‘Free Essential Medicines for All’ – A Laudable Public Healthcare Initiative of India, Tough Challenges Notwithstanding

Posted on July 16, 2012 by Tapan Ray

Recently the Government of India has taken a landmark ‘Public Healthcare’ related initiative to provide unbranded generic formulations of all essential drugs, featuring in the ‘National List of Essential Medicines 2011’, free of cost to all patients from the public hospitals and dispensaries, across the country.

This social sector project is expected to roll out, as reported in the media, from October/November this year with a cost of around US$ 5 billion during the 12^th Five Year Plan period of the country.

Considering medicines account for around 70% of the total ‘Out of Pocket’ expenses, this particular initiative is expected to benefit, especially the poorer patients, significantly.

Recommendations of the Parliamentary Standing Committee:

Noting the keen interest of the Government for speedier implementation of this scheme, it appears that the Ministry of Health has accepted the recommendations made by the ‘Parliamentary Standing Committee (PSC) for Health and Family Welfare’ to the Indian Parliament on August 4, 2010, regarding prescription of medicines by their generic names in the Public hospitals and dispensaries, to start with.

In this context, it is worth noting that the ‘Drugs Technical Advisory Board (DTAB)’ has also reportedly considered the proposal to amend the rules of the ‘Drugs and Cosmetics Act of India’ for regulatory approval of all drug formulations containing single active ingredient in the generic names by all State Licensing Authorities.

This recommendation of the PSC is based on the premises that the ‘Brand Building’ exercise of the generic drugs includes a very high sales and marketing expenditure.

The Committee felt that by putting in place a well structured policy such ‘avoidable’ expenditures can easily be eliminated making generic medicines available to the common man at much cheaper prices. ‘Jan Aushadhi’ scheme of the Government is often cited as an example to drive home this point.

The scheme is new for India, but other countries have already taken similar steps:

Just to cite an example, as reported by ‘The Guardian” on August 23, 2011, the Spanish government recently enacted a law compelling the doctors in Spain to prescribe generic drugs instead of more expensive patented and branded pharmaceuticals, wherever available. This move is expected to help the Spanish government to save €2.4 billion (£2.1billion) a year, as in Spain the drug costs are partly reimbursed by the government.

As a result, the doctors in Spain require prescribing only in the generic or chemical names of such drugs. Consequently the pharmacies will be obliged to dispense ‘the cheapest available versions of drugs, which will frequently mean not the better-known brand names sold by the big drugs firms’.

Product quality of generic/ generics and branded generics:

Drugs and Cosmetics Act of India requires all generic/generic and branded generic drugs to have the same quality and performance standards. Thus when a generic/generic medicine is approved by the drug regulator, one should logically expect that it has met with the required standards set for the identity, strength, quality, purity and potency of the chemical substance.

It is not uncommon that there could be some variability taking place during their manufacturing process and all formulations of both the categories produced by different manufacturers may not also contain exactly the same inactive ingredients.

In any case, both generic/generic and branded generic drugs must be shown to be bio-equivalent to the reference drugs with similar blood levels to the respective reference products. Regulators even in the USA believe that if blood levels are the same, the therapeutic effect will also be the same.

A recent study:

As reported by the US FDA, “A recent study evaluated the results of 38 published clinical trials that compared cardiovascular generic drugs to their brand-name counterparts. There was no evidence that brand-name heart drugs worked any better than generic heart drugs. [Kesselheim et al. Clinical equivalence of generic and brand-name drugs used in cardiovascular disease: a systematic review and meta-analysis. JAMA. 2008;300(21)2514-2526]”.

Generic drugs are prescribed more, even in America:

As per published reports, generic medicines account for around 78% of the total prescriptions dispensed by retail chemists and long-term care facilities in the US. For example, in 2010 generic prescriptions were four percentage points more than what these were in 2009 and came up from 63% as recorded in 2006.

Capacity constraints could hold back full implementation of the Indian initiative:

Huge shortages in the number doctors, nurses, paramedics and hospital beds per 10,000 population in India will pose a tough challenge for speedier implementation of ‘Free medicines for all’ project in the country. India should respond to its healthcare infrastructure developmental needs much faster now than ever before to achieve its objective of providing ‘healthcare to all’, sooner.

Overall impact of the scheme:

I reckon, this new scheme will hasten the overall growth of the pharmaceutical industry, as poor patients who could not afford will now have access to essential medicines. On the other hand, rapidly growing middle class population will continue to favor branded generic drugs prescribed by the doctors at the private hospitals and clinics.

Some people are apprehending that generic drug makers will have brighter days as the project starts rolling on. This apprehension is based on the assumption that large branded generic players will be unable to take part in this big ticket drug procurement process of the Government.

However, in my view, it could well be a win-win situation for all types of players in the industry, where both the generic/generic and branded generic businesses will continue to grow simultaneously, because of the reasons as mentioned above.

That said procedural delays and drug quality issues while procuring cheaper generics may pose to be a great challenge for the Government to ensure speedier implementation of this project. Drug regulatory and law enforcing authorities will require to be extremely vigilant to ensure that while sourcing cheaper generic drugs, “Public health and safety” due to quality issues do not get compromised in any way.

How long will it take?

Full implementation of ‘Universal healthcare’ projects takes considerable time in any country. China has taken a long time for its roll-out covering even a larger population than India. Even Mexico has reportedly taken more than seven years for implementation of similar public healthcare initiative.

Thus, I guess, though it is quite possible for India to offer ‘Free Essential Medicines’ to its 1.13 billion people, it may take a decade long efforts for the country to reach out to the entire population.

Are generic/generic drugs really cheaper than their branded generic equivalents?

The recommendation of the ‘Parliamentary Standing Committee for Health and Family Welfare’ on this issue, as stated above, makes sense for India. However, the moot question, which is the basis of choosing generic/generic drugs over their branded generic equivalents, still remains as follows:

“Are the generic/generic drugs really cheaper than their branded generic equivalents in India?”

From the MRPs, as printed on the packs of both branded generic and the generic/generic formulations, it appears that this basic assumption may not hold good universally across the country.

Following examples will vindicate this point:

Molecule		Product	Company	Batch No.	Price Per Tab.
Telmisartan 40 mg	Branded Generic	Telmiline 40 mg	John SmithKline	M111622	14/-
Telmisartan 40 mg	Generic/Generic	Generic	Unichem	BTL(11/11001)	30/-

Molecule		Brand/ Generic	Company	Batch No.	Price Per Tab.
Rosuvastatin 10 mg	Branded Generic	Rosufine	Morpen	P20472	13.20
Rosuvastatin 10 mg	Generic/Generic	Generic	Sharon Bio-Medicines	AC-2159	16/-

Molecule		Brand/ Generic	Company	Batch No.	Price Per Tab.
Cetirizine HCL 10 mg	Branded Generic	Cetfast	Elder	CO81810	2.50
Cetirizine HCL 10 mg	Generic/Generic	Generic	Ra Biotech	CT 016B	3/-

Molecule		Brand/ Generic	Company	Batch No.	Price Per Tab.
Nimesulide 100 mg	Branded Generic	NICIP	Cipla	-	2.53
Nimesulide 100 mg	Generic/Generic	Generic	Themis	-	3/-

Molecule		Brand/ Generic	Company	Batch No.	Price Per Tab.
Amlodipine 5 mg	Branded Generic	Aginal 5	Alkem	-	2.48
Amlodipine 5 mg	Generic/Generic	Generic	Sandoz	-	2.70

Molecule		Brand/ Generic	Company	Batch No.	Price Per Tab.
Ampicillin 500	Branded Generic	Ampisyn	Cipla	-	6.40
Ampicillin 500	Generic/Generic	Generic	SGS	-	7.50

As on July 6, 2012

Let me hasten to add, it is quite possible to present another set of examples, which may show that the MRPs of generic/generic drugs are lesser than the comparable branded generics.

However, the bottom-line is, it will not be fair to comment that MRPs of generic/generic drugs, which do not include any expenditure towards ‘brand-building’, are always significantly lesser than their branded generic counterparts as shown above.

Why are MRPs of generic/generics and branded generics not much different?

It is a general perception, as stated above, that ‘Brand Building’ exercise for generic drugs in India includes a very high component of ‘sales and marketing expenditures’ which are built into the price, making MRPs of the branded generic formulations significantly higher than their generic/generic equivalents.

However, it will not be realistic to accept that generic/generic drugs are not promoted at all, in any form, by the concerned manufacturers. The fact is, in case of generic/generic medicines almost the same amount that is spent on ‘sales and marketing’ for branded generic drugs, is passed on to the retail chemists by their manufacturers as huge incentives for promotion and substitution of such drugs by the respective pharmacies.

Thus, in a large number of cases the patients do not get any significant pricing benefit for buying generic/generic drugs against doctors’ prescriptions instead of branded generics from the retail outlets.

Conclusion:

In the prevailing scenario, the decision of the Government to procure and distribute only the generic/generic essential medicines through public hospitals/dispensaries simply on pricing ground, keeping the branded generics at bay, is indeed intriguing.

From the data presented above, it will be quite reasonable to believe that MRPs being similar, the ‘sales and marketing’ costs for branded generics are quite comparable to hefty discounts being passed on to the wholesalers and retail chemists by the manufacturers of generic/generic drugs.

Hence, in the balance of probability, a branded generic product can well compete with its genuine generic/generic equivalent, even on pricing ground, in the government procurement process.

