It is commonly believed that deliberate, careful price regulation by enlightened technocrats trumps the haphazard and chaotic regulation of prices imposed by the free market—especially when the market is subject to greed and corruption.
A most interesting case study challenging that belief comes courtesy of the largest Democracy in the world: India.
In 2017, an arm of the Indian Government, the National Pharmaceutical Pricing Authority (NPPA) took action to control the price of coronary stents in India by capping their retail price. The problem that stimulated this action was their exorbitant price that made them unaffordable to many Indians.
The retail prices of US made drug-eluting stents ranged from Rs 80,000 – 150,000 (~$1000 – ~$2000), while the price of Indian made drug-eluting stents ranged from Rs 45,000 – 90,000 (~$600 – ~$1200). Considering that a good job for 90% of the Indian labor force pays about Rs 180,000 per year, these prices put most coronary stents out of the reach of a vast swath of the populace.
What regulators knew, however, was that the price point at which coronary stents were being imported into India was a fraction of the price being charged to Indians. The up-charge had everything to do with what happened after the stent was brought onto Indian soil: The Indian subsidiary of the US stent manufacturer would sell its product to a domestic distributor that would then employ all means necessary to ensure their stent was chosen by cardiologists to be implanted.
For a significant share of the market, the coronary stent that was being implanted had much more to do with the amount of money that could be put into the hands of various intermediaries in the coronary stent supply chain – hospitals, administrators, cath lab staff and, most importantly, cardiologists.
As a result, the patients were essentially paying for the bribes needed to select the stent being taken off the shelf to be implanted. The mechanisms involved would do the Italian mafia proud, spilling into the open when there were disputes among the cast of characters involved.
A widely reported story in January 2013, saw an interventional cardiologist captured in a sting by the Indian Anti-Corruption Bureau (ACB). His crime? Demanding Rs 10,000 from a distributor per stent placed. When there was no money forthcoming after 16 stents were placed, the cardiologist stopped implanting the distributors’ stents.
In a meeting to resolve the issue, the doctor demanded that his ‘commission’ be paid prior to any more stents being implanted. The distributor approached the authorities and a trap was set. Moments after the cash was delivered, a raid by the ACB followed and the cardiologist was caught.
To be clear, from my conversation with Indian practitioners it has transpired that it wasn’t just cardiologists who had hands in the cookie jar. Everybody who had something to do with getting the stent in the patient was on the take: Hospitals, administrators, the staff in the cardiac cath lab (maybe even the chai walla?). That final stent price included all of these payments.
The FDA approved ‘high quality’ US stents commanded the highest prices, which meant that the ‘inducements’ that distributors could provide to cardiologists and, by extension, to hospital administrators and other staff, were the greatest. Private hospitals that served the relatively well off sold the US stents to patients, while the rural or government hospitals that served the poor offered the cheaper indigenous stent. This meant that US stent manufacturers enjoyed market dominance in India. High quality came at a premium.
That was until 2017, when government decree mandated that all drug coated coronary stents were capped at Rs 29,600. Overnight, the game changed completely. With the cushion between wholesale price and customer price taken away, there just wasn’t money available to grease the various hands in the supply chain.
Well, except for the indigenous stents.
The cost of production for these stents was still low enough to leave room for money to change hands. And so it wasn’t long before indigenous stent use skyrocketed, upending the prior dominance of US stents. Indian stents now make up about 65% of the coronary stent market.
Many have declared this a victory of price controls, though this is a hard space to define success.
A cardiothoracic surgeon I spoke to noted surgical volume has ticked up a significant amount presumably because it is now less lucrative for cardiologists to place multiple stents. Yet another cardiologist I spoke to said that the use of coronary stents among the poor had expanded dramatically. Finally, another interventionalist told me that the inability of hospitals to markup the stent price had resulted in cost shifting to raise the price of a hospital bed, as well as higher procedural costs. The price of single vessel angioplasty at one private hospital went from Rs 225,000 to Rs. 300,000. And, of course not surprisingly, any Indian drug-eluting stents that were being sold under the cap, are now sold at the price cap.
The big winners here were supposed to be the average Indian citizen who could now get an essential therapy – a coronary stent – where this wasn’t an option before. The problem with this neat little solution is that coronary stents are really only life saving in the setting of a heart attack. Yet, it is still the case that the minority of poor patients in India who have heart attacks are being treated with far less effective, but cheaper clot busting drugs and a rescue stent afterwards only if its clear the patient and family can marshal the money needed for a stent.
As a result, stents placed for life saving purposes in the acute/urgent setting only account for 15% of all stents that are placed in India. So the price cap put in place to ensure Indians would have increased access to life sustaining therapy mostly impacts the elective coronary stent market for stable coronary disease, where stents are placed to alleviate symptoms, not save lives
Mr. Patel’s shortness of breath on climbing steps could be due to his 80% right coronary stenosis, or it may be due to the fact he hasn’t seen his toes in 20 years after many nights spent eating heavenly besan ladoo’s. Dropping the price of stents makes it much easier for a certain kind of cardiologist to convince Mr. Patel to treat his shortness of breath with a stent, rather than eat less ladoos.
To be fair, eating less ladoos was always going to be a non starter for Mr. Patel.
So the really big winners ended up being the Indian coronary stent manufacturers, whose market share climbed from 35% to -> 65% in one fell regulatory swoop. And the trade-offs loom large. More patients may get stents they do not need, the stents placed may be of lower quality, more patients may get a surgery they could avoid, and the price of admission to hospitals may have to go up to keep hospitals operating.
Capping the prices of stents was ultimately a wrong-headed maneuver that did little to take on the real root of the problem: a culture where bribery is part of the natural currency of daily life. This is, of course, unfair to patients unaware their physicians are blatantly violating a sacred trust, but it is also unfair to the many honest, decent doctors whose work is stained by unethical colleagues.
Politicians like to sate public opinion with a simple populist narrative that price control will lower prices and regulation will tame greed. “We have reduced the stent prices further this year… Price control will continue on stent,” said a government minister recently. Unfortunately for Indians, the policy has ended up raising prices and may have lower quality of care. A triumph of enlightened central planning this is not. But careful listeners can hopefully draw certain lessons that will drown out the din of bureaucratic propaganda.
Anish Koka is a Cardiologist in private practice in Philadelphia. He has never found a suitcase of cash in his office. Material for this blog was sourced from physicians in India that spoke freely on conditions of anonymity.
Stent image courtesy Jack McLure via Wikimedia Commons