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Medical devices: Riding the wave of change

• Over the last few decades, India has worked hard slowly and steadily to emerge as the leading service provider in health care industry.
• While the flocking of medical tourists might auger well for the Indian exchequer, all’s not well in India’s healthcare sector. One area with critical gaps is that of medical devices.
• The total import of medical devices is more than 75% of the total medical device sales in India. This can be attributed to challenges like regulatory hurdles & inverted duty structure.
• Reducing import dependency and becoming competent enough to manufacture the equipment will be instrumental in boosting the sector.

Over the last few decades, India has worked hard slowly and steadily to emerge as a leading service provider in the health care industry. According to the Indian Tourism Statistics, 2018 report, India the total number of inward medical tourists doubled in a span of just three years to 2017. The report also goes on to state that around 22% arrivals from West Asia were for medical purposes, followed by 15.7% from Africa. The Ministry of Tourism even goes on to estimate that the country’s medical tourism industry could grow by 200% by 2020, touching US$ 9 billion.

While the flocking of medical tourists might augur well for the Indian exchequer, all’s not well in India’s healthcare sector. One area with critical gaps is that of medical devices. Valued at US$ 5.2 billion, the country’s medical devices and equipment industry contributes around 5% of India’s US$ 96.7 billion healthcare sector. Further, it has been noted in a recent report by the High Level Advisory Group (2019) that the total import of medical devices is more than 75% of the total medical device sales in India. The study also reveals that while India is among the top 20 global medical devices markets, it is the 4th largest one in Asia (after Japan, China & South Korea).

Policy recommendations for India’s medical devices industry

• Regulating all medical devices under a patients’ safety medical devices law to protect patients and aid responsible manufacturing.
• Promoting the production of medical devices in India to address 80-90% import dependency by a predictive nominal tariff protection policy and correcting the inverted duty structure.
• Build skill and capacity to expand research & development through education and certification. The government can also have a collaboration of these academic institutions with medical device companies to develop new medical technologies.
• Bridge the gap between national & international standards by harmonising them. Indian-certified medical devices must gain recognition abroad.
• Providing financial incentives for domestically manufactured/innovative products. These could designed for the exporters of medical devices too.
• Establishment of more medical device testing labs in the country. This will establish the credibility of the product by ensuring safety and efficacy of medical devices marketed in the country.

Source: High Level Advisory Group Report (2019)

Given the fact that India has a large population (1,210 million in 2011, growing at a rate of 1.2% per year and likely to reach 1,360 million in 2021), with a significant section of the elderly (in 2011, the share of aged population >65 years was 5.3% and is expected to increase to 6% by 2021), there is a pressing need to invest in the nation’s medical device industry. Added to this is alarming rate at which chronic diseases are likely to increase in India. According to estimates, non-communicable diseases like cardio vascular diseases, cancer, diabetes, and other, are expected to comprise more than 75% of India’s disease burden by 2025.

Health insurance (which grew at a phenomenal CAGR of 22% from FY08 to FY15) will pay a critical role in helping patients battle their illnesses and enhance their spending power. Thus, all these factors reveal that India’s health industry, and hence the medical device industry, needs to be well equipped to handle these challenges that await us. Moreover, in the case of the Indian medical device industry, reducing import dependence and becoming competent enough to manufacture equipment will be instrumental in making the country as an ideal option for medical tourism, bolster the country’s slowing economy and reduce healthcare costs for Indians as well.

However, in order to become a leading producer of medical devices, the sector must address the following issues:

Ambiguous regulatory environment:

The Ministry of Health and Family Welfare is in the process of putting in place a regulatory framework for medical devices. The government has recently announced its intention to treat all medical devices, be it an implant or an MRI machine as “drugs” under the Drugs and Cosmetics Act. There’s also a proposal to have a separate regulator under the Directorate General of Health Services to monitor the medical devices sector.

To put things in perspective, currently, the medical technology industry in India is regulated by more than 10 departments. For example, the National Pharmaceutical Pricing Authority (NPPA) under the Department of Pharmaceuticals (DoP) looks into pricing regulations; while the Central Drugs Standard Control Organization under the Ministry of Health and Family Welfare monitors product safety and efficiency rules. It is being hoped that having a single regulatory authority will help maintain quality standards aligned with global best practices and, thus, reduce treatment costs.

