' strategy

The hospitals too had to do a rethink. When stent prices were fixed they lost a significant profit head, but made up for it by increasing the cost of procedures. An angioplasty, which would cost Rs 150,000 earlier, costs the same now or a even little more despite the reduction in stent prices. “For cash-paying patients who go to corporate hospitals. there is no gain,” says Gautam Tripathy, National Sales Head, Meril Cardiovascular, an Indian medical devices company.

Hospitals that vociferously voiced their opinion on the unintended consequences of price control earlier are silent now.

So who is the winner then? 

With prices within reach of a greater number of people, it is the state government and state government-run insurance schemes that have actually driven growth and benefited from price control. This is because those patients for whom stents were prohibitively prices, and who were forced to live with the disease, started actually going in for treatment after the devices came within reach. The insurance schemes are able to offer stents at a much cheaper price now than they could, prior to February 2017.

Why price control

Given the changing disease profile of the Indian population, such as the rise in coronary heart disease brought on by poor lifestyle, one of the biggest areas of concern was spiraling cost of treatment. It was to bring surgeries and interventional therapy within the reach of the common man that the National Pharmaceuticals Pricing Authority (NPPA) brought stents and orthopedic implants under price control last year.

Medical devices attracted the scrutiny of the government, which after studying the costs, profit margins and the entire value chain involved, imposed price control -- a move the MNCs call draconian even today. Margins of 80 per cent went down to 8-10 per cent. The price of a normal stent was fixed at Rs 7,260, while that of a drug-eluting and bio-absorbable device was fixed at Rs 29,600, further down to 27,890. Earlier the prices ranged between Rs 23,000 and Rs 200,000 and were entirely dictated by the hospitals.

The announcement was not completely unexpected. The government had been studying drug prices, and had been in talks with companies for close to three months before the announcement was finally made. In fact, SMT’s Sabat agrees that realistically, products like stents cannot be unaffordable for the majority, otherwise they defeat the very purpose for which they are made.

What next?

The medical devices industry is awaiting another announcement on Trade Margin Rationalization (TMR). Which products and devices are expected to come under the price control remains to be seen. The extent of price control is still not clear, but going by the February 14, 2017 NPPA order on stents and orthopedic implants, the trepidation is understandable. 

Though apprehensive. "We support the trade margin rationalization according to the Department of Pharmaceuticals (DoP) recommendations.” says Pavan Choudary, Chairman and Director General, Medical Technology Association of India ( MTAL) and Managing Director, Vygon.

Price control: Not an Indian-vs-MNC saga 

Could price control encourage Make-in-India?

“Not really,” says Ganesh Sabat, CEO, Sahajanand Medical Technologies (SMT). “Price control is not a story of Indian companies versus multinational medical device makers. NPPA’s pricing has nothing to do with origin of manufacturing, unlike China, where only domestic manufacturers can sell in tier-2 and 3 towns.”

Many government tenders are also loaded against domestic manufacturers, as they stipulate USFDA approval for a company to qualify. Indian device manufacturers typically get a 'C' mark from European notified agencies and are a bit cautious about seeking the expensive and long-drawn process of USFDA certification. There are different notified bodies in Europe that audit manufacturing facilities according to ISO-13485 guidelines and give a 'C' mark. It is a quality standard mark and private hospitals accept the certification far more readily then government hospitals and schemes. To be fair, though, there are different segments in the tender too.

Technology and quality

Indian device manufacturers, like the pharma companies, work with generics/analogs of the medication used on the drug-eluting stents. Translumia, for instance, uses technology from German Heart Centre, with quality certification from international bodies, which makes its products eligible for exports as well. Meril exports to 150 countries and has approvals in Japan, Brazil, Germany, Canada. SMT exports to 70 countries and is working on getting its first USFDA approval.

In fact, in India, Boston Scientific and Medtronics lost out because they were busy pressurising the government by curtailing supply. Indian companies stepped in and placed their products in the market quickly. With widespread usage now and no difference in efficacy or prices, doctors and hospitals are prescribing Indian stents as well.

Growth opportunity

“India projects exponential growth opportunity. The US market is saturated, china is stagnant, India is expected to grow at 25 per cent,” Says Meril’s Tripathy. Nobody can afford to leave this market.

With lower prices, the growth has been exponential on the government side. In fact, the MNCs have now turned their attention to participating in government-driven insurance schemes. With uniform stent prices, the formerly unaffordable MNC stents are also being brought into these schemes.

The patient finally benefits 

Patients who are part of Central Government schemes such as ECHS and CGHS, and state schemes have contributed to 60 per cent of the sales of medical devices companies. supplies to state-run health insurance coverage schemes such as Rajiv Gandhi Jeevandayee Arogya Yojana (RGJAY), Mukhyamantri Amrutam Yojana (MAY) in Gujarat, Bhamashah Swasthya Bima Yojana (Rajasthan), Arogashree (Telangana) and Chief Minister's comprehensive health insurance schemes (Tamil Nadu) have changed the dynamics of the market dramatically.

The sharp drop in prices saw the demand for stents surge, and the MNC could not just let go of such a key segment. So now every tender has the participation of an MNC product.

With the advent of Ayushman Bharat. Meril's Tripathy predicts consumption of at least 2-2.5 million stents a year. Nobody is leaving the humongous growth market just yet.

Bio-reabsorbable stent

A stent is device made of metal, and is placed in the heart or any part of the blood vessel/tubes in the body in order to remove a blockage and restore blood flow. Drug-eluting stents are coated with medicine that is slow released to remove blockage.

Many companies are pursuing the development of bio-resorbable or bio-absorbable stents. Like metal stents, bio-resorbable stents also restore blood flow and support the vessel through the healing process. However, these stents will gradually resorb and be benignly cleared from the body, leaving no permanent implant.

Studies have shown that the most critical function of vessel healing is largely complete within three months approximately. Therefore, the goal of a bio-resorbable or “temporary” stent is to fully support the vessel during this critical period, and then resorb from the body when it is no longer needed.

The most favoured material for making such stents is polymers that are similar to dissolvable stitches.

Abbott's Absorb was hailed as a major advancement in coronary stent technology when it received regulatory approval for commercial sales in Europe in 2011 and the United States in July 2016. However, as the use of the stent expanded and new trial data was revealed, it was found the scaffold has several limitations compared to metallic stents. There were issues in delivery and size and the results are not exponentially better than those of drug-eluting stents. Abbott has withdrawn this product from every market for these reasons, even while it maintained that price control was responsible for its removal from the Indian market.

Awaiting Exemption

Meril Cardiovascular may get NPPA exemption, though NPPA has placed all drug and bioreabsorable stents in one category,  for its bio-reabsorbable stent, MeRes100. Last year, the company got approval for MeRes100 from Drug Controller general of India (DCGI), its first bio-reabsorbable stent. It however did not launch the product as it wanted to steer clear of price control. The stent, however, may not be priced too high, as Abbott's equivalent, Absorb, was withdrawn after a study by senior government doctors showed that it wasn't significantly superior to the drug-eluting variety.

Abbott, in fact, has  withdrawn it worldwide, citing poor sales even as it continues to work towards a second-generation bio-reabsorbable stent. Will Meril be able to break the barrier and by how much? According to Gautam Tripathy, National Head of Sales, Meril invests at least 20-25 per cent of its sales in research and MeRes100 is an indigenous product that needs to be encouraged.