INDUSTRY UPDATE
The global medical devices market is valued at USD 342.39 billion, out of which India's market accounts for a meagre 1.3% of the total value. The Government of India announced a revised Foreign Direct Investment (FDI) policy for the sector in January 2015 in which foreign investment up to 100% was allowed under the automatic route for both greenfield and brownfield investments. The Reserve Bank of India (RBI) has been mandated by the Ministry of Finance's (MoF's) Financial Intelligence Unit (FIU) to investigate all investments made in the medical devices sector post January 2015 through the automatic route.
The definition of medical devices, for FDI, is the definition as proposed in the Drugs and Cosmetics (Amendment) Bill, 2013. However, the government withdrew this Bill from the Rajya Sabha (Upper House) in June 2016 and released the new Medical Device Rules, 2017 for the sector which will be enforced from 1 January 2018. The Ministry of Health and Family Welfare (MoHFW) is working on a separate legislation to regulate medical devices. The withdrawal of the amendment bill has led to a loophole in the policy as the draft legislation is yet to be enforced and has given the FIU a reason to believe that there could be misrepresentations and companies might invest through the automatic route, even if they are not entitled to do so.
The FIU made these observations post the proposed investment by BioMérieux, a French biotechnology firm, in RAS Lifesciences Private Limited whereby the increase in stake from 60% to 70% came to light.1 Based on the application made to the RBI, BioMérieux believes that it does not need to take approval from the Foreign Investment Promotion Board (FIPB) as the investment was proposed post the withdrawal of the FIPB nod by the government. The RBI agreed with the company and permitted the investment.
Before January 2015, the policy governing FDI in the medical devices sector had three major conditions which were:
- The foreign investor needs to sign a non-compete clause except with the approval of the FIPB;
- A certificate along with the FIPB application by the investor and investee is required; and
- The right to incorporate appropriate conditions for FDI in brownfield investments.
The gap in the policy has the following consequences:
- After the January 2015 FDI policy announcement, for any foreign investment to qualify under the automatic route, the activity of the company should be confined to manufacturing medical devices and should exclude pharmaceuticals or brownfield pharmaceutical acquisitions.
- As there is ambiguity over the rules, companies may avail the automatic route, deliberately or otherwise, which they may not be entitled to as the definition under the FDI policy is different from the one effective by law.
To address this issue and avoid hampering any investment while keeping the law as clear as possible, the FIU reached out to the Department of Industrial Policy and Promotion (DIPP) to revisit the FDI policy in consultation with the DoP. The DIPP may issue a notification stating that the definition of medical devices under the FDI policy released in January 2015 will be the definition as prescribed in the Drugs and Cosmetics Act, 1940 and any amendment made to the said act from time to time.2
TÜV SÜD, a German testing and certification company, recently announced a host of different services for medical device manufacturers in India. The aim of these services is to give Indian products global acceptability and exposure, and to provide Indian manufacturers the opportunity to upgrade their products and processes.3
SECTORAL INITIATIVES
The government of India, over the period of the past 12 months, has been very active on reforms for the medical devices sector. With the introduction of new rules, the government for the first time has defined medical devices separately and has brought the rules up to global standards. The government also took action on the long-standing complaint of overcharging on stents by capping the price, while the consumers are rejoicing the industry is not.
Medical Devices Rules
The ministry released the first draft of rules in July 2016 and post consultation with the industry and stakeholders released the second draft in October 2016. In January 2017, the MoHFW notified the Medical Devices Rules, 20174 and announced that they would be effective from 1 January 2018, thereby providing time for players to adapt to the new rules.5 The rules have been framed to conform to the framework laid down by the Global Harmonization Task Force (GHTF) for medical devices. The rules aim to bring the Indian medical devices industry on par with global standards and have been customised while keeping the Indian context in mind. The major changes made in the rules are:
Definition of medical devices
The 2017 rules define medical devices as follows:
- Specific devices intended for internal or external use in the diagnosis, treatment, mitigation or prevention of diseases or disorders in human beings or animals which are notified by the government from time to time under the Act. Some categories of devices have already been notified by the government.
- Specific substances intended to affect the structure or any function of the human body which are not notified by the government. At present, the substances notified are mechanical contraceptives (e.g. condoms, intra-uterine devices, tubal rings) and disinfectants.
- Surgical dressings, surgical bandages, surgical staples, surgical sutures, ligatures, blood and blood component collection bags with or without anticoagulant.
- Substances used for in-vitro diagnosis.
- All substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings or animals.