However, there are those who beg to differ. They opine that medical devices are not drugs, and it would be a grave mistake to apply the same regulatory framework to regulate these complex devices. This attempt to deliberately retrofit medical devices into the Drugs and Cosmetics Act will lead to a toothless regulatory framework for devices according to some industry insiders, as the Ministry cannot create new offences or penalties through its rule-making authority. It would also make it difficult to hold the manufacturers of faulty medical devices accountable.

Nominal tariff protection and inverted duty structure:

India’s domestic medical device manufacturers have a cost disadvantage in comparison to other emerging market economies. One major reason for this is policy issues like nominal tariff protection and inverted duty structure (i.e., finished goods are cheaper to import than raw materials required for domestic manufacturing). As Gaurav Agarwal, Managing Director, IITPL, tells TPCI, “In the stent industry, there is a tax of 10% on import of components to India; while for an imported stent, there is 0% customs duty. This inverted duty structure is promoting imports rather than domestic production.”

The industry laments that such a policy is killing Make in India as a lot of Indian manufacturers have resorted to imports and re-exports of Chinese products as Indian-labelled medical devices. This does not improve India’s image as a medical device manufacturer across the world. Moreover, it may also result in loss of credibility for Brand India if overseas purchasers realise that what they’re paying extra for is not Indian, but (low quality) Chinese re-export. Further, given the fact that at present, most of the medical devices can be imported by anyone from anywhere without any regulatory checks is leading to the import of low cost, poor quality equipment.

Lack of investment in and promotion of R&D:

“At present India does not have qualified Indian laboratories for benchmarking our solutions and we are forced to outsource it to European/US Laboratories. The overall cost for regulatory testing and periodic maintenance of the certification is exorbitant, which in turn increases the total product development cost. Also, local certification must be given more importance or must be at par with international certification so that the customers’ mind-sets to accept locally certified product will increase”, explains Ms. Nagavalli Goteti, Executive Director, Panacea Medical Technologies Pvt Ltd.

Indian manufacturers of medical devices compete on prices and the profit margins are too small to permit them to invest in R&D themselves. In a bid to make different types of medical devices (more) price competitive/cheaper, Indian manufacturers are hardly thinking about developing the next generation of medical devices.

Industry players have also pointed that payments for government procurement of domestically manufactured devices happens only after the installation of the equipment. They assert that this is against the spirit of local manufacturing, as the government pays in advance in the case of imported equipment.

In pursuit of ingenuity

In order give a boost to the sector, the government has taken a lot of steps in the right direction. For example, it has promoted the setting up of medical device parks and clusters in India. This is a great move since it will give a fillip to the production of medical devices in the country and generate employment opportunities for the masses. This will also enable the provision of world-class health services at affordable prices. The states of Andhra Pradesh, Telangana, Tamil Nadu and Kerala have been zeroed on for this purpose.

Another positive development is that the government has asked states to consider doing away with the requirement of US and European regulatory certification for equipment to be purchased for state-run institutions and hospitals. This will help in bringing parity between the domestic players & their international counterparts. In tenders for procuring medical equipment, government hospitals and institutions usually choose products certified by the US Food and Drug Administration, stamped with the CE mark derived from the European Medical Device Directives or approved by India’s drug controller general.

The government also approved 100% FDI in medical device sector under the automatic route, for brownfield as well as greenfield set-ups in December’14. The Drug Controller General of India launched the Materiovigilance Programme of India (MvPI) to  monitor the safety of medical devices in the country.

However, there is still a lot that needs to be done in order to become a key player in the global medical device industry. In 2014, China’s National Medical Products Administration (NMPA) announced expedited regulatory approvals for devices that it deemed innovative. Since this policy’s inception, Chinese companies (and not MNCs) have been its principal beneficiaries, accounting for more than 90% of the 117 devices approved (as of January, 2018) under this expedited process. The policy also makes it a mandatory requirement to carry out clinical trials for Class 2 and 3 medical devices in China, thus mitigating the unfair advantage that MNCs enjoyed – they could sell devices in multiple markets while only submitting clinical data once. Finally, China intends to increase the domestic production to meet 50% of the country’s demand by 2020 and 70% by 2025.

India should similarly focus on accessing critical gaps that are preventing its domestic manufacturing industry from achieving global competitiveness. Removal of the inverted duty structure, promoting R&D, preference to domestic brands in public procurement, financial support to startups, facilitating certification and an overarching regulatory framework catering to the unique facets of the industry will be key to achieving this goal.

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