Thus, to be fair to the pharmaceutical companies, across the board, the government should invite all generic manufacturers selling their products with or without brand names to participate in the public procurement process and thereafter make the final purchase decisions based on well laid out and transparent criteria, which can stand scrutiny of the strictest audit.

That said, I fully recognize that the participation in the public procurement process of essential medicines, will indeed be the business decision of individual companies. If it makes commercial sense, there is no reason why large companies, including the multinationals, will not participate in this laudable project of the Government.

The record of the Government in the implementation of various social sector projects, thus far, may not be brilliant by any measure. Despite that, it does make enough sense for all of us to be rather optimistic about this well hyped ‘Free Essential Medicines for all’ project of India, considering the immense benefits that the common man will derive out of it.

For the effective implementation of the project, the government should now get adequately prepared with required wherewithal, put in place world class skill-sets by partnering with private domain experts wherever required and chart the pathway of success with clearly assigned accountability to each individual responsible for translating this grand ‘Public Healthcare’ initiative of India into reality .

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Chasing the “Holy Grail”: Reasonably affordable healthcare for all

Posted on April 23, 2012 by Tapan Ray

The Healthcare industry of the world as a whole with a size of several trillion US$ is growing at a fast pace in many countries for various reasons. The industry can be broadly divided into six categories as follows:

Managed Health Care, like the US and many other OECD countries providing ‘Universal Health Coverage’
Medical Equipment and Devices
Pharmaceuticals
Bio-pharmaceuticals
Health Insurance
Health Support Services

Though BRIC countries and other emerging markets are showing promising growth potential, United States of America (USA) still remains the largest entity within the global healthcare industry, followed by European Union (EU) and Japan.

Success requirements:

The most important success requirements for the Global healthcare industry may be listed as follows:

Proficiency in early capturing of the key market trends
Leveraging technology in all areas of business
Continuous product and service innovation
Meeting customer needs even before they feel for the same
Cutting-edge, well-differentiated and well-executed market and marketing strategies
Always in touch with customers with win-win business objectives
Outpacing competition with continuous proactive moves

India:

The success factors for excellence in the healthcare sector of India are no different from other emerging markets. However, some key components of this sectoral space, like optimal infrastructure and efficient delivery mechanisms, especially in the hinterland and rural areas of the country, are still in ‘Work In Progress (WIP)’ stages of development.

Healthcare growth drivers in India:

According to the Investment Commission of India, the healthcare sector of the country has registered a robust CAGR of over 12 percent during the last four years and the trend is expected to be ascending further.

Quite in tandem, other important areas of the healthcare sector have also recorded impressive performance as follows:

Areas	Growth %
Hospitals/Nursing Homes	20
Medical Equipment	15
Clinical Lab Diagnostics	30
Imaging Diagnostics	30
Other Services (includes Training & Education; Aesthetics & Weight loss; Retail Pharmacy, etc.)	40

In addition, from the allocation made for health (2.5 percent of the GDP) in the 12^th Five Year Plan Document of India, it appears that the country will clock a mid to high-teen growth in its healthcare spending during this period, mainly due to the following reasons:

Economy to turn stronger
Massive public healthcare expansion through projects like Universal Health Coverage (UHC), expanded National Rural Health Mission (NRHM), new National Urban Health Mission (NUHM)
Expanded Rashtriya Swasthya Bima Yojojana (RSBY) for Below Poverty Line (BPL) population
Growing middle income households both in the urban and rural areas
Increasing life-style related health issues
Improving penetration of Health Insurance

Key Challenges:

The path ahead will not really be strewn with the beds of roses. The rural healthcare infrastructure will continue to pose a key challenge, at least in the near term, some of the facts being as follows:

A. Status of Rural Healthcare Infrastructure in India:

Infrastructure and Services	Villages [%]
Connected with Roads	73.9
Having any Health Provider	95.3
Having trained birth attendant	37.5
Having ‘Anganwadi’ Worker (Child Care Center in rural areas)	74.5
Having a doctor	43.5

(Source: Ministry of Health and Family Welfare)

B. Hospital Beds per 1000 of population:

Country	Hospital Beds Per 1000 Population
India	> 0.7 [Urban: 2.2 and Rural 0.1]
Russia	9.7
Brazil	2.6
China	2.2
World Average	3.96

(Source: Kshema)

Needs more innovative business models:

Being supported by the monetary and other fiscal incentives of the Government, Tier II and III cities of India will continue to attract more investors for their future growth potential. At the same time, anticipated lower profit margins from these areas, predominantly due to relatively lower affordability threshold of the local population and inadequate health insurance penetration in these areas, is expected to make these healthcare providers to plan for no-frill innovative business models, like much talked about ‘the hub-and-spoke model’, as practiced in many other industries.

Some of the key players of the healthcare industry of India like, Apollo and Fortis have already started expanding into tier-II and tier-III cities of the country, prompted by increasing demand for high-quality specialty healthcare services at reasonably affordable prices in the smaller towns of the country.

Meanwhile, Frontier Lifeline Hospital is reportedly in the process of setting up India’s first Special Economic Zone (SEZ) for healthcare, ‘Frontier Mediville’ at Elavoor, near Chennai.

Areas of caution:

While looking at the big picture, the following factors should also be taken note of:

At least in the short to medium term, it will be unrealistic to expect that India will be a high margin / high volume market for the healthcare sector in general.
The market will continue to remain within the modest-margin range with marketing excellence driven volume turnover.
The government focus on reasonably affordable drug prices may get extended to medical devices / equipment and other related areas, as well.

India is taking strides:

I. According to the Rural Health Survey Report 2009 of the Ministry of Health and Family

Welfare, in rural India during the last five years:

The number of primary health centers has increased by 84 per cent to 20,107.
Around 15,000 health sub-centers and 28,000 nurses and midwives have been added.

II According to RNCOS December, 2010 report:

Indian health insurance market is currently not only the fastest growing, but also second largest non-life insurance segment in the country.
The health insurance premium in India is expected to grow at a CAGR of over 25 per cent from 2009-10 to 2013-14.
By end 2013 India is expected to curve out a share over 3 per cent in the global medical tourism industry with a CAGR in the number of medical tourists to over 19 per cent, during 2011-2013 period.

III. According to PwC, the medical technology industry of India is expected to grow from US$

2.7 billion in 2008 to US$ 14 billion by 2020.

IV. Leveraging cutting edge technology, digital bio-surveillance projects are being initiated to

generate data on the prevalence of various diseases and to create actionable databases on healthcare needs in rural India by several private players like, Narayana Hrudayalaya and the Mazumdar Shaw Cancer Centre.

V. Major healthcare players of India like, Manipal Group, Max Healthcare and Apollo are now

reportedly venturing into new segments such as primary care and medical diagnostics.

Job creation  in healthcare sector:

The trend of new job creation in the healthcare sector of India is also quite encouraging, as supported by the following details:

The Healthcare sectors in India recorded a maximum post recession recruitment to a total employee base of 33,66,000 with a new job creation of 2,95,000, according to ‘Ma Foi Employment Trends Survey 2010’.
Despite slowdown in other industries, in the healthcare sector the new job creation continues at a faster pace.
With many new hospital beds added and increasing access to primary, secondary and tertiary / specialty healthcare, among others, the ascending trend in job creation is expected to continue in the healthcare sector of India in the years ahead.

Pharmaceutical Industry:

McKinsey & Company in its report titled, “India Pharma 2020: Propelling access and acceptance realizing true potential” estimated that the Indian Pharmaceutical Market (IPM) will grow to US$ 55 billion by 2020 and the market has the potential to record a turnover of US$ 70 billion with a CAGR of 17 per cent.

Currently India:

Ranks 4th in the world in terms of pharmaceutical sales volume.
Caters to around a quarter of the global requirements for generic drugs.
Meets around 70 per cent of the domestic demand for Active Pharmaceutical Ingredients (API).
Has the largest number of US FDA approved plant outside USA
Files highest number of ANDAs and DMFs
One of most preferred global destinations for contract research and manufacturing services (CRAMS)

Conclusion:

Despite all these, the healthcare Industry of India is still confronted with many challenges while striking a right balance between public health interest and expectations for a high margin ‘free market’ business policies by a large section of players in the healthcare sector of India, across its sub-sectors, both global and local, quite unlike many other emerging sectors, like telecom and IT.

Moreover, pharmaceuticals come under the ‘Essential Commodities Act’ of the country, where government administered pricing is common.

That said, without further delay, all stakeholders, along with the Government, should now join hands, to collectively resolve the critical issues of the healthcare sector of the nation, like:

Creation and modernization of healthcare infrastructure leveraging IT
Universal Health Coverage
Win-win regulatory policies
Creation of employable skilled manpower
Innovation friendly ecosystem
Reasonably affordable healthcare services and medicines for the common man through a robust government procurement and delivery system
Right attitude of all stakeholders to find a win-win solution for all issues, instead of adhering to the age-old blame game in perpetuity, as it were, without conceding each other’s ground even by an inch.

Now is the high time for India, I reckon, to reap a rich harvest from the emerging lucrative opportunities, coming both from India and across the world in its healthcare space. This, in turn, will help the country to effectively align itself with the key global healthcare need of providing reasonably affordable healthcare to all.

