India: CCI Widens The Scope Of Investigation Into Unfair Pricing By Private Hospitals In Delhi – Based On Current Investigation Against Max Super Specialty Hospital For Overcharging For Consumables Through In House Pharmacy

Last Updated: 2 January 2019

Article by MM Sharma, Head Competition Law & Policy Practice, Vaish Associates, Advocates, New Delhi, India

The Competition Commission of India ("CCI/Commission") vide order dated 31.08.2018 has directed further investigation by the Director General ("DG") into allegations of unfair and excessive pricing by private hospitals in entire Delhi by compelling in-house patients to purchase medicines and other consumables such as syringes etc. through their in-house pharmacies , on the basis of the findings in an existing complaint of similar practices allegedly adopted in the aftermarket by Max Super Specialty Hospital .

Background

Instances of private hospitals overcharging admitted patients are not uncommon and are often reported in media . The private hospitals invariably have their in-house pharmacy in the hospital premises . It is common to see the treating doctors in the hospital recommending compulsory purchase of consumables such as medicines , syringes etc. from the in-house pharmacy in the hospital . The relatives of the patients are not allowed to buy the consumables on pretext of quality concerns from outside shops even though the same product may be available at cheaper rates in outside chemists' shops.

You may recall that this well-known unfair trade practice by private hospitals was demonstrated in 2015 by an innovative lawyer , Mr. Vivek Sharma from Delhi by filing a formal complaint against the Max Super Specialty Hospital in Patpar Ganj, Delhi ( "Max hospital"/ OP -2 ) in which he alleged overcharging higher Maximum Retail Price ("MRP") for Disposable Syringes by the Max hospital with evidence of the cash memo of the same type of syringe purchased by him from a retail chemists shop outside the Max hospital at much cheaper rate.

He also alleged that the Max hospital had an exclusive supply agreement through M/s Shobhan Surgical Works , the whole seller /stockiest of blister pack disposable syringes and through M/s Hindustan Surgical, the whole seller/stockiest of flow wrap syringes with Becton Dickinson India (P) Ltd. (OP-1) , the manufacturer of both types of disposable syringes and that they had also printed higher MRP on the syringes under an agreement .

Finding prima facie case of violations of the provisions of the Competition Act ,2002 ( the Act) , the Competition Commission of India (CCI/Commission) , vide its order dated 17.11.2015 under section 26(1) of the Act referred the matter for investigation to the Director General ( DG) .

On conclusion of the investigation , the investigation report dated 05.05.2017 submitted by the DG (the DG report) found that Max hospital has been compelling its in-patients to purchase the consumables including medicines and syringes etc. only from its in-house pharmacy once they are admitted. The DG report also found that Max hospital/ OP-2 had earned huge profit margins ranging from 269.84% to 527% in the financial year 2014-15 and ranging from 276.96% to 527% in the financial year 2015-16 by sale of different syringes. Also, with view to earn more profit, OP-2 had shifted its procurement / purchase from flow wrap syringes to blister pack syringes during 2015-16. The DG report thus found that Max hospital was abusing its dominant position by charging unfair price of the consumables from its in-house patients in violation of section 4(2) (a) (ii) of the Act .

However, the DG did not find any evidence of any collusion or agreement between OP 1 and OP 2 to print higher MRP on the syringes and of any exclusive supply agreement between them for supply of syringes to Max hospital through stockiest of OP-1 and ,therefore, found no case of violation of section 3(3) of the Act.

DG Report

The DG in his investigation considered the market for 'provision of healthcare services/facilities by private super-speciality hospitals within a distance of about 12 kms from Max Super Speciality Hospital, Patparganj' as the relevant market and found Max to be in a dominant position. While assessing the dominance, the DG considered factors such as the number of beds, number of on-roll and on-call doctors, number of in-patients and out patients, financial strength, brand name etc. The DG report also revealed that Max had earned huge profit margins ranging from 269.84% to 527% in the financial year 2014-15 and ranging from 276.96% to 527% in the financial year 2015-16 by sale of different syringes. Further, the DG found that Max has been compelling its in-patients to purchase to purchase products only from its in-house pharmacy once they are admitted.

CCI Order

CCI, upon analysis of the DG report, observed that while the DG report contains a reference to Max's conduct as being akin to 'aftermarket abuse'; however the same has not been investigated/analysed in greater detail. The Commission held that it would be desirable if a finding be given on the delineation of relevant product market considering the aspect of aftermarket abuse, if any. Further, the CCI observed that the DG delineated the relevant geographic market using the 'out-patient' data whereas the abusive conduct has been examined in relation to the 'in-patients'.

As regards the finding of the DG that Max has been compelling its in-patients to purchase to purchase products only from its in-house pharmacy once they are admitted, the Commission is of the view that it has a 'locked-in' effect and such a conduct may be considered as an aftermarket abuse even if Max is not found to be dominant in the primary market for provision of healthcare services in Delhi.

With respect to the imposition of unfair prices by Max, the Commission observed that the DG looked into very high profit margins in sale of flow wrap syringes and blister pack syringes alone, to come to the finding that unfair prices were being charged as an abuse of dominant position. However, the DG has not investigated the total profits of Max from the sale of syringes as well as from the sale of other products in the after-market such as medicines, surgical tools etc.

The CCI observed that, keeping in mind the 'locked-in effect', further investigation regarding other products is necessary, in particular, in the aftermarket products which are not required on an urgent basis or which do not involve aby high degree quality issue form the medical procedure point of view.

The Commission observed that the "abuse of dominant position by Max in charging supra-competitive prices from the locked-in patients for the products and/or services including but not limited to syringes in the aftermarket needs to be explored."

Accordingly, the CCI has directed the DG to further investigate the matter with specific focus on-

  1. The relevant market– The DG had considered the relevant geographic market to be limited to 'a distance of about 12 kms from Max Super Specialty Hospital, Patparganj. The CCI has directed the DG to consider entire "DELHI" as the relevant geographic market.
  1. Broad scope of products- CCI has directed the DG to broaden the scope of investigation by covering all aftermarket healthcare products and services provided by all super specialty hospitals across Delhi, specifically focusing on the product sold by hospitals to their in-patients which are not required on an urgent basis for any medical procedure or which does not involve any high degree of quality issue from the medical procedure point of view, and for the purchase of which, the patients have the time and scope to exercise their rational choice in purchase.

Comment:

This order assumes significance as it shows special focus placed by CCI on the healthcare services through private hospitals . The widening of the scope of investigation to cover all super specialty hospitals across Delhi is likely to shock the healthcare industry in general and private hospitals and their suppliers of consumables in particular , since the investigation will investigate all aspects of exclusivity and pricing etc. The order comes as a pre cursor to the recent Policy Note on the "Making Markets Work for Affordable Healthcare" published by CCI in which "vertical arrangements in healthcare services and lack of transparency " is included as an issue.

Specific Questions relating to this article should be addressed directly to the author.

© 2018, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions