GOVERNMENT REVISES PRICES OF CORONARY STENTS : 2018 BEST ECONOMIC RESEARCH ARTICLE
New Delhi, Feb 12 (PTI) Almost a year after it slashed rates of coronary stents by up to 85 per cent, the government today revised the ceiling prices of bare metal stents and drug eluting ones.
In the case of bare metal stents (BMS), the government has increased the prices from current Rs 7,400 to Rs 7,660.On the other hand price of drug eluting stents (DES) has come down to Rs 27,890 from Rs 30,180.
The revised prices will be effective from tomorrow, the national pharmaceutical pricing authority (NPPA) said in a notification.The ceiling prices shall also be applicable to all the stocks of coronary stents available for sale in the trade channel, it added.The NPPA said it has been decided that there is no case for sub classification of DES in the light of lack of enough clinical evidence to support superiority of one DES or other.
The regulator said after intensive deliberations on all the issues and available information/market statistics at its disposal, it was of the unanimous view that “cardiac stents being an essential drug under Schedule I of DPCO, 2013 and part of NLEM, 2015 having paramount importance on public health needs to continue to be kept under price regulation in larger public interest”.
The manufacturers may add goods and services tax and no other charges in the calculation of MRP, if they have actually paid such taxes or if it is payable to the government on the ceiling price specified, it added.
The notification also said wherever institutions such as hospitals, nursing homes and clinics performing angioplasty procedures using coronary stents are billing directly to the patients, they shall be required to comply with the ceiling prices notified and follow the applicable provisions of the DPCO, 2013.
The regulator also directed all the manufacturers to continue to ensure the availability of all the brands of coronary stents and ensure that no disruption is caused in the supply chain because of printing new MRPs.
The ceiling prices as specified the order are inclusive of 8 per cent maximum permissible trade margin which is sacrosanct and no additional charge shall be charged from the consumer/patient except applicable goods and services tax, if any, paid or payable, it added.
The ceiling price fixed shall be applicable till March, 31, 2019 unless revised by another notification, the notification said.Providing a major relief to lakhs of cardiac patients, the government had cut prices of life-saving coronary stents by up to 85 per cent in February 2017.
About Coronary stents
A coronary stent is a tube-shaped device placed in the arteries that supply blood to the heart.It keeps the arteries open in the treatment of coronary heart diseases.
The NPPA also said that based on available data from the official sources and manufacturer/importer, the trade margins for supply of cardiac balloon catheter is as high as 405 per cent over the import cost. It was 292 per cent for cardiac drug eluting balloon or cutting balloon, it added.
This article focuses on a latest revision by the government in the prices of the coronary stents of both bare metals as well as the drug eluting stents.The government has intervened to make stents easily available and affordable for everyone which thus prevents the equilibrium to reach the market clearing price.
Since stents act like necessities today which is why they have an inelastic demand, the firms began to charge a relatively higher price which lead to under allocation of resources which would therefore cause a market which has here lead to under allocation of resource.
“cardiac stents being an essential drug under Schedule DPCO, 2013 and part of NLEM, 2015 having paramount importance on public health needs”1
1 Stated in the article above
Market failure creates an externality in the market. An Externality refers to a gain or a loss to the third party who is not a part of the transaction, a consumption Externality refers to an externality caused by consumption of a good leading to a gain/loss to the society, and since in this case the benefit to society is greater it is a Positive Consumption Externality.
Stents are merit goods and their availability is important, since there is under allocation of resources, as we can see under consumption of stents in the diagram the present quantity is Q while the socially optimal quantity is Q*.
In the consumption of stents, the benefit to the to the society is more than the private benefit i.e. MPB<MSB, the triangle formed by extending the quantity of stents demanded is the potential welfare Gain.
The red dotted line in the graph shows the vertical difference between the present equilibrium and the socially optimal equilibrium.
Since the quantity of stents demanded isn’t the socially optimal quantity accepted by the society, and there is under consumption of resources, which gives a signal to the government that there is a need for the government to intervene and make the market efficient
“To ensure the availability of all the brands of coronary stents and ensure that no disruption is caused in the supply chain because of printing new MRPs.”2
2 Excerpt from the article above
A price ceiling/Cap is a government forced price control, or point of confinement, on how high a cost is charged for a good (here Rs.27880 is the price ceiling).Such conditions can happen if the good is a necessity which will make the goods un-affordable for the people.
Since price will no longer cater to the signaling incentives the firm might use non-price rationing mechanisms which include first come-first serve basis, distribution of coupons, long queuing or even selling on favoritism.
The equilibrium price p* is no more the price for which the goods are sold, the goods are now sold at the price Pc which is below the equilibrium and the demand of the goods have increased from Q* to Qd while the supply in the other hand has decreased for Q* to Qs.
“The stents which were previously sold for Rs.30180 will now be sold at Rs. 27880.”
This might have an Impact on all the stakeholders which are as follows as follows- The Consumers, consumer surplus increases while the producer surplus decreases It increases the personal disposable income of the consumers and they gain.
The workers might lose their jobs as the profits made by the firms are really low, so to cut down cost, the firm might have to decrease the number labors.
The Producers are clearly in a loss as they no longer receive the old equilibrium price Rs.301803 and aren’t able to make sufficient profits required to cover the costs, when we see from the welfare analysis, the producer surplus decreases in size.
The government gains, as they gain political recognition and popularity amongst the people and they also gain if they used to provide subsidized rates for stents in the government hospitals which will no longer be needed, therefore they can use this money in other projects and this will have a positive impact on the government budget (opportunity cost will also be involved).
Since there is welfare loss involved, there will be a market failure.The price ceiling which has been implemented will be beneficial for the society, as the stents are merit goods and is required for medical purposes.
Everyone has the right to live and therefore it was very important to make these stents affordable for everyone and the price ceiling was one step towards this cause which leads to a positive production Externality.
This in turn is a gain to the society as a whole but It can also act as an incentive for Underground / parallel market since there will be dis-satisfied consumers, the chances for a shadow market to join might therefore increase, leads to income inequality and the producer surplus shrinks.
3 Aricle above
