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Revised PPO 2017: A call for collaboration rather than confrontation

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As medical technology manufacturers grapple with the fine print of the revised Public Procurement Order 2017, and the government balances the post -COVID-19 fallout on patients versus keeping industry sufficiently incentivised, the long term strategy will be collaborations rather than confrontation

As the nation-wide COVID-19 vaccination campaign roll outs, the initial days of the first phase was marred by technology glitches as well as hesitancy to take one of the vaccines.

What should have been a celebration of the country’s capabilities has been somewhat shadowed by the government’s unseemly haste in pushing through a vaccine without waiting for phase 3 data. While the intention to be self-sufficient is valid, will the means defeat the end result?

The haste has increased vaccine hesitancy, and even if this is negated by senior policymakers like Dr V K Paul and Dr Randeep Guleria taking the same vaccine, it might unfairly tarnish the hard won reputation of India’s vaccine scientists turned entrepreneurs.

Suffusing the pan-India roll out with an overt nationalist flavour was marred by the glitches in the Co-WIN app, not being able to keep up with the vaccine roll out. This, in a nation that prides itself on having the cheapest data rates in the world, and after marketing itself as an IT and tech maverick for the past few decades?

Granted, that a pandemic forces a nation to take giant leaps (of faith) rather than small steps towards goals, but there are lessons for the way other policies can be implemented.

For instance, take the Public Procurement Order 2017, revised on June 4, 2020 (PPO 2017). This policy is geared to ensure that local manufacturers gain a larger share of orders from the public sector, to ensure that the nation’s sovereignty is guarded by not becoming dependent on other nations in critical sectors.

While the user sector (hospitals) have seen the proposed revisions as fair and a natural progression of the original policy, local medical technology manufacturers are demanding further concessions. Thus the revisions have pitted local medtech against their global counterparts.

How healthcare providers view the revised PPO 2017

Explaining the revisions, Dr Alexander Thomas, president, Association of Healthcare Providers (India) (AHPI) says that the revised version of PPO 2017 has introduced the concept of Class-I, II and non-local suppliers, based on which they will get preferences in government purchases. Class-I are suppliers with more than 50 per cent local content, Class-II with more than 20 per cent local content and less than 20 per cent will be treated as non-local suppliers.

Dr Alexander Thomas, president, Association of Healthcare Providers (India) (AHPI): The revised order will also push foreign suppliers to set up joint collaborations with Indian industry

AHPI supported this initiative as only by such measures, local manufacturing will get a boost. He opines that as the original order was issued in 2017, enough time has been given and by this time it is expected that entrepreneurs in medical technology parks must have established manufacturing of their own design or might have entered in to collaborations. Dr Thomas feels that the revised order will also push foreign suppliers to set up joint collaborations with Indian industry.

It is also to be noted that these orders are for public health facilities, which largely take care of secondary care. The private sector which has 85 per cent share in providing tertiary and quaternary care, will continue to procure equipment based on their requirements. In any case the original order had a provision for exemption in special cases and which institutions like AIIMS can continue to ask for in the case of state-of-art equipment.

Adding his views, Dr Girdhar Gyani, director general, AHPI concurs that the revised orders under PPO-2017 have rightly laid emphasis on indigenisation of medical technology within the country.

He laments that we have neglected incentivising local manufacturing in the medical technology and continued to have more than 80 per cent import of medical equipment, implants and even consumables.

Dr Girdhar Gyani, director general, AHPI: Developed nations and key equipment manufacturers will jump in with joint production through license etc. simply because India with its new programmes like Ayushman Bharat and National Digital Health Mission is going to be biggest healthcare market

Dr Gayni points out that a country which has been a leading nation in space technology and information technology, obviously cannot be termed as not-competent.

Giving another example, he says, “We have seen a similar situation in defence production where we denied private sector to come in and continued with import with such huge outlay. Now the government has opened the defence production in private sector and soon India will be in position to export defence equipment and armaments.”

Thus Dr Gyani defends this “slight shift in policy” saying, “we will soon have world class medical equipment and devices through own design and somewhere through collaboration. Developed nations and key equipment manufacturers will jump in with joint production through license etc. simply because India with its new programmes like Ayushman Bharat and National Digital Health Mission is going to be biggest healthcare market.”

