Is Price Control The Solution To The Ills Of The Healthcare Industry?
Amir Ullah Khan
Out-of-pocket expenses have always been high in the healthcare sector in India. The poor pay nearly two thirds of healthcare costs out of pocket, and incur substantial debt while doing so. Also, of the health expenditure nearly 70 percent is for buying medicines for non-hospitalised treatment. The ‘Health in India’ report, from the 71st round of the National Sample Survey in 2014 showed how drug costs mattered in overall healthcare costs in the country.
It was, therefore, almost automatic that many people started asking for tight price controls over drugs and medical equipment. Recently, the National Pharmaceutical Pricing Authority (NPPA) put a price cap on knee implants and cardiac stents. NPPA also went on to reduce the price of cancer drugs by up to 86 percent and diabetes drugs by up to 42 percent. These policies and actions clearly point to the fact that the government has succumbed to this demand even as a number of people in the healthcare sector understand that this pro-price control attitude to policy making is a matter of concern and may do more harm than good in the long run. It can jeopardise India’s long-term health goals and patient access to new technologies.
There are countries that suffer from large fiscal deficits and that is why their usual inclination is to pressurize drug or medical device firms into either reducing prices, or intimidate them through the use of compulsory licenses. Most of these countries also use severe drug price controls to curb prices. The drugs and pharma sector is almost always particularly vulnerable. Drug prices are so easy to clamp down upon given the emotion and ideological basis that abounds.
The hidden costs of drug discovery never get accounted for nor noticed, but are a critical component in the discovery of new therapeutic methods and more affordable treatment. By discouraging the technological climate in the country, the usage of draconian measures like price fixing goes towards curbing innovation, lowering the number of patent filings, disturbing the investment climate and in driving away firms looking for new opportunities. Equally important is to understand that a device is only one part of a complex supply chain including inventories to have devices of appropriate size and fit for a patient, training of surgeons and HCPs, sterilization and instrumentation needed for surgeries, and other factors. All these components need to be considered and understood while making any pricing decision in any sector.
Arbitrary price control does not work, in any industry. We seem to have conveniently forgotten that the previous price control regime in India — Drugs (Prices Control) Order 1995 — did nothing to improve patient access to drugs or dramatically improve access to medical care. A study by IMS Health published in 2015 showed that price control on drugs has an adverse effect on drug availability as pharma companies may have to exit a therapeutic category due to low profits, and unsustainability may also act as an entry barrier for new firms.
Another report by IIM Ahmedabad, on whether drug price control increases access, concludes that there was a significant decrease in sales volume post price control, indicating decreased access. We have already experienced the repercussions in the case of non-availability of the much-needed innovative cancer drugs. It has also had a depleting effect on the efforts towards development of new antibiotics. Of the 18 largest pharma companies, 15 have stalled work in antibiotic field due to economic, regulatory and scientific obstacles.
The government seems to be working on the belief that just by fixing the price of a product everything will fall into place. However, this singular approach can really backfire and lead to unintended and rather unsavory consequences.
The policy makers need to look beyond the product price to enable to full value of med-tech to be utilized and realized in India. Presently, India’s health care system is underfinanced and plagued by substantial infrastructure shortages. It has almost half of the World Health Organisation (WHO) average number of physicians and 45 percent of the average number of nurses. India also has a poor bed density with the fewest number of beds per 1000 patients. For India, to meet its future goals of a healthier and more productive population, all these inefficiencies need to be tackled immediately.
Increased investment will be required in the health care sector is critical. The average Indian’s out-of-pocket expenditure on healthcare is skyrocketing at close to 60 percent, with insurance coverage almost abysmal. We can transform this out-of-pocket spending among individuals to spending on health insurance premiums with subsidies for the low-income sector. This would move India towards a multi-payer private-public health insurance model. Finally, it is the government’s responsibility to do a periodic review of the impact of any decision on the sector and on access in a judicious manner with an intent to make the necessary course correction before extending it to other sectors. Some serious rethought by both the policy makers and the industry can help us find the balance.
Shortsighted decision-making in healthcare that is populist in nature is ineffective at the best and counterproductive at the worst. I believe the government must look at healthcare in totality. It is more important to ensure an extensive regulatory framework that looks beyond price caps or in this case the upfront device cost to deliver quality healthcare coverage to everyone. The state must apply a combination of healthcare financing and non-financing measures such as promoting joint and bulk procurement mechanisms and investment in capacity building to address the issues of access and affordability. Fixing poor supply chains that cause such low levels of vaccination in Bihar and streamlining procurement practices that otherwise cause tragedies like in Gorakhpur, are the need of the hour.
The author is a Policy Advisor, Bill & Melinda Gates Foundation and Director of Research at Aequitas Health Consulting
source :- MONEY CONTROL