Device Makers Seek Trade-Margin Caps as MRPs Run 10-30 Times Above Cost on Pacemakers and Valves

The news

NEW DELHI. India urgently needs a distinct regulatory framework for pricing medical devices, separate from drugs, Rajiv Nath, forum coordinator of the Association of Indian Medical Device Industry (AiMeD), argued in The Indian Express on 21 September. He wrote after Maharashtra Food and Drug Administration Commissioner Tukaram Mundhe recently flagged exploitative margins in medical devices. The present pharma-centric approach under the Drugs (Prices Control) Order, or DPCO, the government order used to fix or cap medicine prices, distorts competition, penalises ethical manufacturers and leaves patients at the mercy of inflated Maximum Retail Prices, he wrote. The Medical Devices Rules, 2017 brought devices under a dedicated regulatory framework for quality and safety, but pricing is still handled largely through mechanisms designed for pharmaceuticals, although the device market spans thousands of products with very different technologies, costs, life cycles and supply chains. Because patients cannot bargain or choose devices and hospitals decide, often guided by profit margins, MRPs are inflated 10-30 times above real costs, according to the article: a pacemaker imported at ₹25,000 is billed to patients at over ₹2 lakh; syringes costing ₹3 at the factory gate are sold for ₹30; heart valves imported at ₹4 lakh have been marked up to ₹26 lakh. Ethical Indian manufacturers on thin margins lose out to importers who exploit loopholes to set artificially high MRPs. The article recalled that in 2017 the National Pharmaceutical Pricing Authority, or NPPA, capped stent prices, cutting costs by 70 to 85% without any supply shortages, and that knee implant prices fell by up to 69%. AiMeD has proposed a trade-margin-based cap at the GST trigger point, the first point of sale where transparency is highest: the landing price for imports and the ex-factory price for Indian makers. A trade margin is the difference between that first price and the price the patient pays. Margins would be capped by price band: 50% for devices above ₹1 lakh such as heart valves, 66% for devices between ₹1,000 and ₹1 lakh such as pacemakers and catheters, and 75% for devices below ₹1,000 such as syringes and IV sets. GST data at the first point of sale would allow easy monitoring, the article said. AiMeD calls for a 12-18 month pilot covering six device categories: pacemakers, heart valves, cardiac catheters, syringes, IV sets and intra-ocular lenses. The article is an industry body's advocacy, not a government proposal. Syllabus link: health financing, regulation and Make in India in medical technology, GS2 and GS3.

Static syllabus linkage

1. Devices are regulated through the drug law. The Drugs and Cosmetics Act, 1940 empowers the Union government to notify devices as drugs. The Medical Devices Rules, 2017, in force from 1 January 2018, classify devices into risk classes A to D and set licensing requirements, with the Central Drugs Standard Control Organisation as the central regulator. From 1 April 2020 all medical devices were brought under regulation in phases, which placed the entire market within the drug law's framework.
2. DPCO and the NPPA do the price work. The Drugs (Prices Control) Order, 2013 is issued under Section 3 of the Essential Commodities Act, 1955. The National Pharmaceutical Pricing Authority, set up in 1997 under the Department of Pharmaceuticals, fixes ceiling prices for scheduled formulations in the National List of Essential Medicines and monitors prices of non-scheduled products, whose MRP may ordinarily rise by no more than 10% a year. Paragraph 19 of the DPCO allows the government to fix prices in extraordinary circumstances in the public interest.
3. Stents and knee implants are the precedents. Coronary stents were added to the National List of Essential Medicines in 2016, and the NPPA fixed ceiling prices for them in February 2017. Knee implant prices were capped in August 2017 under the extraordinary powers of Paragraph 19. Both are cited as proof that price control in devices can be done without disrupting supply, although industry argued at the time that it discouraged introduction of newer technologies.
4. Trade margin rationalisation has been tried before. In 2019 the NPPA capped trade margins on a list of non-scheduled anti-cancer medicines at 30%, which brought down MRPs sharply. In 2021, during the pandemic, it capped trade margins on five devices, including pulse oximeters and glucometers, at 70% at the distributor level. AiMeD's proposal extends this tool to devices more broadly, using price bands.

Why UPSC loves this

1. Health financing and out-of-pocket spending are standard GS2 themes. India's high out-of-pocket health expenditure has been asked repeatedly. Device mark-ups are a hidden driver of catastrophic spending during surgery, and the stent cap is a known example that can be cited in answers on affordability.
2. Regulation of pharmaceuticals and devices recurs. UPSC has asked about the NPPA, the NLEM and price control, and about the need for a separate regulator for medical devices. The National Medical Devices Policy, 2023 and debates on a standalone devices law make this topical.

Analysis

1. The market failure is at the hospital, not the factory. The article's key insight is that competition exists among manufacturers and wholesalers but not at the point where the patient pays. The hospital chooses the device, and a higher MRP gives a larger margin, so an importer who sets a high MRP can win the hospital's business over a cheaper Indian maker. That is a principal-agent problem: the agent choosing is rewarded for the principal's higher cost. Price control that ignores who chooses will not fix it.
2. Margin caps at the first point of sale are cleverer than ceiling prices. Fixing ceiling prices for thousands of devices would need data and technical judgment the NPPA does not have. A margin cap tied to the landed or ex-factory price, verified through GST invoices, lets the market set the base price while limiting the mark-up. The counter-view is that importers could inflate the declared landing price through related-party transactions, so customs valuation checks would be needed. The idea is workable but not self-enforcing.
3. The author's interest should be named, and it does not disqualify the argument. AiMeD represents domestic manufacturers, who gain from a rule that removes importers' advantage in setting high MRPs. That interest is obvious and a candidate should state it. But the patient interest runs in the same direction here, and the stent and knee precedents support the claim that caps did not create shortages. Where industry interest and public interest coincide, the argument can be accepted on its evidence.
4. A separate device law is the logical end point. Devices differ from drugs in life cycle, need for training and servicing, and rapid iteration. Regulating them under a drug law made in 1940 was always an interim arrangement. Pricing reform will remain patchwork until devices have their own statute and regulator with pricing, quality and post-market surveillance under one roof. A pilot on six categories is a sensible start, but it should feed into that larger reform.

Administrator's brainstorm