Profiteering in the scarce resources of the community

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All choices matter greatly, for this is a low-cost, high volume game. The differential in manufacturing costs between the most and least expensive syringe may be just a few paise. The paise can be saved in a few ways: by achieving economies of scale; or by choosing sub-par material, cutting corners in manufacturing or quality control, or not investing in post-market surveillance.

Compromising With The Quality

The way to find companies that have good quality products is to look at the market share, Das said. “Medical devices is a reputation business; it’s a trust business more than technology business, so it’s difficult to be untrustworthy and survive a long time,” he said.

On the metric of reputation, four companies are doing well: HMD has nearly 60% of the market. And three foreign companies—BD, Germany’s B Braun Melsungen AG, and the Japanese company Nipro—have a reputation for particularly sharp needles. Where HMD supplies all kinds of hospitals and pharmacies across the country, foreign companies mostly sell to expensive corporate hospitals in tier 1 cities.

At this end on the spectrum of excellence, there is little difference in quality. HMD supplies to WHO and UNICEF, while the other companies are from nations with stringent medical device rules. And yet, the MRP of syringes can vary greatly, depending on the brand. A 5-mL syringe from HMD costs Rs 6.50 ($0.09), while a similar one from BD costs Rs 14.50 ($0.20) and one from LifeLong, a syringe-maker in Gurugram, costs Rs 23 ($0.31). A hospital that sells HMD would earn a 376% profit, while a hospital that chooses Lifelong would earn three times as much—a 1,011% profit.

High profit margins in business are not unusual. The pain relief cream Moov retails at Rs 120 ($1.63) but costs just Rs 12 ($0.16) for the company to manufacture it, according to wholesalers. Reckitt Benckiser Group PLC, the owner of Moov, spends twice as much on advertising on TV and radio. A similar cream, Zandu Balm, owned by the Emami group, sells at Rs 35 ($0.48) but costs a small fraction to the company. A Louis Vuitton handbag definitely costs much less than its price tag of $1,500 (Rs 1.10 lakh).

But a syringe is not like these products because it is an indispensable part of most treatments. And where in the case of Moov or a handbag, the consumer can exercise her right to choose an expensive product, the decision of syringe is usually thrust upon her by the hospital or diagnostic lab.

That means the consumer of the syringe in the competitive marketplace is not you or me. Rather, it is hospitals, pharmacies and diagnostic labs. And it is to satisfy their needs and bottom lines that the medical device industry has evolved.

Sale! Sale!

There is immense competition, which means manufacturers will do whatever is needed to increase the volume of sales. One strategy is printing a higher MRP and giving hospitals a reason other than quality to choose their brand. The hospital would procure the product at a heavily discounted price (“price to trade”) but sell to patients at a high MRP, earning significant profits. The difference between the price to trade and MRP is known as the trade margin. The higher the margin, the bigger the potential markup on a product.

In south Bengaluru’s crowded medical market, a litter-strewn, paan-painted staircase leads to a one-room dingy wholesale shop. Metal shelves are stocked with medical supplies in cardboard packaging, 100 pieces to a box. If Prabha Distributors is cashing in on the immense profit margins available in the medical device sector, it certainly is not reflected in proprietor Venkatesh’s dingy premises or his dated desktop PC. When a day labourer steps in to ask for a day off on Sunday for a family get-together, Venkatesh turns him down brusquely. He himself works Sundays.

Venkatesh is the last guy but one in HMD’s supply chain, which might have as many as seven layers or as few as two. Venkatesh gets HMD’s “Dispovan” brand 2 mL-syringe for Rs 1.38 ($0.019) per piece from his supplier. He is willing to sell at Rs 1.55 ($0.021) per piece, which is a 12% markup. If Venkatesh didn’t price the syringe competitively, the hospital would go to other wholesalers in Sultanpet and get a better deal. It’s a free market.

The hospital would sell the syringe at MRP of Rs 4.50 ($0.06), earning a 200% profit.

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