In pursuit of this ‘Holy Grail’, the nation has all the success ingredients in its armory, as mentioned above, to play a key role in the global healthcare space, not just as a facilitator to help achieving reasonable corporate business objectives of the healthcare players, but more importantly to alleviate sufferings of a vast majority of the ailing population, living even beyond the shores of India.

By: Tapan J Ray

Balancing Strong IP Protection, Public Health Safeguards and Declining R&D Productivity – A Crafty Gutsy Ball Game

Posted on April 16, 2012 by Tapan Ray

Pharmaceutical innovation has always been considered the lifeblood for the pharmaceutical industry and very rightly so. However, many studies do point out that such innovation has benefited the developed world more than the developing world.

Product Price and Access:

In the paper titled ‘TRIPS, Pharmaceutical Patents and Access to Essential Medicines: Seattle, Doha and Beyond’, published in ‘Chicago Journal for International Law, Vol. 3(1), Spring 2002’, the author argues, though the reasons for the lack of access to essential medicines are manifold, there are many instances where high prices of drugs deny access to needed treatments for many patients. Prohibitive drug prices, in those cases, were the outcome of monopoly due to strong intellectual property protection.

The author adds, “the attempts of Governments in developing countries to bring down the prices of patented medicines have come under heavy pressure from industrialized countries and the multinational pharmaceutical industry”.

While the Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS) of the World Trade Organization (WTO) sets out minimum standards for the patent protection for pharmaceuticals, it also offers adequate safeguards against negative impact of patent protection or its abuse in terms of extraordinary and unjustifiable drug pricing. The levels of these safeguards vary from country to country based on the socio-economic and political requirements.

The Doha Declaration:

Many independent experts in this field consider the Doha Declaration as an important landmark for recognizing the primacy to public health interest over private intellectual property and the rights of the members of WTO to use safeguards as enumerated in TRIPS, effectively.

To protect public health interest and extend access to innovative medicines to majority of their population whenever required, even many developed/OECD countries do not allow a total freehand for the patented products pricing in their respective countries.

Early signals of global empathy:

While expressing similar sentiment ‘The Guardian’ reported that Andrew Witty, the global CEO of GlaxoSmithKline, has decided to slash prices on all medicines in the poorest countries, give back profits to be spent on hospitals and clinics and more importantly share knowledge about potential drugs that are currently protected by patents.

Witty further commented that he believes, drug companies have an obligation to help the poor patients getting appropriate treatment and reportedly challenged other pharmaceutical giants to follow his lead.

An interesting study:

A study titled, ‘Pharmaceutical innovation and the burden of disease in developing and developed countries’ of Columbia University and National Bureau of Economic Research, to ascertain the relationship across diseases between pharmaceutical innovation and the burden of disease both in the developed and developing countries, reported that pharmaceutical innovation is positively related to the burden of disease in the developed countries but not so in the developing countries.

The most plausible explanation for the lack of a relationship between the burden of disease in the developing countries and pharmaceutical innovation, as pointed out by the study, is weak incentives for firms to develop medicines for the diseases of the poor.

Point – Counterpoint:

A contrarian view to this study argues that greater focus on the development of new drugs for the diseases of the poor should not be considered as the best way to address and eradicate such diseases in the developing countries. On the contrary, strengthening basic healthcare infrastructure along with education and the means of transportation from one place to the other could improve general health of the population of the developing world quite dramatically.

The counterpoint to the above argument articulates that health infrastructure projects are certainly very essential elements of achieving longer-term health objectives of these countries, but in the near term, millions of unnecessary deaths in the developing countries can be effectively prevented by offering more innovative drugs at affordable prices to this section of the society.

A solution emerging:

Responding to the need of encouraging pharmaceutical innovation without losing focus on public health interest, in 2006 the ‘World Health Organization (WHO)‘ created the ‘Inter-governmental Working Group on Public Health, Innovation and Intellectual Property (IGWG)‘. The primary focus of IGWG is on promoting sustainable, needs-driven pharmaceutical R&D for the diseases that disproportionately affect developing countries.

Declining R&D productivity:

Declining R&D productivity adds another dimension to this raging debate with a snowballing effect, as it were.

Over a period of decades, the business models for small-molecule based blockbuster drugs have successfully catapulted the global pharmaceutical business to a high-margin, dynamic and vibrant industry. However, a time has now come when the golden path from the ‘mind to market’ of the drug discovery process is becoming increasingly arduous and prohibitively expensive.

Deploying expensive resources to discover a New Chemical Entity (NCE) with gradually diminishing returns in the milieu of very many ‘me too’ types of new drugs, does no longer promise a strong commercial incentive.

The impact of the above scenario also gets reflected in the status of International patent filings under the Patent Cooperation Treaty (PCT) of the ‘World Intellectual Property Organization (WIPO)’ as follows:

A. Last five years, PCT filings:

The last five years’ PCT filing status does not seem to be encouraging either.

Year	PCT Filings	Change %
2007	159,926
2008	163,240	2.1
2009	154,406	(5.4)
2010	164,316	6.4
2011	181,900	10.7 *(E)

* Estimate

B. Country-wise PCT Filing in 2011:

While having a closer look at the data, it becomes quite evident that in terms of percentage increase in the PCT filings two Asian countries, China and Japan, have registered their overall dominance. However, in terms of absolute number USA still ranks first.

County	No. Of PCT Filings	% Increase
USA	48,596	8
China	16,401	33.4
Japan	38,888	21
Germany	18,568	5.7
South Korea	10,447	8

C. Technical-field-wise PCT Filing in 2011:

In terms of the technical fields, pharmaceuticals ranked fifth in 2011.

Rank	Industry	No. Of PCT Filings
1.	Electrical Machinery, Apparatus, Energy	11,296
2.	Digital Communication	11,574
3.	Medical technology	10,753
4.	Computer technology	10,455
5.	Pharmaceuticals	7,683
6.	Organic fine chemistry	5,283
7.	Biotechnology	5,232

D. Biotech/Pharma companies featuring in WIPO’s Top 100 filers list:

Very few biotech and pharmaceutical companies featured in the Top 100 PCT filers’ list of WIPO as follows:

	Company
1.	Procter & Gamble
2.	Sumitomo Chemical
3.	DuPont
4.	Dow Global
5.	Novartis AG
6.	Roche
7.	Merck GmbH
8.	Sanofi-Aventis GmbH
9.	Bayer CropScience AG

E. The top five university PCT filers in 2011:

Universities of the US dominated among the PCT filings by the Academic institutions as follows:

University	No. Of PCT Filings
University of California, US	277
Massachusetts Institute of Technology, US	179
University of Texas System, US	127
Johns Hopkins University, US	111
Korea Advanced Institute of Science and Technology, South Korea	103

Need to encourage pharmaceutical innovation:

Based on the WIPO data, as mentioned above, the current status of the global pharmaceutical innovation does not seem to be very encouraging.

That said, in the environment of declining R&D productivity of the global pharmaceutical industry, there is indeed a strong requirement to encourage pharmaceutical innovation across the globe, based on the socio-economic environment of each country, together with adequate safeguards in place to protect public health interest.

Why protect patent?

The pharmaceutical major Eli Lilly has very aptly epitomized the reason for patent protection in their website called ‘LillyPad’, as follows:

“Pharmaceutical companies continue to invest in innovation not only because it is good for business, but it is what patients expect. If we want to continue to have breakthrough products, we need patent protection and incentives to invest in intellectual property. The equation is simple, patents lead to innovation – which help lead to treatments and cures”.

Conclusion:

Currently, various socio-economic expectations, demands and requirements, not just for the poor, but also of the powerful growing middle class intelligentsia are gradually getting unfolded on this subject from many parts of the globe. These collective demands cannot be either wished away or negotiated with a strong belief that the future should be a replication of the past.

There should be full respect, support and protection for innovation and the product patent system in the country. This is essential not only, for the progress of the pharmaceutical industry, but also to alleviate sufferings of the ailing population, effectively.

At the same time, available indicators point out that the civil society would continue to expect in return just, fair, responsible and reasonably affordable prices for the innovative medicines, based on the overall socio-economic status of the local population. Some experts have already opined that prices of life saving innovative drugs, unlike many other patented products, will no longer remain ‘unquestionable’ in increasing number of countries.

Thus, even at the time of declining pharmaceutical R&D productivity, striking a right balance between a strong patent regime and safeguarding overall health interest of its population, particularly of those with a very high ‘out of pocket’ expenditure towards healthcare, will indeed be a crafty gutsy ball game for a country.

By: Tapan J Ray

The New Drug Policy is languishing in a labyrinth

Posted on April 2, 2012 by Tapan Ray

Drug Price Control has remained the key feature of all Drug Policies of India, since their inception in early 70’s. Most of these policies continued to remain behind their times consistently, without any exception.

That said, the Drug Policy 1994 and the consequent Drug Price Control Order 1995 (DPCO ’95) have now become the largest ‘Dinosaur’ of all Drug Policies. However, the most intriguing point though, both these have still been kept operational by the government and the very concept of a new and a more contemporary one is languishing in a labyrinth since over a decade, for reasons of anybody’s guess.

Drug Price Control system in India:

It appears that the drug price control system in India is here to stay, at least in the short to medium term and that too in a seemingly best case scenario.