Referring to some flaws in the revised PPO 201, Dr Gyani points out that the order refers to suppliers whereas ideally it should refer to manufacturer. He points out that in a way, it provides little leeway as supplier can include custom duty and other local service components to make it 20 per cent or so.

AiMED’s stance

Dr Gyani’s observations are in fact broadly in sync with the recommendations made by Rajiv Nath, Forum Coordinator, The Association of Indian Medical Device Industry (AiMED) in a January 5 letter to Navneet Rinwa, joint Secretary (policy), Department of Pharmaceuticals.

The request is an increase in minimum local content of Class-Il suppliers, as specified in the PPO 2017, from the present 20 per cent to 25 per cent excluding the profit, taxes and duties.

AiMED is of the opinion that the minimum local content for Class-Il local supplier of 20 per cent as specified in Public Procurement (Preference to make in India) Order 2017, Revision dated June 4, 2020 is too low because this threshold can be achieved easily if an importer adds its profit to the cost of import. This will allow importers to circumvent the intention of Atmanirbhar Bharat which guides this Order.

Secondly, AiMED recommends that the minimum local content requirement for Class-Il must be 25 per cent excluding the profit, taxes and duties. In fact, in the Guidelines for implementation of “Public Procurement (Preference to make in India) Order 2017” dated March 15, 2018, the Department of Pharmaceuticals (DoP) had prescribed per cent of local content as 25 per cent in the least domestic manufacturing segment of medical electronics and diagnostic reagents apart from 50 per cent and 40 per cent in medical disposables and implants, respectively. AiMED’s letter states that unless the Government actively encourages domestic manufacturing, import dependency will persist.

Rajiv Nath, Forum Coordinator, The Association of Indian Medical Device Industry (AiMED): Even the World Bank has a clearly stated policy to encouraging indigenous manufacturing in a imports dependent country by a clearly stated 15 per cent price preference in public health procurement

Thirdly, AiMED points out that the manner of calculation of local content is very important. The letter refers back to the point in the first recommendation, that the profit of the importer must be excluded from the calculation.

The letter also makes the point that ‘Supplier’ is a vague word and ‘actual Manufacturer’ needs to be given benefit under the revised PPO 2017. The AiMED also suggests that there needs to be a qualification of change of Sub Tariff Heading of inputs to assemble an output as done in FTA agreement.

The AiMED letter quotes the definition of manufacturer as per ICMED 13485 (Issue dated March 2, 2019): Manufacturer is a person, an enterprise, or an entity who himself makes a product through a process involving raw materials, components, or subassemblies, usually on a large mass production scale with different operations divided among different workers and fulfils the following two conditions:
The guidelines by DoP on Make in India PPO, subject to revision, specify that medical disposables and consumables, should have 50 per cent minimum local content and implants should have 40 per cent minimum local content. The least minimum local content of 25 per cent is permitted in medical electronics, hospital equipment, surgical instruments as well as diagnostic reagents.

The second part of the definition of manufacturer pertains to Changes of Tariff Sub Head (CTSH). According to this, there will be a change of the 8 digit ITC sub heading of assembly of inputs to enable a ‘Substantial Transformation’ in the final product by the manufacturer in India.

Protecting industry vs safeguarding patients?

As expected, AiMED’s stance is opposed on grounds of patient safety by the global medtech sector, represented by the Medical Technology Association of India (MTaI), which comprises research-based medical technology companies with large footprint in manufacturing, R&D and training in India.

Sanjay Bhutani, Director, MTaI & MD, Bausch & Lomb believes that the PPO 2017 in its current form is a regressive step in the direction of an unpredictable regulatory pathway which has been already impacting FDI in the sector.

Sanjay Bhutani, Director, MTaI & MD, Bausch & Lomb: The PPO 2017 in its current form is a regressive step in the direction of an unpredictable regulatory pathway which has been already impacting FDI in the sector

Sanjay Bhutani, Director, MTaI & MD, Bausch & Lomb: The PPO 2017 in its current form is a regressive step in the direction of an unpredictable regulatory pathway which has been already impacting FDI in the sector

In an authored article on the topic he called it the “carrot and stick approach for medical device manufacturing in India”, and he believes that it may result in less than desired outcomes and may even spring new challenges of scarcity of vital medical devices in procuring institutions.
Bhutani points out that in the MedTech space, India is still majorly dependent on imports (of up to 86 per cent) to fulfil its demands. Later, the data released by Pharma Bureau in July 2020, while declaring the profit Linked Investment (PLI) scheme, ratified these figures and identified that the current domestic manufacturing capacity in the country is limited to ‘surgical, cardiac stents, general medical devices and consumables’ only.

