The COVID-19 pandemic has compelled nations to look inwards. The obsession with being a part of the global supply chains has been replaced by a counter frenzy of jingoism. While self-sufficiency in vital sectors is an aim which most countries are going to rightly strive for, those who prepare thoroughly and march ahead with foresight and through well-considered policy initiatives will alone succeed.
Once it became evident that the coronavirus will become a global crisis, India went into a lockdown in March 2020, to prepare its healthcare systems for the pandemic. The PM subsequently announced “Atma Nirbhar Bharat’ campaign to emphasize on the self-reliance narrative, which appeared to have stemmed from the bottlenecks in global manufacturing and logistics. The goal can’t be faulted.
The government also announced schemes such as the production linked incentive (PLI) scheme to boost greenfield investments in the manufacturing of drugs and medical devices among other sectors. The PLI scheme was further amended to be more attractive to industry players, which shows the determination of the government to ensure the scheme’s success.
The Public Procurement Order (PPO) which was launched in 2017 to give a boost to domestic manufacturing, by giving preference to local manufacturers in government procurement tenders also saw a further revision to include new aspects. In a recent development, the procurement policy defines the percentage of minimum local content required in four broad categories of medical devices, with plans to gradually increase this percentage over the next few years. Any company which does not qualify as Class-1 local supplier (local content of 50% or above) or Class-2 local supplier (local content above 20 % and below 50%) is debarred from participating in any government tender which is below INR 200 crores.
In the MedTech space, India is still majorly dependent on imports (of up to 86%) to fulfil its demands. This is as per the GlobExim report published by Kalam Institute of Health Technology (KIHT) and Department of Pharmaceuticals (DoP) in March 2020. The report also acknowledges that the medical device industry in India is just 1.4 % of the global market, a disproportionally smaller figure compared to our contribution to the world’s total population (17.7%). Later the data released by Pharma Bureau in July 2020, while declaring the PLI scheme, ratified these figures and identified that the current domestic manufacturing capacity in the country is limited to ‘surgical, cardiac stents, general medical devices and consumables’ only. What this means is that there is a whole universe of medical devices which is imported to fulfil the needs of the Indian patient and for which there is no/very limited import substitution available.
Considering our import dependency, a few concerns arise on the provisions of the PPO in its current form. Implementing PPO could mean that domestically assembled medical devices with unreliable quality will get preference over the imported medical devices which have been catering to the demand so far in the country.
This would happen across many segments where there is limited manufacturing such as cancer care and radiotherapy medical devices, imaging medical devices like MRI, nuclear medical devices, monitoring system & catheters for anaesthesia, cardio-respiratory & renal care devices and all implantable devices like heart valves.
The insufficiency in this wide topography is the very reason why a PLI scheme is introduced for these product segments to attract investment.
In these segments either there is no local manufacturer at all, or in some cases, just nascent manufacturing with limited production capability and unproven, unsustainable quality. Hence, there is also a significant risk of monopolistic/duopolistic cost escalation. Further, just having one supplier for any critical segment will not be sufficient to cater to the entire demand of the country leading to short-supplies in hospitals, which eventually will impact patient outcomes and in critical care areas the mortality rates may increase. The PPO also does not require the supplier to have a track record of financial capability, and of having supplied quality and reliable medical devices with appropriate service guarantees, as clauses in the PPO prohibits due diligence of vendors on these parameters. Â
Much of the medical device market in India has been developed by global legacy companies who have made huge investments in setting up large manufacturing plants and R&D centres and are responsible for making nearly 5 lakh healthcare workers well trained and patient-ready annually. Denial of market access to these companies would hamper their ability to sustain their healthcare worker training initiatives as well as their ability to bring the latest medical technology to India. Further, since the PPO will prohibit many government teaching and research centres to buy the latest global equipment and devices, these apex post-graduate medical colleges will be unable to train the students on the latest world-class technology and which could also lead to brain drain, as best of the minds would look for post-graduation outside the country where they would be exposed to latest technologies in healthcare space. On the other end of the spectrum, the poor and lower-middle-class patients who visit the tertiary government hospitals for treatment with hope would be denied access to the latest generation devices and implants which are often the last resort to save lives. They would now be compelled to visit private healthcare establishments, adding to the already high out-of-pocket expenditure in the country (63% of the total health expenditure) and receive their life-saving treatment.
Another aspect of the PPO calls for identifying and prohibiting (participation) in Indian tenders, companies from those countries whose procuring agencies calls for due-diligence of vendors from other countries (in terms of whether those bidders have previously executed any tender of similar value in that country). This may lead to trade tensions affecting India’s export of drugs and PPEs to those countries. The global innovators will also be reluctant to invest in India through schemes such as the PLI scheme as they would be wary of the potential future trade disputes arising out of such clauses that might prohibit them from participating in central/state government tenders.
The industry has repeatedly demanded from the Department of Pharmaceuticals (DoP), the nodal ministry for PPO in medical devices, to map the capabilities in manufacturing medical devices through an independent agency. Due to the critical nature of medical devices, PPO for MedTech sector must be looked through a different lens, which focuses on quality and recognizes its vital role in determining good patient outcomes. The PPO in its current form is a regressive step in the direction of an unpredictable regulatory pathway which has been already impacting FDI in the sector. It may result in less than desired outcomes and may even spring new challenges of scarcity of vital medical devices in procuring institutions; amidst a pandemic, this is a terrifying thought.