Delhi HC exposes companies profiteering from COVID antibody test kits; ICMR cancels procurement order

On 26 April, in what can only be described as inadvertent whistle-blowing, a dispute between three private companies over the distribution of antibody kits in India revealed that the centre had allowed the costs of COVID-19 antibody tests to be inflated by nearly 145 percent. In a judgment that favoured none of the companies, it was the Indian Council of Medical Research that suffered the most. The court disclosed that the ICMR offered to pay Rs 30 crore for five lakh test kits, at an inflated price that offered a profit of Rs 18.75 crore to the intermediary companies. As news of the judgment emerged the next day, the centre seemed to struggle to find a response, ultimately issuing a press release announcing that it had cancelled the procurement order for the test kits.

The antibody kits were manufactured by a Chinese company called Wondfo, and the day after the high court judgment, the ICMR issued an advisory to all state governments not to purchase kits from that manufacturer because it had led to inaccurate results. Meanwhile, in the press release issued that day, the central government stated, “It needs to be stressed that ICMR has not made any payment whatsoever in respect of these supplies.” It added that the Indian government “does not stand to lose a single rupee.” But neither the centre’s press release nor the ICMR’s advisory explained why the central government had placed such a large order, at highly inflated costs, for unreliable test kits in the first place.

The dispute arose when two distribution companies, Rare Metabolics Life Sciences and Aark Pharmaceuticals, filed a petition in the Delhi High Court against an importer, Matrix Labs, for not honouring a contract to supply antibody test kits. On 28 March, the ICMR had placed an order for five lakh antibody tests with Aark. The three companies had entered into an agreement through which Matrix would import the test kits, provide them to Rare Metabolics, which would then supply them to the ICMR through Aark Pharmaceuticals. According to the petition, Matrix delivered 2.76 lakh kits on 17 April, and threatened to not deliver the rest until Rare Metabolics paid the full amount in advance, prompting them to take the matter to court.

The dispute between these three companies brought the terms of procurement of the antibody kits into the public domain, which exposed the massive profiteering in this deal. Through the course of the proceedings, it was revealed that Matrix Labs imported the kits for just Rs 225 per kit, sold it to Aark for Rs 420 per kit, which in turn sold it to the ICMR at Rs 600 per kit. The ICMR had approved a 145 percent mark-up on the testing kits amid a public-health crisis where these kits are desperately necessary at affordable costs that can allow mass testing.

In the judgment, Najmi Waziri, a judge of the Delhi High Court, disallowed the inflation and instructed the companies to sell the tests to the ICMR at a price of Rs 400 per kit. Waziri noted that the cost of import of the test kits was Rs 245 per kit—calculated at $3 per kit, or Rs 225, and Rs 20 for freight charges—adding to a total of Rs 12.25 crore for five lakh kits including the freight charges, and Rs 11.25 crore excluding them. Waziri added that Matrix would then supply these kits to Aark for a sum of Rs 20 crore, “at an apparent 45% profit of Rs 7.75 crores,” and an additional one crore as the goods and services tax. The ICMR, the judgment noted, would pay a total of Rs 30 crore according to the agreement, “for a similar evident profit of Rs.9 crores despite no value addition to the imported medical material.” In effect, the ICMR had agreed to pay Rs 30 crore for kits that cost Rs 11.25 crore to be imported.

Waziri was critical of the large margin of profit approved for urgent COVID-19 tests. “The country is going through an unprecedented medical crisis affecting public order,” he wrote. “The economy is virtually at a standstill for the last one month. For people to be assured that the pandemic is under control and for governments to ensure and for agencies engaged in the frontline battle to safeguard people’s health, more kits/tests should be made available urgently at the lowest cost, for carrying out extensive tests throughout the country. Public interest must outweigh private gain.”

He appeared to take the private sector’s concerns into consideration as well. He wrote that “a profit mark-up of Rs. 155/- i.e 61% on the landed cost price of Rs. 245/- is much on the higher side and in any case more than sufficient for the seller, for the kits/tests to be made available in India for urgent extensive tests through the country, especially in these present extraordinary circumstances of the worldwide pandemic.” Accordingly, the judge directed that the test kits “should be sold at a price not beyond Rs 400/- per kit/test inclusive of GST.”

During the course of the proceedings, it emerged that Matrix had also received an order from the Tamil Nadu government, through another distributer company named Shan Biotech, for 50,000 test kits “at the ICMR approved rate of Rs 600/- per test.” The court directed that they should be supplied directly to the state government, at the reduced rate of Rs 400.

The centre seemed to scramble for a response as news of the judgment and the inflated prices broke. The day after the judgment, the Indian government issued a press release that indicated that the government was on the back foot. “First of all, it is important to understand the background in which procurement decisions are made by ICMR,” the press release began. It noted that testing was “one of the most crucial weapons to fight COVID-19,” for which ICMR was procuring kits and supplying them to states. “This procurement is being undertaken when globally there is huge demand for these test kits and various countries are applying their full might, monetary and diplomatic, to acquire them.”

