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.