Considering the country’s import dependency, he raises a few concerns on the provisions of the PPO in its current form. Implementing PPO could mean that domestically assembled medical devices with unreliable quality will get preference over the imported medical devices which have been catering to the demand so far in the country. Bhutani avers “that much of the medical device market in India has been developed by global legacy companies who have made huge investments in setting up large manufacturing plants and R&D centres and are responsible for making nearly 5 lakh healthcare workers well trained and patient-ready annually. Denial of market access to these companies would hamper their ability to sustain their healthcare worker training initiatives as well as their ability to bring the latest medical technology to India.”

His article goes on to state that, since the PPO will prohibit many government teaching and research centers to buy the latest global equipment and devices, these apex post-graduate medical colleges will be unable to train the students on the latest world class technology and which could also lead to brain drain, as best of the minds would look for post-graduation outside the country where they would be exposed to latest technologies in healthcare space.

On the other end of the spectrum, poor and lower-middle class patients who visit tertiary government hospitals for treatment with hope would be denied access to the latest generation devices and implants which are often the last resort to save lives. They would now be compelled to visit private healthcare establishments, adding to the already high out-of-pocket expenditure in the country (63 per cent of the total health expenditure) and receive their life-saving treatment.

His article highlights another aspect of the PPO which calls for identifying and prohibiting (participation) in Indian tenders, companies from those countries whose procuring agencies calls for due-diligence of vendors from other country (in terms of whether those bidders have previously executed any tender of similar value in that country). This may lead to trade tensions affecting India’s export of drugs and PPEs to those countries. The global innovators will also be reluctant to invest in India through schemes such as the PLI scheme as they would be wary of the potential future trade disputes arising out of such clauses that might prohibit them from participating in central/state government tenders, according to Bhutani.
Bhutani concludes the article, published in November 2020, stating that the industry has repeatedly demanded that the DoP should map the capabilities in manufacturing medical devices through an independent agency. The belief is that due to the critical nature of medical devices, PPO for MedTech sector must be looked through a different lens, which focuses on quality and recognises its vital role in determining good patient outcomes.

Weighing what’s needed vs what’s wanted

Nath of AiMeD, who is also joint managing director of Hindustan Syringes & Medical Devices Ltd (HMD) and president of All India Syringes & Needles Manufacturers Association (AISNMA), agrees that the revised PPO 2017 has a “transparently stated bias and strategy for a self-reliant Atmanirbhar Bharat and why not?”
He names several countries that have used the same strategy to give preferential treat in public procurement from the US, China, Iran, Saudi Arabia, Jordan, Malaysia, Indonesia, Uganda, South Africa.

He believes that in fact the GoI policy is still shy of falling short of a clearly stated price preference policy by these countries and limits access to 50 per cent of the tendered quantity to domestic bidders.
According to him, even the World Bank has a clearly stated policy to encouraging indigenous manufacturing in a imports dependent country by a clearly stated 15 per cent price preference in public health procurement.

To the warning that the revised order will restrict the access of world-class devices to these hospitals, he says, “It’s misleading to state that a PPO will restrict access to world class devices. World class devices can be made by Indian manufacturers or overseas manufacturers. Government tenders define quality specifications and qualifying quality certification or standards. The technical bids are always evaluated first before opening financial bids. Buyers decide on the technical specs of what’s appropriate and cost effective. In public healthcare one has to have a prudent and thrifty yardstick to buy what’s needed and not what’s wanted.”

The other charge is that the revised PPO 2017 will limit market competitors and make it challenging for a monopoly and duopoly to self-regulate and remain competitive, because pricing can become inefficient and less innovative over a period because it does not have to compete with other producers/products. Nath counters this saying, “The PPO gives a preference to domestic if L2 but seeks to give L1 if imported still an advantage to access claim to 50 per cent of bid quantity. A monopoly or duopoly is dependent upon numbers of qualified bidders. The Government seeks highly competitive but reliable suppliers and to not create monopolies or duopolies.”
As regards the need for cutting-edge technologies from across the globe to deliver better outcomes, Nath agrees, pointing out that it’s up to the buyer to decide if he wants cutting edge technologies or wishes to use public money prudently.