The rules explicitly mention that all devices are regulated which are covered by the definition above, however, the Drugs and Cosmetics Act also include medical devices as part of the definition of the 'drug' and since it has not been amended, the rules will apply to all medical devices. Fortunately, the rules provide clarity and states that in case of confusion/contradictions between the 2017 rules and the Drugs and Cosmetics Act, the 2017 rules will prevail.
Classification of devices
The new rules introduce a rational and scientific approach to the classification, segmenting products based on the risk these devices may pose to human beings. The devices with the lowest risk are class A devices, devices with moderate risk are class B devices, devices with moderately high risk are class C devices and devices with high risk are class D devices. Class A products will not be brought under the purview of any regulation. Class A and class B products consists of X-ray machines, computerised tomography machines, magnetic resonance imaging machines, etc. whereas class C and class D products consists of stents and other implantable devices.
Quality management
With the intention to ensure quality and add quality credence to the Indian medical devices, the rules envision a system wherein third parties can conduct an assessment and certify quality management systems of Class A and B device manufacturers. These certifying bodies have to be accredited by the National Accreditation Board for Certification Bodies (NABCB) to prove their competence with regard to the capability of their human resource. The rules also mention that these third-party bodies can provide assistance to the NABCB for regulating Class C and Class D products. The rules aim to encourage self-certification and hence allow Class A manufacturers to obtain manufacturing licenses before the audit of the facility. However, after getting the approval, an audit has to be conducted by an NABCB accredited body. The rules have empowered state licensing authorities to allocate licenses for Class A and Class B manufacturers. However, the Central Licensing Authority (CLA) will regulate licenses for Class C and Class D manufacturers. The CLA can ask for assistance from experts and other notified bodies on a case to case basis.
Clinical trials
The new rules have separate provisions for the clinical trials of medical devices and these trials will be referred to as clinical investigations. The provisions have eliminated the four-phase stringent trial norms that are applicable for pharmaceuticals and have introduced a two-phase process. Phase one will involve conducting a pilot study on a small focus group to prove the safety and performance. Phase two will be conducted on a larger group. The Central Drugs Standard Control Organization (CDSCO) will regulate the trials of investigative medical devices. Separate provisions for medical management and compensation for the subjects of the trials have been introduced to achieve patient safety. The rules have provided for compensation of up to INR 800,000 for people affected by an adverse trial.
Product standards:
Earlier, there was no clarity of product standards to be followed by medical device manufacturers and there was constant confusion. Medical device manufacturers earlier were in a dilemma as to which BIS (Bureau of Indian Standards) standard to follow for the products. However, the new rules aim to clarify the same and have listed down three standards which are to be followed in the same order and are as follows:
- A standard notified by the Central government for the medical device specifically or which has been laid down by the BIS or;
- Where (a) is absent, to a standard laid down by International Organization for Standardization (ISO) or the International Electrotechnical Commission (IEC); or
- Where both (a) and (b) are absent, the validated manufacturer's standard.
Miscellaneous
The new rules have eliminated the need for constant re-approval of manufacturing licenses. The licenses have been given indefinite validity, unless the license is suspended, terminated or has been surrendered by the manufacturer. Also, the rules have eliminated the need for applying for a registration certificate at the time of registrating as a foreign manufacturer as well as the need of an import license. Now, the rules specify that a foreign manufacturer only has to appoint an agent in India and then apply for an import license thereby decreasing the time taken to obtain a license. For making the process of approval easy and user-friendly, the entire process can be done online. The rules have capped the shelf-life of medical devices at five years from the date of manufacturing. The rules allow for this shelf-life to be extended provided sufficient evidence is provided by the manufacturer to the CLA to justify the extension. Henceforth, from the applications stage to getting the approval/permission, the process will be online. Also, the rules mention that the National Accreditation Board for Testing and Calibration Laboratories (NABL) along with other agencies will establish laboratories for testing medical devices.
Price ceiling on stents
Coronary stents are used for clearing blockages in coronary arteries. With changing lifestyles, improving access and incomes, and the growth in incidence of chronic diseases like IHD, the number of stent procedures in India has increased significantly and strong growth continues. There are a variety of stents that are sold in the market like bare metal stents, drug-eluting stents, including several newer generation stents. To provide a better perspective, in 2010, approximately 145,000 stent insertion procedures were carried out and in 2015, the number increased to approximately 345,000. With the increase in the number of procedures, the prices of these stents also skyrocketed at the patient level. The government bodies felt that patients and families in general are not able to understand this category well and have been exploited. A report from the National Pharmaceutical Pricing Authority (NPPA) illustrated an analysis of foreign made stents and how they flow through the distribution chain. The report found out that there were profits made by various stakeholders which the report termed as unreasonable. The variance between the landed cost of imported stents and the Maximum Retail Price (MRP) ranged between 300% and 1200%. These margins were inflating the cost of healthcare services drastically because of which these services were unaffordable for many patients.6
The DoP issued a notification in December 2016 stating that a price cap will be imposed on coronary stents so that exploitative pricing can be stopped. The notification would allow the NPPA to ascertain the maximum prices of stents. All coronary, bare metal, drug-eluting stents and subtypes stents such as bioresorbable vascular scaffolds and biodegradable stents are covered under the notification.
