"Pricing Transparency Is What We Want"
Joe C Mathew November 26, 2018
Medtronic is an active member of AdvaMed, which is lobbying with the US government to take away tariff concessions given to India. Will such a stand help your cause in India?
These are tactical moves. You could expect a set of tactics countered by another set of tactics (at a government to government level). I see a bigger opportunity in India and I think the (Indian) government is also looking at a bigger partnership with medical technology companies to provide quality healthcare for people in India.
AdvaMed has expressed concerns over India's pricing policy. Will solving such issues be a pre-requisite to partnerships?
These are two separate things. The partnership is not going to happen in one month, while the tactical moves related to the India-US trade collaboration are not restricted to healthcare, and are short term. That will have some impact on us, but it will impact other industries as well. What I am focused more on is that we, as Medtronic, can do with the government of India to provide better healthcare. We want a long-term partnership with India where we create value-based healthcare in India that benefits patients. We will benefit from that; eventually, the entire industry will benefit from that, but that is not a one-month journey. That's a five years' journey and we want to be long-term focused.
Medtronic has been present here since 1979, but India still accounts for only about 1 per cent of your global revenues. What is the reason for this?
India has quality clinicians and has a critical mass of high quality delivery centres at least in the Tier-I cities. But I am not sure if that has been translated into something that will benefit the entire population. That is why the market is so small and our business is so small. A consistent government policy, which puts down some rules as to what kind of coverage to expect, what kind of fair pricing to expect, is needed. That journey is starting. The launch of Ayushman Bharat, the healthcare payment scheme (insurance) and the commitment of coverage are fundamental long-term statements that have not been made with such conviction before.
What is the growth one can expect once you have a predictable policy in place?
It will constantly evolve. Getting to critical mass will take a few years. Right now, the government is focused on setting up the infrastructure. By their own statements it is going to take three to four years. We can start the dialogue and see how pricing policies and value policies will be. But for real policies to be rolled out, which are practical, it will take some years.
Any estimates of the market opportunity?
It's simple math. Let's stick to cardiology because it is the biggest (market). Our global cardiology business is well over $7 billion. Of that, probably 50 per cent is in the US. If you really want to talk about full coverage in India, where the population is five times that of the US, then in principle, all things being equal, even with a price discount (because of volumes), I expect the market for our products alone, with our share, to be worth $10 billion (in India) in the long term. This is just in cardiology and we don't do everything in cardiology. So you see the potential. But to do that, you need to have the same type of infrastructure the US has. You need to have the same type of technology adoption. And there is no reason why India should not have that. One day sometime in the future, India will be a bigger market than the US and it has to be.
Are you not looking at complete pricing freedom?
Transparency is what we want. One should try to quantify the value and set the price accordingly. That is fair price. That is not pricing freedom. I am not saying we should get whatever we say. What I am saying is that this is the value I am creating and based on the value, this is the price that I deserve. There is going to be a difference between the value that is derived from one set of technology and the value derived from another set of technology. I would like that to be quantified in a way that patients see the benefit. If there is additional benefit, one deserves higher price.
Is there a move in that direction?
There is in principle an understanding. I met government representatives. There is an understanding that something like that should be put in place. What the details of that are, I think the government will acknowledge that they will have to work out. They are quite open to working with us, not just us, with others too in trying to formulate that. We will work with the government as partners to provide better healthcare.
The government also wants to discourage imports.
From a business perspective, one should be making (in India) if there is a market. Every country that I go to, there is a case that is made by the government as to why I should manufacture there. If small countries say they are the biggest exporters, big countries like India say they are the biggest markets or potentially big markets. They all have cheap labour, or everyone has good technology. So everyone has a story. I do think that having a captive market is an advantage for India. Local manufacturing is something that we will naturally get to if the market evolves to that degree. The problem will solve itself once there is critical mass in the country. China (market) is much bigger (than India) but even there we don't have the critical mass to manufacture. We import more than we make in China. So, this takes time.
Can fair pricing and affordability go together?
Of course they will. The whole point of healthcare is that if people's health becomes better, their healthcare costs will go down, not up. If this is played out correctly, then fair pricing will actually reduce the cost. If the pricing is not fair, then you pay the money but your health doesn't get better. Therefore, understanding the true value of healthcare is important.
How close are you to having a product developed in India?
We are getting there, at least partially. Med-tech is more complicated than diagnostic devices because since it is sometimes implanted, it requires hospital infrastructure and other capabilities. So, this does take a little longer. We are fairly early in that journey; we have a few products, particularly one in renal care that we are working on and which will come to the market relatively quickly. In the next five years, we will certainly see products out of centres outside the US in emerging markets that will develop products for local markets and also export.
Will it be less costly?
Not necessarily. It will depend on what the product does. It could well be, but our view of India is not just the cost. It's the population, it's the expertise of the doctors, and the ability to reduce the overall healthcare costs. You need the best outcome that will lower the overall costs. Just being cheap does not mean the best outcome.
Medtronic recently flagged off a potential cyber security vulnerability associated with its cardiac implantable electrophysiology device. Are innovations and internet of things reaching a stage that can threaten the health and safety of patients?
We can manage this particular case because we have newer models with greater protection and they can just move to that. But, we, med-tech companies, should be paranoid about such situations. We should see that things like that can happen and as a result we have to develop systems that prevent that. We are paranoid about safety as the culture of the company runs on safety.