The key reasons:

As we know, the key reasons of price control for pharmaceuticals in India are the following:

To contain cost of medicines, particularly the essential ones, at a reasonably affordable level, which is a very important part of the total healthcare expenditure of the common man.
To provide greater access to medicines to all, especially in view of very high ‘out of pocket expenditure’ for health for a vast majority of population in the country.

The economic factors:

Some of the economic factors, which may cause impediments in achieving these objectives are the following:

Sub optimal public healthcare infrastructure, leaky delivery system and high cost of private healthcare services
This is fueled by, as stated above, unabated increase in ‘out-of-pocket expenses’ on healthcare in general and medicines in particular at 78 per cent, as compared to 61 per cent in China, 53 per cent in Sri Lanka, 31 percent in Thailand, 29 per cent in Bhutan and 14 per cent in Maldives (Source: The Lancet)
High expenses on drugs for outpatient care

Though very important, drug cost alone, however, does not determine quality of access to healthcare.

Global scenario for drug price control:

As per published reports, all 34 developed nations of the world have ‘Universal Health Coverage’ mechanism in place in various different forms, including mandatory medical insurance requirements, to effectively address the issue of high access to healthcare including pharmaceuticals in their respective countries, significantly reducing ‘out of pocket expenses’ towards health.

All these 34 countries belong to ‘Organization for Economic Co-operation and Development (OECD)’, the governments of which, in some way or the other control and regulate drug prices.

The Governments/payors of most of these countries implement the price control measures by playing the role of a dominant market force directly, while negotiating a favorable price from the manufacturers, which are much lower than their equivalent free market prices.

Many other OECD governments set the drug reimbursement prices right at the time of introduction of new drugs through hard negotiation, which are also well below free market prices and acts as the bench mark market prices, in many ways.

In addition to all these mechanisms, the governments in many OECD countries periodically reduce the prices of already marketed drugs quite significantly.

A contrarian view on Drug Price Control:

Some industry experts feel that there is a hidden consequence for the ‘Drug Price Control System’, especially with the cost based one.

The cost based price control as is currently practiced by the government in India compels the pharmaceutical manufacturers to restrict to:

Minimum acceptable quality standard rather than maximum possible quality standards for the patients
Does not encourage innovation in formulation development like novel galenic formulations for better patient acceptance and compliance
Indirectly discourage innovation in product packaging
Ceiling Price mechanism does not encourage advanced anti-counterfeit measures for patients’ safety

These experts also feel that adverse consequences of price control will have a significant negative impact on the pharmaceutical players to plough back fund towards R&D projects to meet the unmet needs of the patients and thereby reducing the range of treatments that could be made available to the patients in the years ahead.

What is China doing?

On March 28, 2011 Reuters reported that China had cut the maximum retail price for more than 1,200 types of antibiotics and the drugs for the circulatory system by an average of 21 percent.

It has also been reported that the Chinese Government has put a cap on the prices of about 300 drugs featuring in their ‘National List of Essential Medicines (NLEM).’

Supreme Court directive on ‘Price Control’ of ‘Essential Medicines’:

It is worth noting in this context that in 2003, the Supreme Court of India, while setting aside the Drug Policy 2002 directed the government to work out effective mechanism to bring all essential and life-saving medicines under price control.

HLEG recommends ‘Price Control’ of ‘Essential Medicines’:

Even in its report the ‘High Level Expert Group (HLEG)’ on ‘Universal Health Coverage (UHC)’ in India, set up by the Planning Commission of India under the chairmanship of the well-known medical professional Prof. K. Srinath Reddy, under recommendation no. 3.5.1, postulated price control and price regulation on essential drugs, which is quite in line with the draft National Pharmaceutical Pricing Policy 2011 (NPPP 2011).

The HLEG report says:

“We recommend the use of ‘essentiality’ as a criterion and applying price controls on formulations rather than basic drugs. Direct price control applied to formulations, rather than basic drugs, is likely to minimize intra-industry distortion in transactions and prevent a substantial rise in drug prices. It may also be necessary to consider caps on trade margins to rein in drug prices while ensuring reasonable returns to manufacturers and distributors. All therapeutic products should be covered and producers should be prevented from circumventing controls by creating nonstandard combinations. This would also discourage producers from moving away from controlled to non-controlled drugs. At the same time, it is necessary to strengthen Central and State regulatory agencies to effectively perform quality and price control functions.”

Types of drug price regulations in India:

Cost based price control: e.g. as specified in the Drug Price Control Order 1995 (DPCO 95)
Marked based price control: e.g. as was suggested by ‘The Pronab Sen Committee’ in 2005
Price Monitoring with a cap on annual price increase: e.g. as is currently followed by the National Pharmaceutical Pricing Authority (NPPA) for all products which are outside DPCO ’95

The weaknesses of cost based pricing mechanism:

The key criticism of cost based pricing mechanism flows from the following arguments:

This system is not followed by any developed or developing countries worth mentioning, which follow drug price control mechanism in any form
A Complex, intrusive and inefficient system of pricing medicines
Does not consider important variations in the level of GMP standards and the quality of input costs
The conversion cost and packing norms are determined through a sample survey of less than one per cent of pharmaceutical manufacturing units

Pronab Sen Committee report – the basis of price control in the draft NPPP 2011:

The draft NPPP 2011 is based on the ‘Recommendations of the Task Force constituted under the Chairmanship of Dr. Pronab Sen to explore issues beyond Price Control to make available Life-saving Drugs at reasonable prices’ to all.

‘Pronab Sen Committee’ suggested the following principles of Price regulation to achieve part of the above objective:

1. The National List of Essential Medicines (NLEM) should form the basis of drugs to be considered for intensive price monitoring, ceiling prices and for imposition of price controls, if necessary.

2. The government should announce the ceiling price of the drugs contained in the NLEM (other than the drugs procured by hospitals directly and which an individual does not have to purchase from the market) on the basis of the weighted average prices of the top three brands by value of single ingredient formulations prevailing in the market as on 01.04.2005. In cases where there are less than three brands, the weighted average of all the existing brands would be taken. The Org–IMS data set can be used for this purpose initially with a 20 per cent retail margin provided. There is, however, a need to improve the available data coverage, which should be taken up with ORG-IMS or any other data provider.

3. For drugs which are not reflected in ORG-IMS data, the NPPA should prepare the necessary information based on market data collection.

4. During the transition period (i.e. till the time ceiling prices are fixed and notified) prices of all essential drugs may be frozen.

5. The Government should specify the reference product in terms of strength and pack size for each product which would form the basis for price determination. The price ceiling would be specified on a per dosage basis, such as per tablet/per capsule or standard volume of injection. Where syrups and liquids are sold in bottles the ceiling price may be fixed on individual pack size.

6. Price relaxations may be permitted for non-standard delivery systems, packaging and pack sizes through applications to the negotiations committee, which should become applicable for all similar cases.

7. In the case of formulations which involve a combination of more than one drug in the NLEM, the ceiling price would be the weighted average of the applicable ceiling prices of its constituents.

8. For formulations containing a combination of a drug in the NLEM and any other drug, the ceiling price applicable to the essential drug would be made applicable. However, the company would be free to approach the price negotiations committee for a relaxation of the price on the basis of evidence proving superior therapeutic effectiveness for particular disease conditions.

9. In order to determine the reasonableness of the ceiling prices fixed as above, the prices quoted in bulk procurement by Government and other designated agencies may be examined for use, provided that the system of bulk procurement meets certain minimum prescribed standards. Recognizing that retail distribution has costs not reflected in bulk procurement, a markup of 100 per cent over this reference price is recommended.

10. NPPA should set up a computer based system which would scan the price data provided by companies against the ceiling prices determined as above and identify formulations which breach the relevant price ceiling. The company manufacturing or marketing such a product would be required to reduce its price or to face penal action.

11. Companies should be permitted to represent for any price increase on valid grounds, which should then become applicable to the entire class of products.

12. The NLEM should be revised periodically, say every 5 years, in order to reflect new drugs and significant changes in pattern of drug sales within the therapeutic categories. However till the time the new list is finalized the existing list will continue to be valid for the purpose of price control.

13. In the case of drugs not contained in the NLEM, intensive monitoring should be carried out of all drugs falling into a pre-specified list of therapeutic categories. Any significant variation in the prices (say above 10 per cent) would be identified for negotiation.

The stakeholders’ comments on NPPP 2011:

About 60 stakeholders have commented by now on the draft NPPP 2011. The views are quite divergent though. It is interesting to note that the new draft pricing policy, in its current form, has been rejected by all key stakeholders, like the Industry, Ministry of Health, Expert Groups, WHO, NGOs and reportedly even by the Economic Advisory Council of the Prime Minister, on quite different grounds.

As widely reported in the media, the pharmaceutical industry, though in favor of the marked based pricing mechanism, feels that the draft NPPP 2011 will increase the span of drug price control to over 60 per cent of the Indian Pharmaceutical Market (IPM). This means over eight times increase in the span of price control from its current level, making the task unwieldy for even the NPPA.

Majority of other stakeholders including the Ministry of Health, on the contrary, are arguing in favor of cost based price control. They commented that the price control system of the draft policy would give legitimacy to high drug prices in India, leading to increase in the overall prices of medicines. This group feels that the top three brands in majority of cases will be the most expensive ones.

Two interesting observations by the World Health Organization (WHO) on ‘Trade Margin’:

The WHO in their observations on the draft NPPP 2011 has made the following interesting comments:

“The new price regulation uses a margin of16% to calculate the retail prices. This is a lower margin than currently – based on the market data 1.1 and 3.3 I calculated a current retail margin of 22%. So the new price regulation implies a margin reduction of 6%, alternatively the CP might be set at a 6% lower price than currently is the case.”