The press release explained that the centre had received four bids for Wondfo’s test kits, the lowest of which was Rs 600. The press release then stated, “After receipt of some supplies, ICMR has again conducted quality checks on these kits in field conditions.  Based on scientific assessment of their performance, the order in question (Wondfo) along with order in respect of another make found under-performing have been cancelled.”

That day, the ICMR also issued an advisory to the chief secretaries of all states and union territories, noting that the reverse transcriptase polymerase chain reaction, or RT-PCR test, “is the best use for diagnosis of Covid 19.” The RT-PCR test and the antibody test are both used to identify the novel coronavirus. The RT-PCR test looks for the presence of the coronavirus in the patient, which takes up to 12 to 24 hours to yield a result. The antibody test, also known as the serology test, looks for antibodies in the patient’s blood, yields results within two hours and hence is also called a rapid test. The antibody test determines whether an individual’s immune system made antibodies from having fought the infection. However, antibodies are only created over a week after contracting the virus, and therefore the test cannot be used for early diagnosis. It is instead used for surveillance of how the virus spread, because it can test at a wider scale and yield quicker results.

In its advisory, the ICMR stated, “Several states have procured rapid antibody test kits and on their demand, ICMR has also provided these kits with clear instructions that they are to be used only for surveillance purpose.” After the first batch of test kits arrived, the ICMR had distributed it to several states, and the West Bengal and Rajasthan governments had reportedly informed the centre that the tests were giving inaccurate results. Accordingly, on 21 April, the ICMR had advised state governments to stop using the tests for two days. Six days later, the day after the Delhi High Court judgment, the ICMR’s advisory asked the state governments to stop using the tests and return them to the suppliers.

The decision has left state governments uncertain about the use of these test kits and how to procure them. “The antibody kit is an advanced surveillance tool, and we need it to make informed decisions,” TS Singh Deo, the health minister of Chhattisgarh, told me. “If we need to know which areas in the state are badly affected, we need these kits.” Deo also pointed out that the centre’s tender process was more susceptible to inflated rates. “Transparency has become an issue because instead of following a short-term tendering process”—which are issued for urgent purchases and open only for a few days as against a 21-day notice—“the products are picked up at either prevailing markets rates, or rates even more inflated than that.”

Deo added, “In Chhattisgarh, we floated short-term tenders for two days, after ascertaining the price in the market, and picked up the kits for Rs 337 + GST. We got way lower rates because of the tender process.” The Chhattisgarh government procured 25,000 kits from SD Biosensor, a South Korean diagnostic company that has a manufacturing plant at Manesar, in Haryana. The kits were validated by the All India Institute of Medical Sciences in Raipur, the state capital. The state government has now ordered a second batch of 50,000 kits.

At the centre’s daily press briefings on the developing COVID-19 situation, Lav Agarwal, a joint secretary in the ministry of health, underplayed the entire episode by stating that the antibody kits had “only a limited role to play.” Yet, this raises more questions about why the ICMR placed a bulk order at inflated rates if the kits have a limited role.

The cancelled deal also indicates that India may have a huge blind spot when it comes to the scale of the pandemic. With no antibody tests, and private clinics allowed to charge up to Rs 4,500 for RT-PCR tests, India is testing at a dangerously low rate. According to Our World In Data, a statistical research initiative that charts progress on issues of global concern, India had conducted 625,309 tests as of 26 April, at 0.45 tests per thousand people—one of the lowest test rates per capita in the world. After reporting its first case on 30 January, India has steadfastly defended its decision to test fewer people, and is depending on the lockdown and social distancing as the main tools to combat the pandemic. The government has denied the possibility of community transmission as well as exponential growth, insisting that in India the pandemic is showing “linear growth” instead.

On 27 April, responding to a tweet about companies offering to sell test kits for Rs 500, the ICMR tweeted the prices that it accepts for test kits. “Price range approved by ICMR is ₹740-1150 for RT-PCR and ₹528-795 for Rapid Test. No test has been procured at ₹4500.” While ICMR has not procured any kits for Rs 4,500, it has allowed the private sector to charge that much for COVID-19 tests. But if its own upper limit is Rs 1,150, raises grave questions about why private companies are allowed to charge nearly four times that amount.

The decisions on pricing of both, the RT-PCR as well as the antibody testing kits, has made public health activists emphasize on the need for transparency. “This saga highlights the need for transparency in procurement processes,” Malini Aisola, a co-convenor of the All India Drug Action Network, a health-sector watchdog, said. “It’s unfortunate that it took a series of events—complaints from state governments, details emerging from a court order—for the ICMR to finally shed some light on how procurement was undertaken.

“Even communication about the outcome of ICMR’s evaluation of the test kits in field conditions and the directions to states to stop use of the antibody tests was a result of public pressure,” Aisola continued. “We would urge that government follows an approach of openness to keep the public informed, includes making public the details of purchase orders, rates and suppliers for all health products related to the pandemic.”

Correction: An earlier version of this article incorrectly stated that importing five lakh antibody test kits cost Rs 11.25 crore. While the total cost of the test kits is Rs 11.25 core, it amounts to Rs 12.25 crore with the freight charges. The Caravan regrets the error.