To procure COVID-19 rapid antibody tests from China, the Indian Council of Medical Research (ICMR) paid middlemen more than double the import cost, a case in the Delhi High Court has revealed.
The ICMR had ordered 5 lakh of these tests from Chinese company Wondfo on 27 March, for which they paid Rs 30 crore to Aark Pharmaceuticals, a medical distributor linked to Rare Metabolics Pvt Ltd.
This means that the price paid by ICMR for each coronavirus test from Wondfo – which three states have now rejected as faulty – came out to Rs 600 per test.
However, Matrix Labs, the company which imported the tests from China and supplied them to Rare Metabolics, only paid Rs 245 per test (as per the most generous estimate), according to the documents provided to the Delhi High Court.
Presence of Middlemen Drives Price Up
BACKDROP OF THE CASE IN DELHI HC
Justice Najmi Waziri of the Delhi High Court ended up looking into this issue of the overpricing of the tests as part of a case filed by Rare Metabolics/Aark Pharmaceuticals against Matrix Labs.
The companies had signed an agreement for purchase of 10 lakh Wondfo tests, according to which Rare Metabolics/Aark would be the sole supplier of these tests in India. Five lakh of these tests were for the ICMR, for which Rare Metabolics had paid Matrix Labs Rs 12.75 crore already, covering all the costs of import/freight.
Rare Metabolics and Matrix ended up having a payment dispute over the remaining 5 lakh kits, following which, Matrix Labs also entered into a deal with another distributor, Shan Biotech and Diagnostics, which was to supply 50,000 Wondfo tests to the Tamil Nadu government, at the same ICMR-approved price of Rs 600 per test.
This was why Rare Metabolics and Aark Pharmaceuticals approached the high court.
But how did the price rise from Rs 245 per test to Rs 600? And how much are the intermediaries gaining from the whole arrangement?
THE PRICE BREAKDOWN
- Matrix Labs is paying Wondfo $ 3 per test kit, ie Rs 225. The 5 lakh tests ordered by ICMR, therefore, cost Matrix Rs 11.25 crore to purchase from China.
- With the addition of freight charges on the tests, the cost for ICMR’s 5 lakh kits could come up to an extra Rs 20 per test, hence the Rs 245 figure. At this point, as the goods are being flown in from China by Air India, the freight costs are not yet confirmed.
- Rare Metabolics is paying Matrix Labs Rs 20 crore plus 5 percent GST for ICMR’s tests, which means a profit of at least Rs 7.75 crores for Matrix Labs.
- ICMR Is paying Aark Pharmaceuticals/Rare Metabolics Rs 30 crore plus GST for the kits, meaning a profit of at least Rs 9 crore for them, even though, as the Delhi High Court has observed, they contributed “no value addition to the imported medical material.”
It is clear, therefore, that the cost of the tests has increased because of the presence of the middlemen/intermediaries involved in the purchase of the tests: (a) Matrix Labs; and (b) Rare Metabolics/Aark Pharmaceuticals.
The actual cost of buying the 5 lakh Wondfo tests required by ICMR is Rs 11.25 crore – but the price being paid by India is Rs 30 crore.
As the Delhi High Court points out, a profit of Rs 18.75 crore will be shared by the intermediaries (a typo in the judgment says 18.75 “lacs”) under these arrangements.
How Did This Happen? Questions For ICMR Too
While hearing the case, Justice Waziri suggested that during this time of a pandemic, it was essential for more test kits to be available urgently throughout the country, and so Rare Metabolics/Aark Pharmaceuticals agreed to drop the case if Matrix sold the remaining kits, which they hadn’t yet paid for, at a reduced cost.
On the basis that a profit of Rs 155 per test (assuming each test costs Rs 245 to import from China) was enough for the sellers, the high court fixed the price at which Matrix Labs could sell the remaining tests at Rs 400 plus GST per test kit.
However, crucially, this revised price would NOT apply to the tests already purchased by ICMR and the Tamil Nadu government.
So, why did the ICMR agree to this price, even though it was more than double what the tests cost from China?
According to official statements from the ICMR, they had set a price range of Rs 528 to Rs 795 for the rapid antibody coronavirus tests, provided they matched up to its technical specifications. The Rs 600 price per test charged by Aark Pharmaceuticals/Rare Metabolics was, therefore, within this price range.
Even so, it is not clear why the ICMR would agree to this cost to the public when the cost of purchasing the kits from China and transporting them to India was at most Rs 245 per test – even more so now that these rapid test kits are under the scanner for being faulty.
“Questions arise about how ICMR set the rate Rs 600/kit for this order,” says Malini Aisola, convenor of the All India Drug Action Network, a healthcare sector watchdog. She adds that the government was in a position to know the price at which Wondfo was offering the kits: $3 per kit (ie, Rs 225/kit), and how much such kits would objectively cost.
“Similarly, we wonder about how ICMR settled on the range of approved prices (Rs 528-795). Since indigenous manufacturers have been approved to make antibody test kits, including HLL (a PSU), the Centre certainly has estimates of cost of production at its disposal, not to mention it can monitor international prices. What then is the rationale for this range?”Malini Aisola, AIDAN Convenor
She also questions how two intermediaries were involved in this process, not just the ICMR, but the Tamil Nadu government as well. As demonstrated earlier, this meant not just one but two profit mark-ups to be made on the price – which was, of course, the reason for the Delhi High Court to cap the price at which Matrix Labs could sell the remaining tests to the government or private labs.
It is understandable from a common-sensical point of view that there may be circumstances where distributors could need to be involved, given urgency or some technical difficulties in procurement.
However, the fact that neither this nor the pricing assessment for these rapid antibody tests is clear points to the broader issues of transparency about government procurement of health products related to the COVID-19 pandemic.
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