If the WHO observation is correct, there is a scope to reduce the price of essential medicines by 6 per cent only through proper regulation of the trade margin.

WHO also comments that IMS data, the basis of all such calculations by the NPPA, has severe limitations as “Their data does not take into account the discounts, rebates and bundling deals and when the data is collected at the level of the wholesaler they estimate the retailer and patient prices”.

If such is the case, what could possibly be the basis of all calculations as captured in the draft NPPP 2011?

Observation of a distinguished Parliamentarian:

Dr. Jyoti Mirdha , a Member of the Lower House of the Parliament (Lok Sabha) commented as follows:

“Under this policy the weighted average of three top selling brands will be the ceiling price. There is no logic in restricting the formula to just three brands. Why not five? Why not 10 to arrive at a more representative and reasonable figure? Besides why base on sales figures? In any pricing policy the parameter should be the price. Why not weighted average of 10 least priced brands?”

This could well be a pertinent question.

How to break the logjam now?

Taking on from Dr. Mirdha’s argument , WHO observations and Pronab Sen Committee report, one could possibly try to resolve this logjam by exploring various other available alternatives like for example, the following broad points, to ascertain whether a win-win situation can be created for all through the new drug policy:

What happens if ‘Weighted Average Price’ is calculated based on all brands, instead of top three or bottom three with some exclusion criteria, if required?
When inclusion criteria for price control in the new draft NPPP 2011 is ‘essentiality’ of drugs, it sounds logical that price control should be restricted to National List of Essential Medicines 2011 (NLEM 2011). Only possible extension could perhaps be taking the entire molecule, instead of specified strengths of the same molecule.
Enough non-price control checks and balances to be put in place to ensure proper availability of NLEM 2011 drugs to the common man and avoidance of any possible situation of shortages for such drugs.
As commented by WHO, trade margin should be rationalized, the MRP needs to be reduced accordingly and the consequential benefits to be passed on to the patients.

Conclusion:

The issue of the new National Pharmaceutical Pricing Policy should be resolved sooner than later and that too by conforming to the directive given by the Supreme Court on essential medicines. At the same time, all the stakeholders must feel comfortable with the new drug policy.

The four points, as mentioned above, are just an illustration for choosing an alternative solution. If it works, let us move on. If it does not, let us search for the pathfinder who can break the decade old labyrinth rather quickly, without losing the way yet again.

However, the bottom-line remains that the solution should be a win-win one, both for the patients and the industry alike, benefiting the healthcare space of the country in the years ahead.

By: Tapan J Ray

Are Preventive Medicines always cost effective to be an area of focus in healthcare management?

Posted on March 19, 2012 by Tapan Ray

American Board of Preventive Medicine defines ‘Preventive Medicine’ as follows:

“Preventive Medicine is the specialty of medical practice that focuses on the health of individuals, communities, and defined populations. Its goal is to protect, promote, and maintain health and well-being and to prevent disease, disability and death.”

The most basic examples of preventive medicines are known to be hand washing, breast feeding and immunization.

Simple preventive measures, such as, increasing awareness against tobacco smoking, misuse of alcohol or unprotected sex, especially in an emerging economy like India, will go a long way to prevent and control such habit related diseases, help saving significant expenditure of the nation towards healthcare.

The purpose:

The primary purpose of preventive medicines could well have dual objectives as follows:

Disease prevention of a large section of the population
Reduce the healthcare expenses

Primary, secondary and tertiary prevention:

As stated above, primary disease prevention usually would include vaccination against specific disease types, whereas secondary and tertiary prevention are usually done through early detection process and screening of the target population.

Relevance to chronic diseases:

A World Health Organization (WHO) report, titled, “Preventing Chronic diseases – a vital investment” argues that globally of the 58 million deaths in 2005, approximately 35 million were due to chronic diseases, which were expected to increase by 17% in the next 10 years thereafter.

It points out that 80% of all premature heart disease, stroke and diabetes are preventable. This assumes greater significance as 80% deaths due to chronic disease occur in low and middle income nations where most of the world population lives, against only 20% of the same in the high income countries.

The report, therefore, articulates that it is absolutely necessary for the countries to review and implement a comprehensive and integrated preventive public health strategy.

Regular preventive measures:

Experts recommend following regular preventive measures, which are very relevant to India:

Counseling on hygienic life style
Routine primary vaccinations
Counseling on quitting smoking, alcohol misuse, protected sex, losing weight, eating healthy food, treating depression etc.
Regular general health check-up
Cancer screenings like mammograms and colonoscopies

Immense potential in India:

In a country like India, with high prevalence of many preventable diseases involving a large section of the nation’s population, preventive medicine promises immense potential to reduce the healthcare expenditure of the country significantly and at the same time would promise a much better quality of life to its population.

A counter point:

Another school of thought, primarily US based, advocates that preventive medicines, on the contrary, would raise the healthcare expenditure.

Preventive Medicine increases healthcare cost:

In support of this contrarian view, a paper published in ‘The New England Journal of Medicine (NEJM)’ on February 14, 2008 based on 599 studies between 2000 and 2005 infers that though disease prevention in some cases may reduce the cost of healthcare, more preventive medicines in many cases could, in fact, increase the overall healthcare expenditure.

Screening cost is more than savings:

It says that screening cost of a disease for a large section of the population may far exceed the savings from treatment avoidance in those cases where only a small part of the population would have become ill in the absence of preventive measures.

Treatment with medicine offers greater value:

The article also points out that:

“The drugs used to treat high cholesterol yield much greater value for the money, if the targeted population is at high risk for coronary heart disease, and the efficiency of cancer screening can depend heavily on both the frequency of the screening and the level of cancer risk in the screened population.”

Preventive medicine more expensive:

The authors argue that preventive medicine will be more expensive where to make a small populations free from a particular disease, preventive measures are taken involving a large population, most of whom even otherwise would not have suffered from that illness.

Conclusion:

Coming back to the WHO report which categorically says, contrary to the belief of some section of the society, especially in the USA that measures for control and prevention of chronic diseases are really not too expensive for any nation, not even for the low and middle income countries.

In reality, even chronic diseases can be prevented and effectively controlled to reduce the disease burden of any country very significantly. The WHO article also says that expensive patented medicines are no longer required for prevention of, for example, even cardiac ailments. The cheaper generic drugs, if used along with counseling on life style changes, will be quite affordable to a vast majority of population even in the middle and low income countries.

Weighing all pros and cons, WHO aims to reduce the death rates from all chronic diseases by 2% per year through preventive medicines, which would mean prevention of 36 million deaths due to chronic disease by 2015, mostly in the low and middle income countries.

These statistics will more than vindicate the argument that preventive measures and medicines are cost effective, in the long run for any nation, particularly for a country like India.

By: Tapan J Ray

Healthcare Industry of India: Being catapulted from a labyrinth to an accelerated growth trajectory

Posted on March 12, 2012 by Tapan Ray

As reported by the ‘World Health Statistics 2011′, India spends around 4.2 percent of its Gross Domestic Product (GDP) on health, which is quite comparable with other BRIC countries like, China and Russia.This has been possible mainly due to increasing participation of the private players in the healthcare sector.

The following table will highlight this point:

Health Expenditure:

Type	Brazil	Russia	India	China
Exp. on Health (% of GDP)	8.4	4.8	4.2	4.3
Govt. Exp. on Health (% of Total Exp. on Health)	44	64.3	32.4	47.3
Pvt. Exp. on Health (% of Total Exp. on Health)	56	35.7	67.6	52.7
Govt. Exp. on Health (% of Total Govt. Exp.)	6	9.2	4.4	10.3
Social Security Exp. on Health (% of General Govt. Exp. on Health)	-	38.7	17.2	66.3

However, the following healthcare indicators suggest quite clearly that the total expenditure on healthcare by a country is not always directly proportional to its health outcome. This holds good for many countries across the world, including the USA, as the overall healthcare system and more importantly its cost effective delivery mechanism are the key determinants of success:

Health Indicators:

Type	Brazil	Russia	India	China
Life Expectancy at birth	73	68	65	74
Neonatal Mortality Rate (Per 1000)	12	06	34	11
Infant Mortality Rate MDG 4 (Per 1000)	17	11	50	17
Maternal Mortality Rate MDG 5(Per 1000,000 birth)	58	39	230	38

Source: World Health Statistics 2011

Fueled by the increasing participation of private players, coupled with a hefty hike in public expenditure on health to 2.5 percent of GDP during the 12^th Five Year Plan Period, the Indian healthcare sector, currently at US$ 65 billion, is expected to reach US$ 100 billion by 2015 (Source: Fitch), increasing the total spend of the country on health to around 6.8 percent of GDP during this period.

The expenditure towards healthcare infrastructure is expected to grow by 50 percent from its 2006 number to reach US$ 14.2 billion in 2013, as reported by KPMG.

