Paresh Vaish – Director at The Boston Consulting Group.

Price Controls is the Key to Managing Healthcare Costs in India.

Governments around the world are increasingly concerned with managing the costs of delivering healthcare to their citizens. The Government of India’s focus on reducing healthcare costs is a welcome one as well.  However, price control of pharmaceuticals is unlikely to be the answer. 

First, more that 80% of the healthcare spending in India happens not on pharmaceutical products but downstream in the healthcare value chain.  As a result, forcing companies to control pharmaceutical prices will yield minimal impact – e.g. even a 10% reduction in pharmaceutical prices would only reduce overall healthcare bill by 1-2% or so.    

Second, there is little that price control can achieve that competition will not. Given that India is essentially a generics market, for each molecule sold in the market there are often 30-40 companies producing the same molecule and competing for market share. Any company which attempts to charge excessive prices for a molecule will rapidly find it is under priced by another player and losing market share. 

Third, India has great potential as a R & D base for MNC pharmacos.  Part of the reason foreign pharamacos do research in a market is the opportunity to sell their newly discovered molecules in that market.  Doing research in such markets makes sense because MNCs have opportunities during the clinical trials phase to build relationships with doctors who could later prescribe their newly launched products to their patients.  However, if there are excessive price controls, MNCs may feel they would not be able to market their products in India (not only due to unremunerative pricing in India but also re-export of lower priced products from India to their home markets) and prefer to shift research to other low cost countries like China.  This will have two negative effects: not only will investments in India be reduced as MNCs choose to do their R & D elsewhere, but also new medical breakthroughs might not be available to our people. 

The obvious question the above raises of course is how can overall healthcare costs be brought down substantially. One opportunity to tackle these costs is offered by the concept of disease management.  This concept is based on the fact that most healthcare costs (over 80%) are result from complications that arise from improper management of a disease.  For example, many see India as the diabetes capital of the world.  Diabetes is a disease whose effects on an individual’s quality of life can be controlled if the patient works closely with his/her doctor and takes medication to manage the same.  However, if the disease is not managed well, diabetes can lead to severe complications including blindness, heart disease etc. the managing of which contributes the lion’s share of the healthcare bill for our citizens.  The magnitude of this opportunity becomes clear when one realizes that of 34m people estimated to have diabetes in India today, for example, nearly 50% are undiagnosed.  Further, many of those who are diagnosed do not follow prescribed treatment.   It is not surprising; therefore, that many of these individuals develop complications related to untreated diabetes thereby incurring huge healthcare costs. 

The government could partner with players in the Indian healthcare system to develop disease management programmes.  Key initiatives here might be catalyzing diagnostic tests on patients with higher risk of incidence of diabetes, increased coverage of medical practitioners in rural markets to manage patients with diabetes, patient education programmes etc. In this way, costs related to complications will be controlled and patients will have a far superior quality of life.   Indeed, a state in the USA undertook exactly such an exercise and managed to reduce healthcare costs dramatically. 

In summary, catalyzing disease management programmes could not only substantially reduce healthcare costs but also yield a much higher quality of life for the Indian citizen – an achievement of which the government could be truly proud.