Stories
Supreme Court Scrutiny on Medicine and Device Pricing Puts Hospital Earnings at Risk
- •The Supreme Court is examining excessive mark-ups on medicines and medical devices, raising concerns about potential impacts on healthcare sector profitability.
- •Analysts estimate that pharmacy sales represent 20 to 25 percent of hospital revenue, and tighter trade margin caps could place a high-teens percentage of hospital EBITDA at risk.
- •Stricter price controls might also affect the commercial viability of introducing new medicines and medical devices in India if returns fail to justify investments.
- •Hospitals could attempt to offset revenue pressures by adjusting charges for cash-paying patients, though flexibility remains limited for insurance-covered patients.
- •The upcoming Supreme Court hearing on October 27 is expected to provide greater clarity on the government's approach to drug pricing and trade margin caps.
Key Questions Answered
During its October 12 hearing, the Supreme Court questioned why price controls were restricted only to non-scheduled anti-cancer drugs and asked the government about its plans to curb inflated pricing across other medicines and medical devices. The court also previously highlighted extreme mark-ups, such as a cancer drug supplied to retailers for Rs 2,700 but sold with an MRP of Rs 27,000.
According to Macquarie Capital analyst Kunal Dhamesha, pharmacy sales make up roughly 20 to 25 percent of hospital revenue. If trade markups are reduced from an assumed 50 percent down to 30 percent, it could cause a 4 to 5 percent drop in revenue and potentially put a high-teens percentage of hospital EBITDA at risk.
The next Supreme Court hearing is scheduled for October 27. This upcoming date is expected to provide critical clarity on the government's regulatory stance regarding drug pricing, potential trade margin caps, and medical consumables.