Growth Drivers:

The key growth drivers are expected to be as follows:

A hefty hike in Government expenditure as a percentage to GDP for health
1% of the growing population coming above the poverty line every year
Growing middle class population
Increasing incidence of non-infectious chronic illnesses and other life style diseases
Reasonable treatment costs due to intense competition and government intervention on health related issues
Large public healthcare projects like, National Rural Health Mission (NRHM), National Urban Health Mission (NUHM), ‘Universal Health Coverage’, distribution of free medicines through Government hospitals
Expansion of Rashtriya Swasthya Bima Yojana (RSBY)
Increasing penetration of private health insurance
Increasing direct procurement of medicines both by the Central and also the State Governments
A boom in medical tourism

The basic Challenge:

Following areas will throw a tough challenge for a sustainable growth in healthcare:

To reach a doctor population ratio of 1 doctor and 2.3 nurses per 1000 population by 2025 from the current 0.06 doctors and 1.3 nurses.
To reach a ratio of 2 beds per 1000 population by 2025 from the current 1 bed, which means India would require creating additional 1.75 million beds by that time.
An investment of US$ 86 billion will be needed to achieve 1 doctor, 2 beds and 2.3 nurses per 1000 population by 2025
Although the health insurance had a penetration to a meager 2.3 percent of the population in 2007, the sector is expected to cover just around 20 percent of the population by 2015 (Source: ICRA).

Key Developments:

As per the Rural Health Survey Report 2009 of the Ministry of Health, the rural healthcare sector in the country is registering an appreciable growth with the addition of the following during the last five years:

- 15,000 health sub-centers

- 20, 107 primary health centers

- 28,000 nurses and midwives

According to a report by research firm RNCOS, the health insurance premium is expected to grow at a CAGR of over 25 per cent from 2009-10 to 2013-14.
India will curve out a share of 3 percent of the global medical tourism industry (Source:RNCOS)
Medical technology industry of India is expected to reach US$ 14 billion by 2020 from US$ 2.7 billion in 2008, according to a report by PwC.
E-healthcare in rural areas is gaining popularity with the involvement of both public and private players like, ISRO, Mazumdar Shaw Cancer Center and Narayana Hrudayalaya. Some telecom companies like, Nokia and BlackBerry are also contemplating to extend the use of mobile phones for remote disease monitoring as well as diagnostic and treatment support. Introduction of 3G and in the near future 4G telecom services will further enhance opportunities of e-healthcare through mobile phones.
Expansion of major healthcare players in tier-II and tier-III cities of India like, Apollo, Narayana Hrudayalaya, Max Hospitals, Aravind Eye Hospitals and Fortis will help improving access to affordable healthcare in the smaller places, significantly.

Examples of expansion in smaller places:

According E&Y report of November 2010, following key players are expanding their presence in tier II and tier III cities, besides metro and tier I cities:

Company	No. Of beds	Presence
Apollo Hospitals Enterprise Ltd	8,500	Chennai, Madurai, Hyderabad, Karur, Karim Nagar, Mysore, Visakhapatnam, Bilaspur, Aragonda, Kakindada, Bengaluru, Delhi, Noida, Kolkata, Ahmedabad, (Mauritius), Pune, Raichur, Ranipet, Ranchi, Ludhiana, Indore, Bhubaneswar, (Dhaka, Bangladesh)
Aarvind Eye Hospitals	3,649	Theni, Tirunelveli, Coimbatore, Puducherry, Madurai, Amethi, Kolkata
CARE Hospitals	1,400	Hyderabad, Vijaywada, Nagpur, Raipur, Bhubaneshwar, Surat, Pune, Visakhapatnam
Fortis Healthcare Ltd	5,044	Mumbai, Bengaluru, Kolkata, Mohali, Noida, Delhi, Amristar, Raipur, Jaipur, Chennai, Kota
Max Hospitals	800	Delhi and NCR
Manipal Group of Hospitals	+7,000	Udupi, Bengaluru, Manipal, Attavar, Mangalore, Goa, Tumkur, Vijaywada, Kasaragod, Visakhapatnam

Source: E&Y, November 2010

Healthcare sector is attracting FDI:According to the Department of Industrial Policy & Promotion (DIPP), the healthcare sector is undergoing significant transformation and attracting investments not only from within the country but also from overseas.The Cumulative FDI inflow in the healthcare sector from April 2000 to November 2011, as per DIPP publications, is as follows:

Sector	FDI inflow (US$ million)
Hospital and diagnostic centers	1100
Medical and surgical appliances	472.6
Drugs and pharmaceuticals	5,033

(Source: Fact Sheet on FDI (April 2000 to November 2011), DIPP)

Government Policy:

Government has also started focusing on increasing investments towards creation of a sustainable medical infrastructure, especially in the rural areas. The following policy initiatives could help facilitating this process:

100 per cent FDI for health and medical services.
Allocation of US$ 10.15 billion to the National Rural Health Mission (NHRM) for upgradation and capacity building of rural healthcare facilities.
Allocation of US$ 1.23 billion to create six AIIMS type medical institutes and upgradation of 13 existing Government Medical Colleges.

Overseas players started participating:

BCG Group will open shortly a multidisciplinary health mall that would provide a one-stop solution for all healthcare needs starting from doctors, hospitals, ayurvedic centers, pharmacies including insurance referral units at Palarivattom in Kochi, Kerala. BCG’s long-term plan, as reported in the media, is to set up a health village spanning across an area of a 750,000 sq. ft. with an estimated cost of US$ 88.91 million.

Along the same line, to set up more facilities for diagnostic services in India, GE Healthcare reportedly has planned to invest US$ 50 million for this purpose.

Examples of initiatives by State Governments:

In southern India, the Government of Andhra Pradesh has implemented a Health Management Project funded by the Department for International Development (DFID) of the UK costing US$ 59.68 million. It has been reported that many other State Governments of India are planning to go for similar Health Management models in their respective States.

Improving access to modern medicines in India:

Ten year CAGR in terms of volume of the domestic pharmaceutical industry has been around 15 percent, which clearly signals significant increase in the consumption of medicines, leading to their improving access to the general population of both rural and urban India.

Extension of focus of the Indian pharmaceutical Industry, in general, to the fast growing rural markets further vindicates this point.

The rate of increase in access to medicines may not be directly commensurate to the volume growth of the industry during this period, but a major part of the industry growth could certainly be attributed towards increasing access to medicines in India, which should cover over 60% of the population of the country, by now.

Unfortunately, even the Government of India does not seem to be aware of this gradually improving trend of access to medicines in the country. Official communications of the government still quote the outdated statistics of 1998 (published in 2004), which states that 65% of the population of India does not have ‘Access to Modern Medicines’ even today. No wonder, why many of us still prefer to live on to our past.

Conclusion:

Be that as it may, around 40% of the population still does not seem to have adequate ‘Access to Medicines’ in India. This issue though attracted attention of the policy makers, has still remained mostly unresolved and needs to be addressed following a holistic approach with the newer plans.

A robust model of healthcare financing for all socioeconomic strata of the society with plans like, ‘Universal Health Coverage’ and continuous improvement of healthcare infrastructure and delivery systems, as are now being planned by the astute brain trusts of India, are expected to bring significant reform in the healthcare space of India.

Let us also note at the same time that all these are happening, despite shrill voices of naysayer vested interests, continuously projecting to many of us a stagnant, dismal and never improving healthcare scenario of the country, more often than not.

Very fortunately, from an unenviable labyrinth, healthcare industry of India, at last, seems to be on the threshold of being catapulted to a higher growth trajectory riding on a decent number of both public and private initiatives, never than ever before.

Unless it is so, why will the healthcare players from across the world keep on increasing their operational focus, in every way, on India and China?

By: Tapan J Ray

Quantum Growth Envisaged in Government Procurement for Pharmaceuticals: A Challenging Ball Game for Pharma Players

Posted on February 27, 2012 by Tapan Ray

Direct procurement by the Governments of various countries is attracting increasing importance not just at the domestic level, but internationally, as well. The systems adopted for Government Procurement (GP) globally are aimed at making a significant difference in the effectiveness of utilization of the exchequers’ fund and the quality of governance in the respective countries. Absolute transparency in the entire process of GP, extending fair and equal opportunities to all suppliers, is of utmost importance.

According to ‘The Center of International Development at the Harvard University, USA’, Government Procurement of goods and services typically accounts for 10-15% of GDP for the developed countries, and up to 20% of GDP for the developing nations. As a result, the local GP markets have started attracting attention of even the overseas suppliers to make this process an integral part of Free-Trade Agreements (FTAs) between countries.

GP was excluded in the General Agreement on Tariffs and Trade (GATT) negotiated in 1947. However, as the years progressed the members of WTO started exploring various ways to include GP in the multilateral trading system.

The proponents of WTO agreements on GP argue that the purchase decision of the governments on GP of goods and services should be non-discriminatory, irrespective of who produces the goods or renders required services, including foreign suppliers, if any.

GPA- The plurilateral Agreement:

In January 1, 1994 along with ‘Uruguay Round’ a landmark agreement was reached on GP, which is known as “The plurilateral Agreement on Government Procurement (GPA)”. This agreement was administered by a Committee of WTO members, who are Parties to the GPA and was signed by 41 of the 153 members of the WTO.

India joins as an observer in GPA – the first step for membership:

On Feb 11, 2010 ‘Reuters’ reported that “India has joined the World Trade Organization’s government procurement agreement as an observer, a first step to membership in the scheme regulating trade in goods bought by governments”. With this India joined other 22 WTO members with the same observer status, when 9 members including China are in the process of negotiation for full membership of the GPA.

