Rising of government policy in which it

Rising costs of knee implants in India are a major concern as many people cannot afford this good.
As healthcare is a Merit good; goods that have a positive impact on society, the usage of knee
implants falls under that category. In order to combat this situation, India is engaging a form of
government policy in which it aims to bring down the prices of medical devices through the usage
of a price control. Price control is an economic concept that when applied by government, puts a
legal limit on how high or low the price of a product can be. In the context of this article, the main
focus is directed on capping the prices of knee implants, with the intent of consumers being able to
purchase the device at an affordable cost. The form of price control being used is price ceiling.
The demand for knee implants is inelastic (demand whose change in price doesn’t lead to a large
change in quantity demanded) as it is a necessity with limited substitutes available. The
manufacturers would take advantage of this and charge extraordinary high price. Prior to the
introduction of price celling, patients would have to pay a high sum for knee implants equating to
250,000 rupees ($3,895) which most Indians cannot afford, with the GDP per capital at $1,700
Whereas, after price celling, the price is now capped at 54,720 rupees ($852), a 78% decrease in
price!equilibrium price Q* which is $3,895 to Qd being $852. This causes market disequilibrium;
which occurs when prices are set below market equilibrium, causes demand to exceed supply. The
price shift from $3895 to $852 makes suppliers less inclined to supply goods to fulfil demand at Qd,
according to the law of demand and supply, a fall in price leads to an increase in quantity
demanded and a fall in quantity supplied. This leads to a shortage in knee caps as quality supplied
is at Qs, but quantity demanded is Qd. Although, the Indian government was successful in
decreasing the price of knee implants, it causes shortage of the product.One of the major consequences of shortages is the emergence of black markets. Chromium knee
cap implants are known to be very versatile and suitable for all patients. Other materials such as
titanium or oxidized zirconium may not fit all patients, causing an increase in demand for
chromium. Scarcity of resources can lead to an enormous increase in price, which defeats the
purpose of price control. Additionally, hospitals that bought chromium knee implants before the
price control may increase cost of the surgery and procedure, making it hard for patients to afford
the necessary operation. Pharmaceutical companies have a large research and development costs
that they aim to cover by charging high prices for their products. As the article mentioned, major
international pharmaceutical companies such as Johnson and Johnson will be impacted by this
policy. They anticipate a decrease in profits thereby, hindering innovation and research on the field.
This price restriction will hurt patients as they cannot get access of latest and advanced technology
in the country, as companies will not re-invest in orthopedic implants in India.
India will also need to look into the implications of tax on medical procedures, An amount
exceeding Rs.15,000 will lead to a tax based on the salary of the consumer, which can potentially
affect the patient in the future for other medical checkups. An alternative to maximum price is to
subsidize the cost of surgery procedures and price of knee implants itself , it would increase the
government budget on health care and would not be sustainable in the long run as it does not
address the main problem. Providing accessible and cheap means of a necessary good is crucial in
a developing nation such as India. Price controls is a right step in doing so as it discourages illegal
profiting by large pharmaceutical companies and manufacturers. A key problem would be
shortage, but it can be overcome by ensuring R costs are met by companies so that supply and
innovation continues.