By mid-February, the NPPA came out with a formula to regulate the prices of different cardiac stents under two categories: drug-eluting stents and bare metal stents. Accordingly, the NPPA issued a notification stating that the ceiling price of drug-eluting stents and bioresorbable stents will be fixed at INR 29,600 per unit and bare metal stents at INR 7,260 per unit. Para 24 (4) of the Drug Price Control Order (DPCO), 2013 states, "Every retailer and dealer shall display the price list and the supplementary price list, if any, as furnished by the manufacturer, on a conspicuous part of the premises where he carries on business in a manner so as to be easily accessible to any person wishing to consult the same". After this notification, hospitals have to prepare separate bills for stents (and will not be able to include them in overall procedure/package prices).
The industry has, in general, vigorously opposed the cap. AdvaMed, an international group of device makers, expressed its disappointment with the price cap and said that all stakeholder representations submitted to explain the differentiation between various kinds of stents have been disregarded. The group also suggested that there is a possibility of this step blocking innovation and hampering the sector in the long-run. AiMed, a body representing domestic stent manufacturers, believes that the cap is too harsh and will adversely effect the industry. They believe that the caps need to be reasonable and should allow a smooth transition, and the order, being effective immediately, is not viable.
Doctors have a mixed view on the notification. Dr Vivek Jawali7, chief cardiothoracic and vascular surgeon of Fortis Hospital, believes that the regulation will lead to cheap dumping from China and Canada and FDA approved stents will eventually be withdrawn from the market as they all have been clubbed in a single segment. However, certain hospitals have welcomed the move and will pass the benefit on to the patients. Health experts feel that the average landing price may not exceed INR 17,000 and hence, a price of INR 29,000 still leaves room for profit margins. However, these margins will not sustain R&D and innovation.
There is a possibility that device makers can approach the NPPA to claim higher prices post proving that their technology is better than the existing devices as per the pharmaceutical industry practice.8 However, that might be easier said then done, as a committee of doctors for accessing the essentiality of stents found that there is no clinical data available on deaths or heart attacks on the available drug-eluting stents. It also noted that superiority of bio-absorbable stents is yet to be demonstrated.9 In fact, a study published in the Lancet journal in November 2016 found that bio-absorbable stents, which are touted by many as technologically advanced, posed a higher risk of artery blockage. Thus, it will be critical for the stent makers to prove differentiation in the product on account of technical innovation.
While there have been positive policy initiatives for the industry, the introduction of price control on some devices, and more importantly, the method in which prices are being fixed and regulated are a major hurdle for the industry and have left many participants concerned and confused. In the case of coronary stents, which is the first category of products for which price control has been announced, the following gaps are worrying:
- No serious and rigorous assessment of the medical technology differences between different kinds of stents and the impact of the same appears to have been done.
- A better understanding of the price build-up through the entire chain, from supplier to consumer, and how it would affect various stakeholders is needed in this industry. Also, a better assessment should have been made of what margins are required and reasonable through the supply/value chain.
- Other options to widen access to the underprivileged with lower cost devices and procedures should have been evaluated.
- More thought as to how to encourage innovation in this industry, where product and technology life cycles are short, is required. It is evident that there needs to be a thorough and proper study conducted by a premier institute like the Indian Council for Medical Research and guide the DoP and NPPA on the appropriate structure. The MTAB10 (Medical Technology Assessment Board), which has been announced but yet to be notified, could be tasked to bring in adequate process and rigour into the technology assessment.
The industry believes that NPPA arrived at the prices in haste and should have conducted more diligence in capping the prices. The NPPA on the other hand believes that the action was due and the public at large should be benefitted with immediate effect. It is clear that while the NPPA's intention is legitimate, the approach to implementation should have been different.
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Footnotes
4 http://pib.nic.in/newsite/PrintRelease.aspx?relid=157955
6 http://www.telegraphindia.com/1161222/jsp/frontpage/story_126146.jsp#.WFts6dJ97IU
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