Bringing Medical Devices Under Drug Regulator’s Purview May Lead To Higher Costs For Hospitals, Says ICRA

India’s move to bring medical devices under the drug regulator’s purview will raise expenses for hospitals, leading to higher costs for patients, according to ICRA Ltd.

“The companies will now have to obtain approval to manufacture, import and sell medical devices in the country, thus increasing the cost of compliance, leading to longer lead time and higher expenses in launching new products, thereby resulting in increase in costs,” Kapil Banga, assistant vice president at the rating agency, said in a media statement. “It is believed that much of the price hike will be passed on to the patients, cushioning the impact on the profitability margin of hospitals.”

Earlier this month, the Ministry of Health and Family Welfare notified all medical devices as “drugs” and brought them under the scope of the Drugs and Cosmetics Act, 1940 from April 1, 2020. These include any devices intended for use in diagnosis, treatment, mitigation, or prevention of disease or disorder.

The action may pose a challenge for the healthcare sector, ICRA said, as it paved the way for higher regulation of medical devices under the Drugs Price Control Order, which enables the government to fix the prices of some essential bulk drugs and their formulations.

According to the notification, companies will have to obtain approvals for manufacturing, importing as well as selling medicinal devices in the country. This will not only increase the costs of compliance but will also take longer to launch products, ICRA said. This, according to Banga, came right after a 5 percent health cess was imposed on import of medical devices in the country, which too increases costs for hospitals.

Also, the timing of the notification can hurt a recovery for the hospital sector. “This comes when the hospital sector performance was recovering on the back of an improvement in occupancy and average revenue per occupied bed, post the absorption of the impact on profitability due to earlier regulatory restrictions imposed by the NPPA (National Pharmaceutical Pricing Authority) and the goods and services tax,” ICRA said.

Still, the ratings agency maintains a stable outlook on the sector. That’s despite a “transient” impact from any incremental regulation.

“Structurally, in the long term, underlying fundamentals like significant shortage of beds in the country, and increase in disease burden and an ageing demographic profile continue to favour the sector,” Banga said. “Further, the demand for quality healthcare will be supported by rising per capita income, increasing penetration of medical insurance, riding healthcare awareness and double-digit growth in medical tourism.”