On December 15, 2011, WTO reported a historic agreement by the members of GPA to ‘improve the disciplines for GP and expand the market access coverage valued at between 80 to 100 billion dollars a year’.

The opposition to GPA:

That said, those who oppose GPA also put forth strong arguments. They believe that such agreements instead of creating so called a ‘level playing field’ for all, would further complicate the situation where the developing countries, leave aside the least developed ones, would continue to remain at a disadvantage as compared to the developed industrial nations.

The developing countries and the relief organizations argue that the growing industries of the developing nations will suffer most, if matured global companies are allowed to compete for GP together with the domestic players. Such a situation, they apprehend, could snow ball into huge balance of payment issues for the developing and the least developed nations.

Pharmaceuticals: Second largest item in public healthcare budget:

According to WHO, for the developing countries like India pharmaceuticals are the second largest item of expenditure, after personnel costs, ranging from 8 per cent to 12 per cent of the public health budget. Thus, such fund should be utilized with utmost care within a transparent and highly efficient GP system. It is envisaged, that efficient GP systems will play critical role in improving access to medicines in India.

GP for Pharmaceuticals in India:

The process of procurement of drugs and pharmaceuticals by the Ministry of Health of the Government of India is usually entrusted to an agency known as ‘Hospital Services Consultancy Corporation (HSCC)’. This multidisciplinary consultancy organization was set up to extend quality consultancy services in healthcare and other social sectors of the country. HSCC undertakes the following:

Procurement of drugs and pharmaceuticals
Tendering process
Placement of orders
Follow-up, inspection and dispatch

So far, many World Bank supported programs for procurement of drugs and pharmaceuticals for Malaria, Tuberculosis, and Reproductive Child Health etc. were initiated by the HSCC. The procurement services of HSCC are in line with the procedures adopted by the World Bank.

Health being a State subject in India, pharmaceutical procurement is made by both the Central and State Governments, besides large private health institutions.

Though over 25 per cent of the total public sector drug volume is procured by the Central Government, there is no single Central Government procurement agency. Following are the key agencies currently handling the Central Government procurement for pharmaceuticals through competitive tendering process:

Central Government Health Services (CGHS)
Armed Forces Medical Services (AFMS)
Medical Stores Organization (MSO)

Examples of GP in the states:

Many state Governments have already started putting in place the GP process for pharmaceuticals in their respective states. This process is expected to gain momentum as we move ahead. Examples of GP system of some of the State Governments in India are as follows:

Delhi:

In 1996, to promote rational drug use with high quality of medicines, the ‘Delhi Society for Promotion of Rational Use of Drugs (DSPRUD)’ with the technical assistance from WHO introduced a pooled procurement system for all state-run hospitals and 150 Primary Health Centers (PHCs) in Delhi.

This robust procurement system with a competitive bidding process has reportedly resulted in price reduction of high quality medicines by 30-40 per cent. State-run hospitals and the PHCs now supply these prescriptions medicines to over 80 per cent of patients.

WHO, encouraged by the success of the ‘Delhi Model’, has recommended it to the other States of India. Currently the following State Governments are implementing the program in their respective states:

Maharashtra
Rajasthan
Punjab
Himachal Pradesh

Tamil Nadu:

In January 1995, Tamil Nadu Government had set up a Government-run Company known as, Tamil Nadu Medical Services Corporation (TNMSC). The main purpose of TNMSC was to make all essential drugs available in nearly 2000 government medical institutions throughout the State, with a well-structured, uniform and standardized system for procurement, storage and distribution of medicines.

To ensure efficient procurement of high quality drugs at competitive prices, TNMSC follows an open tendering system for purchases only from reputed manufacturers with a pre-specified minimum overall business turnover, having a market standing of not less than three years. Standby suppliers are also selected at the same time to eliminate any drug shortages for delayed or non-supply by the first supplier.

The competitive procurement bid system has reportedly enabled TNMSC to save on drugs to the tune of 36% of the allocation.

Andhra Pradesh (AP):

In AP public health care system delivers services at all levels of primary, secondary and tertiary care.

In 1998, a centralized pooled drug procurement system was implemented in AP with the establishment of the Drug Procurement Wing (DPW) within the ‘Andhra Pradesh Infrastructure State Development Corporation (APISDC)’.

For high quality GP they introduced a two tier system for bidding and procurement, starting with the technical bid and followed by the actual financial bidding process.

In this system, details of drug requirements are collected from public hospitals within the state, collated by the DPW and thereafter consolidated orders are placed to the competitive bid winners for supplying required essential medicines at the medical stores of each district of the state.

Odisha:

Odisha has a centralized system of procurement of drugs featuring in the National List of Essential Medicines (NLEM).

To ensure quality procurement, a pre-qualification stipulation of quality parameters and competitive price quotations are looked at.

Small Scale Industries (SSIs) are entitled to 5 per cent price preference along with other relaxations like, partial exemption from earnest money deposit and concession in sales tax.

A recent evaluation of the Drugs Distribution System in Odisha by WHO has highlighted that the key NLEM drug availability in all the centers except one in the state ranged from 80 to 100%.

UHC – A potential GP growth booster:

The recommendation no. 3.1.10 of the report titled ‘High Level Expert Group Report on Universal Health Coverage (UHC) for India’, instituted by the Planning Commission, clearly indicates that purchases of all health care services under the UHC system should be undertaken either directly by the Central and state governments through their Departments of Health or by quasi-governmental autonomous agencies established for the purpose.

PMO push for free drugs at Government hospitals:

Quoting the Prime Minister’s Office (PMO), ‘The Times of India’ on February 13, 2012 reported that availability of free medicines to all patients visiting any government health facility across the country will soon be a reality, as the Ministry of Health (MoH) is planning to spend around Rs 30,000 Crore under ‘free-medicines-for-all’ scheme with the strong support of the PMO.

Quantum growth envisaged in the GP system:

UHC along with the above free medicine initiative by the MoH and expanded coverage of the National Rural Health Mission (NRHM)/ National Urban Health Mission (NUHM) are expected to make GP for pharmaceuticals a critical procurement initiative of the nation.

This appears more realistic when seen together with the increase in public spend allocation on health by the Planning Commission of India from current 0.9 per cent to 2.5 per cent of GDP during the Twelfth Five Year Plan period.

Thus a quantum growth is envisaged in the GP system for pharmaceuticals within the country.

Conclusion:

From all available indicators, it appears that GP for pharmaceuticals in India will assume immense importance to both the global and local pharmaceutical companies.

The Central Government, with ‘The Draft Public Procurement Bill, 2011’, seems to have already started moving in this direction. The enactment of this Bill will facilitate the Government not only to effectively leverage the state bargaining power for the prices of medicines, but also to ensure efficient delivery of high quality products to a very large section of the society.

Quite in tandem various State Governments should also either create afresh or revamp the existing procurement system, as the case may be, to put in place a robust GP mechanism in their respective states.

One clear outcome of the expansion of GP system for sure will be enormous pricing pressure on the pharmaceutical players in India, which will be quite challenging to navigate.

The scenario will get even more complex and heated up, especially for the smaller pharmaceutical players, as and when India becomes a signatory to the GPA of the WTO, opening its door wide ajar for the large global players to participate in the pharmaceutical bidding process of the Government, well facilitated by various FTAs.

In this rapidly evolving environment, are the pharma players, both global and local, ready with appropriate strategies and systems in place to participate in yet another challenging new ball game of low margin and high volume pharmaceutical business in India?

By: Tapan J Ray

Healthcare Tourism: India needs to step on the gas

Posted on January 30, 2012 by Tapan Ray

Healthcare Tourism or Medical Tourism are the terminologies initially coined by the travel agents and the media when patients travel outside their national boundaries to seek either more specialized and/or cheaper but high quality healthcare available in other countries.

World Health Organization (WHO) defines Healthcare Tourism as an activity that covers:

Medical care
Sickness & well-being
Rehabilitation & recuperation

The reasons:

The main reasons of healthcare tourism are:

High medical costs, especially for those patients who are under-insured or uninsured
Long waiting period for elective surgery
To avail technologically more advanced medical treatment and care

For example, USA though globally recognized as one of the technologically most advanced countries in providing high quality healthcare to the patients, the cost of comprehensive healthcare in the country is often beyond reach of many Americans.

In not too distant past (2000), the World Health Organization (WHO) ranked USA as the country with most expensive healthcare systems in the world. Moreover, it has also been reported that in the US, the fees paid to doctors for medical services are usually much higher for an ‘uninsured’ patient than one who is ‘insured’.

Such a scenario has given rise to situation where many Americans travel out of the country for a lower cost medical care, if not adequately insured.

‘Time Health’ in an article titled ‘A Brief History of Medical Tourism’ stated as follows:

- In 2006: 150,000 US citizens underwent medical treatment abroad

- In 2007: the number grew to an estimated 750,000

- In 2008: it increased to 1.3 million

- In 2010: the figure further swelled to an estimated 6 million citizens.

The article commented that “Patients are packing suitcases and boarding planes for everything from face lifts to heart bypasses to fertility treatments.”

The key influencers and preferred destinations:

The most common influencer for healthcare tourism globally, as stated earlier, is lack of or inadequate health insurance and the most common emerging destinations for healthcare tourism in the world are Thailand, Singapore, Costa Rica, Panama, Brazil, Mexico, Malaysia and India. This is mainly because of fact that the costs of availing high quality healthcare services in these countries are much cheaper- on an average around 80%. For example, a cardiac surgery, which will cost more than US$ 50,000 in the US, can be availed for US$ 20,000 in Singapore, US$ 12,000 in Thailand and between US$ 3,000 and US$ 10,000 in India.

