CCI widens the scope of investigation into unfair pricing by private hospitals in Delhi – based on current investigation against Max Super Specialty Hospital for overcharging for consumables through In house pharmacy
The Competition Commission of India (“CCI/Commission”) vide order dated 31.08.2018 has directed further investigation by the Director General (“DG”) into allegations of unfair and excessive pricing by private hospitals in entire Delhi by compelling in-house patients to purchase medicines and other consumables such as syringes etc. through their in-house pharmacies , on the basis of the findings in an existing complaint of similar practices allegedly adopted in the aftermarket by Max Super Specialty Hospital .
Instances of private hospitals overcharging admitted patients are not uncommon and are often reported in media . The private hospitals invariably have their in-house pharmacy in the hospital premises . It is common to see the treating doctors in the hospital recommending compulsory purchase of consumables such as medicines , syringes etc. from the in-house pharmacy in the hospital . The relatives of the patients are not allowed to buy the consumables on pretext of quality concerns from outside shops even though the same product may be available at cheaper rates in outside chemists’ shops.
You may recall that this well-known unfair trade practice by private hospitals was demonstrated in 2015 by an innovative lawyer , Mr. Vivek Sharma from Delhi by filing a formal complaint against the Max Super Specialty Hospital in Patpar Ganj, Delhi ( “Max hospital”/ OP -2 ) in which he alleged overcharging higher Maximum Retail Price (“MRP”) for Disposable Syringes by the Max hospital with evidence of the cash memo of the same type of syringe purchased by him from a retail chemists shop outside the Max hospital at much cheaper rate.
He also alleged that the Max hospital had an exclusive supply agreement through M/s Shobhan Surgical Works , the whole seller /stockiest of blister pack disposable syringes and through M/s Hindustan Surgical, the whole seller/stockiest of flow wrap syringes with Becton Dickinson India (P) Ltd. (OP-1) , the manufacturer of both types of disposable syringes and that they had also printed higher MRP on the syringes under an agreement .
Finding prima facie case of violations of the provisions of the Competition Act ,2002 ( the Act) , the Competition Commission of India (CCI/Commission) , vide its order dated 17.11.2015 under section 26(1) of the Act referred the matter for investigation to the Director General ( DG) .
On conclusion of the investigation , the investigation report dated 05.05.2017 submitted by the DG (the DG report) found that Max hospital has been compelling its in-patients to purchase the consumables including medicines and syringes etc. only from its in-house pharmacy once they are admitted. The DG report also found that Max hospital/ OP-2 had earned huge profit margins ranging from 269.84% to 527% in the financial year 2014-15 and ranging from 276.96% to 527% in the financial year 2015-16 by sale of different syringes. Also, with view to earn more profit, OP-2 had shifted its procurement / purchase from flow wrap syringes to blister pack syringes during 2015-16. The DG report thus found that Max hospital was abusing its dominant position by charging unfair price of the consumables from its in-house patients in violation of section 4(2) (a) (ii) of the Act .
However, the DG did not find any evidence of any collusion or agreement between OP 1 and OP 2 to print higher MRP on the syringes and of any exclusive supply agreement between them for supply of syringes to Max hospital through stockiest of OP-1 and ,therefore, found no case of violation of section 3(3) of the Act.
The DG in his investigation considered the market for ‘provision of healthcare services/facilities by private super-speciality hospitals within a distance of about 12 kms from Max Super Speciality Hospital, Patparganj’ as the relevant market and found Max to be in a dominant position. While assessing the dominance, the DG considered factors such as the number of beds, number of on-roll and on-call doctors, number of in-patients and out patients, financial strength, brand name etc. The DG report also revealed that Max had earned huge profit margins ranging from 269.84% to 527% in the financial year 2014-15 and ranging from 276.96% to 527% in the financial year 2015-16 by sale of different syringes. Further, the DG found that Max has been compelling its in-patients to purchase to purchase products only from its in-house pharmacy once they are admitted.
CCI, upon analysis of the DG report, observed that while the DG report contains a reference to Max’s conduct as being akin to ‘aftermarket abuse’; however the same has not been investigated/analysed in greater detail. The Commission held that it would be desirable if a finding be given on the delineation of relevant product market considering the aspect of aftermarket abuse, if any. Further, the CCI observed that the DG delineated the relevant geographic market using the ‘out-patient’ data whereas the abusive conduct has been examined in relation to the ‘in-patients’.
As regards the finding of the DG that Max has been compelling its in-patients to purchase to purchase products only from its in-house pharmacy once they are admitted, the Commission is of the view that it has a ‘locked-in’ effect and such a conduct may be considered as an aftermarket abuse even if Max is not found to be dominant in the primary market for provision of healthcare services in Delhi.
With respect to the imposition of unfair prices by Max, the Commission observed that the DG looked into very high profit margins in sale of flow wrap syringes and blister pack syringes alone, to come to the finding that unfair prices were being charged as an abuse of dominant position. However, the DG has not investigated the total profits of Max from the sale of syringes as well as from the sale of other products in the after-market such as medicines, surgical tools etc.
The CCI observed that, keeping in mind the ‘locked-in effect’, further investigation regarding other products is necessary, in particular, in the aftermarket products which are not required on an urgent basis or which do not involve aby high degree quality issue form the medical procedure point of view.
The Commission observed that the “abuse of dominant position by Max in charging supra-competitive prices from the locked-in patients for the products and/or services including but not limited to syringes in the aftermarket needs to be explored.”
Accordingly, the CCI has directed the DG to further investigate the matter with specific focus on-
- The relevant market– The DG had considered the relevant geographic market to be limited to ‘a distance of about 12 kms from Max Super Specialty Hospital, Patparganj. The CCI has directed the DG to consider entire “DELHI” as the relevant geographic market.
- Broad scope of products- CCI has directed the DG to broaden the scope of investigation by covering all aftermarket healthcare products and services provided by all super specialty hospitals across Delhi, specifically focusing on the product sold by hospitals to their in-patients which are not required on an urgent basis for any medical procedure or which does not involve any high degree of quality issue from the medical procedure point of view, and for the purchase of which, the patients have the time and scope to exercise their rational choice in purchase.
This order assumes significance as it shows special focus placed by CCI on the healthcare services through private hospitals . The widening of the scope of investigation to cover all super specialty hospitals across Delhi is likely to shock the healthcare industry in general and private hospitals and their suppliers of consumables in particular , since the investigation will investigate all aspects of exclusivity and pricing etc. The order comes as a pre cursor to the recent Policy Note on the “Making Markets Work for Affordable Healthcare” published by CCI in which “vertical arrangements in healthcare services and lack of transparency “ is included as an issue.