Why India needs a smarter healthcare margin policy

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The wider lesson is not that every medicine and device should have the same permitted margin. It is that India needs to decide what each margin is paying for. Image used for representational purposes only | Photo Credit: istock.com/Denis Vostrikov

The MRP debate, which has been recently triggered where a hospital purchased a product for ₹11 and billed it for ₹325, is misplaced and lacks the context we need to understand the issue properly.

Hospitals rightly point out that the gap between procurement and billing is not all profit: storing supplies, maintaining sterility and ensuring availability carry costs. But patients are entitled to ask a more basic question. How did ‘maximum’ become the price they routinely pay?

MRP was designed as a ceiling to protect consumers. In healthcare, it can, however, also conceal how a price is built. The printed figure tells a family little about the manufacturer’s returns, the margins taken along the supply chain, or whether the product offers any advantage over a cheaper alternative. A patient in an emergency cannot shop around. When choice disappears, a ceiling risks becoming the default charge.

This is a serious problem, and price controls can help. In 2019, the National Pharmaceutical Pricing Authority applied trade-margin rationalisation to 42 non-scheduled cancer medicines. The government estimated that this could save patients 200 crore annually. But the wider lesson is not that every medicine and device should have the same permitted margin. It is that India needs to decide what each margin is paying for.

A standard syringe sold by multiple suppliers does not justify the same return as a therapy developed for a rare disease after years of research and clinical trials. Nor should a familiar medicine acquire an innovation premium simply because it has a new brand name and a large marketing budget.

India needs a differential profit and margin strategy. Routine, high-volume products should have modest, transparent distribution and hospital margins, informed by comparable procurement prices. Bulk purchasing should benefit patients, insurers and public programmes. Genuine costs of stocking, safe handling, wastage and round-the-clock availability should be recognised openly, rather than recovered through an inflated price for the item itself.

Companies that take substantial scientific risks deserve a different approach. Those investing in original research, rare and neglected diseases, or products that demonstrably improve outcomes while reducing hospitalisations and total care costs should be able to earn higher profits. Fair returns give investors a reason to fund difficult work. But the premium should go to the organisation creating the clinical value, not automatically to every intermediary between the factory and the patient.

‘Novel’ must not be a label a company awards itself. A claim for a higher return should be tested against existing treatments: Does the product help patients live longer or better? Does it prevent complications? Is it safer or easier to use? Does it lower the total cost of treatment, even if its purchase price is higher? A product that costs more upfront but prevents repeated admissions may be better value than the cheapest item on the shelf.

Societal impact should count too. Research into diseases affecting small or neglected patient groups, reliable supply in underserved areas, and meaningful differential pricing for vulnerable patients merit consideration. These commitments must be specific and measurable. A patient-assistance scheme that reaches a handful of people cannot excuse a price that excludes everyone else.

India has an institution on which to build: Health Technology Assessment already evaluates clinical effectiveness, costs and equity to inform public decisions. Its evidence could help distinguish genuine advances from claims designed to justify a higher price.

The government should establish an independent Healthcare Pricing and Value Panel with clinicians, scientists, health economists, patient representatives and pricing regulators. It should assess products against published criteria: clinical benefit, research risk, development investment, disease burden, total health-system cost and access for those least able to pay. Its members should disclose conflicts of interest, explain decisions and provide an appeal process.

A higher return would come with obligations. Companies seeking one should submit evidence and relevant costs for independent review. Premiums should be reconsidered as products mature or competitors enter the market. Where promised benefits remain uncertain, agreements could link part of the payment to observed outcomes. Concessional access for eligible patients and public programmes should be enforceable, rather than left to goodwill.

The panel must also separate manufacturer profits from trade and hospital margins. Otherwise, a policy intended to reward research could simply enlarge the amount captured downstream. Regulators need visibility into invoice prices, rebates and patient charges. Patients need itemised bills showing the product charge and any separate handling fee. Small and rural pharmacies, meanwhile, need viable returns to keep essential products available. A pricing policy that closes the last-mile supplier has failed its patients.

MRP should remain a shield against overcharging, but it cannot be our entire definition of fair price. Companies should be able to make a profit, but not profiteer. India can protect a family buying an IV set and reward a company developing a breakthrough for a child with a rare disease. To do both, we must ask what the price rewards, what benefit the patient receives, and who can actually afford it. In healthcare, margin should follow proven value and access, and not bargaining power over a captive patient.

(Dr. Rajendra Pratap Gupta is the chairman of Health Parliament, a global executive think tank on healthcare, and former advisor to the Health Minister, government of India. founder@parliament.health)

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