Collaboration, not confrontation

Nath’s stance finds resonance in degrees by his peers in the sector, both local as well as global players.

Anish Bafna, CEO and managing director, Healthium Group, has worked with global medtech players like Baxter before relocating to India from Singapore with a vision to create India’s most trusted medtech company and transform it from a low-cost medical products player to one driven by technological innovations. In his opinion, “The revisions in the PPO 2017 guidelines are in line with the government’s clarion call of promoting an ‘Atmanirbhar Bharat’. The new PPO not only aims at providing the required impetus to local manufacturing but also reducing India’s dependency on imports.”

Anish Bafna, CEO and managing director, Healthium Group: A phased approach … will help mitigate the potential risk of shortage of quality medical infrastructure for the patients

But Bafna also believes that while we believe that it is imperative for India to focus on becoming self-reliant, there is also a need to address the gaps when it comes to ensuring accessibility to high quality medical devices.

Bafna suggests that the way forward will be collaboration. “It will be essential for the government to work in tandem with key players in the country that hold globally recognised quality certifications and address this demand. A phased approach, wherein we first scale the production capabilities in the country and in time start reducing our dependency on imports, will help mitigate the potential risk of shortage of quality medical infrastructure for the patients,” is Bafna’s recommendation.

Design and Make in India, for the world

Many global medtech companies have already been expanding production in India to meet the local criteria. Medtronic announced investments of Rs 1200 crore over five years in its Hyderabad R&D centre, Siemens Healthineers is investing Rs 1,300 crore in India by setting up an innovation hub in Bengaluru.

When asked for his views on the Atmanirbhar Bharat as well as the revised PPO 2017 policies, Daniel Mazon, vice chairman and managing director, Philips Indian Subcontinent recalls similar policies in other geographies.

When he was in Latin America, he had a chance to see a similar proposal. As he puts it, “It’s a journey that happened there as well. It’s a journey that takes years for us to keep pushing this. I believe the steps that we are taking here in India are the right steps.”

Daniel Mazon, vice chairman and managing director, Philips Indian Subcontinent: We are increasing the content from local suppliers every year because the local suppliers we’re working on are becoming good, much better than they were before

His recommendation? “What we need to do is maintain a balance between the capabilities that are being developed in the country, and the requirements that the government impose. For example, when I was in Latin America, in Brazil, the government wanted a certain amount of content made in Brazil. But if there was not enough local suppliers capable of providing that on a regular basis, it’s going to be very difficult to fulfil this requirement.”

The solution is that the government “sets milestones for companies like ours, to work with local suppliers to develop that. And in return for the effort and the work, the companies will have certain benefits to participate in tenders or fiscal incentives and things of that nature.”

Mazon believes that “we are in that direction. I sometimes I feel we may take a step bigger than our legs, but then I believe the government very quickly, listens, they are open to listen. We have worked with them and they realise that there are some corrections that need to take place. So it is a little bit of give and take.”

“I think we are directionally correct. And eventually, we’ll have a lot more content than right now. We are increasing the content from local suppliers every year because the local suppliers we’re working on are becoming good, much better than they were before. So we’ve got to have a little patience because it’s a journey. But I think at the end of the day, we’re on the right track,” says Mazon.

Giving examples from his company, he points out that Philips has always been committed towards manufacturing products in India for India as well as global markets. The company exports from their factories in Pune and Chennai. Their Pune factory exports cardiovascular and mobile surgery equipment to 116 other countries, “which clearly demonstrates that advanced technology can be manufactured in India. We started shipping out ‘Make in India’ Affiniti Ultrasound machine from our Healthcare Innovation Centre (HIC) in Pune, last year,” concludes Mazon.

In a previous interaction, Pavan Choudary, Chairman and Director General, MTaI had said, To be Atmanirbhar in medtech, we should also be able to design in India medical devices for the world by utilising India’s rich talent in R&D. India is the third largest medtech R&D employer of the world, next to only US and Germany.” (https://www.expresshealthcare.in/news/to-be-atmanirbhar-in-medtech-we-should-also-be-able-to-design-in-india-medical-devices-for-the-world-pavan-choudary/426136/).Choudary also made the point that India holds immense potential as a consumer market, as we are the third largest economy by purchasing power parity (PPP).

Thus while the revised PPO 2017 and other policies will not make it an easy run, medtech companies, both local and global, will have to finds ways to collaborate. With each other as well as with the government.

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