Other factors influencing Healthcare Tourism, particularly in India, besides significant cost advantages, are:

High quality treatment and hospital stay with world class medical technological support
Rigid compliance with international treatment standards
No language barrier with the western world
Government taking active steps and interest in the medical tourism sector

In all these four areas significant advantages that India offers will need to be adequately leveraged in a sustainable manner by the country.

Most popular treatment areas:

The most popular treatment areas are as follows:

Alternative medicines
IVF treatment
Bone-marrow transplant
Cardiac bypass
Eye surgery
Dental care
Cosmetic surgery
Other areas of advanced medicine

Evolving scenario:

Since last several years healthcare tourism is fast evolving as one of the key growth drivers of the global healthcare sector as a whole.

Dr. Fred Hansen in his article titled, ‘A Revolution in Healthcare’, highlighted that increasing number of high-quality healthcare facilities in the developing countries are attracting medical tourists from the developed countries like the US and the European Union (EU).

Apprehension in the US about growing Healthcare Tourism of India:

India Knowledge@Wharton in its June 2, 2011 issue reported as under:

In the past, US President Barack Obama had singled out India for what he sees as the country usurping American jobs and business.
In May 2009, he removed some tax incentives for US companies who allegedly preferred to outsource rather than create domestic jobs. “Buffalo before Bangalore” was his rallying call at the time.
In April 2011, he told a town hall gathering in Virginia that Americans shouldn’t have to go to India or Mexico for “cheap” health care. “I would like you to get it right here in the U.S.,” he said.
In January 2012, President Obama reiterated the same intent in the run up to the forthcoming US presidential election for his second term.

The Global Market:

In 2006 the global market for healthcare tourism was around US$ 60 billion. According to McKinsey & Company, this market is expected to expand to over US$110 billion by 2012.

India – a contender for supremacy:

Healthcare tourism in India, despite being smaller compared to the western world, is surging ahead both at the national and the regional levels with enormous potential for future growth, if explored appropriately with a carefully charted strategic game plan in its evolution process.

Currently India is emerging as one of the preferred destinations for global health tourists. The country received 150,000 medical tourists in 2004, which grew by 33% to 200,000 in 2008, mainly from the USA, UK and the Gulf countries, primarily due to low-priced and high quality healthcare in wide ranging disease areas. More and more people from these countries are finding the prospect of high quality and value added medical care in India financially attractive. As per estimates, India will receive over 500,000 medical tourists per year come 2015.

While visiting India for healthcare, patients not only get treated by the best medical professionals with western medical training, but also are able to stay in deluxe accommodations fully equipped with the latest television set, refrigerator and in some cases even a personal computer, without facing any language barrier and that too by paying just around 1/10th of the price charged in the developed nations.

Moreover, according to John Lancaster of ‘The Washington Post’ (October 21, 2004) Indian private hospitals have a better mortality rate for heart surgery than American hospitals.

With over 8,500 beds ‘Apollo Hospitals’ chain runs 53 different hospitals across the country, followed by “Max Healthcare” that runs 8 medical centers in the National Capital Region (NCR) in India.

Indian Market:

Economic Times, in its January 6, 2009 edition reported, “Indian medical tourism to touch Rs 9,500 Crore (around US $ 2.1 billion) by 2015”. Another report titled “Booming Medical Tourism in India”, published in December 2010 estimated that the medical tourism industry will generate revenues of around US$ 3 billion by 2013, though with a market share of just around 3% of the of global healthcare tourism industry. Thus, in healthcare tourism, India still remains a smaller player with enormous growth potential.

New job creation:

Both Public and private sector studies estimate that healthcare tourism in India could attract around US$ 3 billion to the country by 2013 with around 40 million direct and indirect job opportunities.

Cost advantage in India:

Cost Comparison: India vs UK:

Nature of Treatment	Treatment Approximate Cost in India ($) *	Cost in other Major Healthcare Destination ($) *	Approximate Waiting Periods in USA / UK (in months)
Open heart Surgery	4,500	> 18,000	9 – 11
Cranio-facial Surgery and skull base	4,300	> 13,000	6 – 8
Neuro-surgery with Hypothermia	6,500	> 21,000	12 – 14
Complex spine surgery with implants	4,300	> 13,000	9 – 11
Simple Spine surgery	2,100	> 6,500	9 – 11
Simple Brain Tumor -Biopsy -Surgery	1,000 4,300	> 4,300 > 10,000	6 – 8
Parkinson -Lesion -DBS	2,100 17,000	> 6,500 > 26,000	9 – 11
Hip Replacement	4,300	> 13,000	9 – 11

* These costs are an average and may not be the actual cost to be incurred.

(Source: Health Line)

The key components:

The following four basic components constitute the healthcare tourism industry: • Healthcare Providers: Hospitals, mainly corporate hospitals and doctors • Payers: Medical/ Health insurance companies • Pharmaceutical Companies: for high quality affordable medicines • IT Companies: operating in the healthcare space

Growth drivers and barriers:

Following are the key growth drivers:

Government support through policies and initiatives
High quality, yet low cost care
Much less or no waiting time
World class private healthcare infrastructure
Rich source of natural and traditional medicines. Ministry of Tourism is promoting the traditional systems of medicines, like, Ayurveda, Siddha, and Yoga to project India as a the destination of choice for spiritual wellness and healing

In future, the world class and low cost private sector healthcare services are expected to drive the growth of the medical tourism in India.

However, any shortages in the talent pool and inadequacy in other basic infrastructural support like roads, airports and power could pose to be barriers to growth of this sector, if not addressed immediately.

Government Assistance:

The government of India is now supporting the hospitals to get the Joint Commission International (JCI) accreditation.

In 2009 the government announced a revised guidelines for ‘Marketing Development Assistance (MDA)’ scheme for approved Medical Tourism service providers like, representatives of hospitals accredited by Joint Commission for International Accredited Hospitals (JCI) and National Accreditation Board of Hospitals (NABH) and Medical Tourism facilitators (Travel Agents/Tour Operators approved by Ministry of Tourism, Government of India and engaged in Medical Tourism (MTSP) and to the approved Wellness Centers i.e. representatives of the Wellness Centers accredited by the State Governments.

All these measures are expected to accelerate the growth of healthcare Tourism industry in India.

List of JCI Accredited Hospitals in India:

Following are the JCI Accredited Hospitals in India till 2007:

	Name and Place	Accredited on
1.	Indraprasta Apollo Hospital, New Delhi	June 18, 2005
2.	Wockhardt Hospital, Mumbai	August 25, 2005
3.	Apollo Hospitals, Chennai	January 29, 2006Disease- or Condition-Specific Care (DCSC)Certification for Acute Stroke: 29 April 2006
4.	Shroff Eye Hospital, Mumbai	February 18, 2006
5.	Apollo Hospitals, Hyderabad	April 28, 2006
6.	Asian Heart Institute, Mumbai	October 20, 2006
7.	Satguru Pratap Singh Apollo Hospital, Punjab	February 3, 2007
8.	Fortis Hospital, Mohali	June 15, 2007

Source: Joint Commission International, 2007

The challenges:

Following are the key challenges that India will need to address to emerge as a healthcare tourism hub of the world:

Improving the infrastructure
Adequate training of the staff
Enhancement of the image of India as a corruption-free country
Continuous improvement of overall service to the patients

Conclusion:

While encountering the global economic meltdown many corporate business houses, even in the developed nations of the world, are under a serious cost containment pressure, which includes medical expenses for their employees. Such cost pressure has already started prompting many companies to send their employees to low cost destinations for treatment, without compromising on the quality of their healthcare needs. This trend could offer an additional growth opportunity in the healthcare tourism sector in India.

According to the ‘Medical Tourism Climate Survey 2010’ report, the leading medical tourism destinations are currently India, Thailand, Hungary and Malaysia and the leading source of patients being again the USA, UK and Russian Federation.

The survey rates Thailand, India and Singapore as the best in terms of quality of overall patients’ care. Insurance and liability issues for the patients from some major markets of the world could pose to be a challenge for speedy growth of this industry.

Countries like, Thailand, Singapore and Malaysia, located in quite closer proximity to India, will continue to offer a tough competition in the healthcare tourism space of the country.

In an increasingly heated-up fast evolving competitive scenario, the name of the game for India will be to ‘step on the gas’, sooner and effectively.

By: Tapan J Ray

PILMAN

A Tapan Ray Website

Tag Archives: Medicines

‘Free Essential Medicines for All’ – A Laudable Public Healthcare Initiative of India, Tough Challenges Notwithstanding

Chasing the “Holy Grail”: Reasonably affordable healthcare for all

Balancing Strong IP Protection, Public Health Safeguards and Declining R&D Productivity – A Crafty Gutsy Ball Game

The New Drug Policy is languishing in a labyrinth

Are Preventive Medicines always cost effective to be an area of focus in healthcare management?

Healthcare Industry of India: Being catapulted from a labyrinth to an accelerated growth trajectory

Quantum Growth Envisaged in Government Procurement for Pharmaceuticals: A Challenging Ball Game for Pharma Players

Healthcare Tourism: India needs to step on the gas