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Diagnostics – The cornerstone that guides the entire care continuum

After three exciting phases in the past decade, strong growth in FY12–17, steady growth in FY17–20 and high Covid-led growth in FY21-22, moving forward we expect the Indian diagnostic market to normalize to 11.5 percent.

Diagnosis is the first step toward treating diseases, starting from the detection of the disease to prognosis and determination of treatment regime to post-treatment monitoring of the patient. Driven by technological innovations, changing consumer expectations, and a proactive shift in government approach, the Indian diagnostic landscape is undergoing significant shifts.

Indian market
Covid-19 created an unevenness in the growth pattern, both in revenue and volume. 2023 is the year when business started to smoothen. Operating margins improved for the large labs as did scale efficiencies and productivity initiatives. For small and medium labs, growth was an abysmal single-digit one. While revenue per patient increased, volume growth did not happen.

The industry now plans to bundle routine tests, with the next wave set for specialized tests, medically more efficient for clinicians. The players are expanding their network to Tier-III and Tier-IV cities. Changes are being made to increase test menus and adapt them.

The Indian diagnostic services market valued at ₹1.3 lakh crore in 2023, estimated to grow to ₹3.49 lakh crore in 2032, comprising 60 percent pathology and 40 percent imaging and radiology, is encountering a slight deceleration in 2024 compared to its pre-pandemic growth trajectory of 12–14 percent. The radiology market is growing rapidly due to the increasing demand for imaging services, while the pathology testing service market is also expanding due to the growing number of people undergoing preventive health check-ups.

The players. The diagnostic industry is highly fragmented with the organized players contributing 17 percent of the market share; of this, pan-India diagnostic chains have a market share of 35 percent, and the regional chains balance 65 percent. The hospital-based labs contribute 37 percent share and 46 percent are from unorganized standalone labs.

The four largest players, Dr Lal PathLabs, Agilus Diagnostics, Metropolis Healthcare, and Thyrocare Technologies have a combined 6-percent market share. Dr Lal PathLabs holds the highest market share, while Agilus Diagnostics (formerly SRL Diagnostics) ranks second.

Other key players include Vijaya Diagnostic Centre Pvt. Ltd., Max Healthcare Institute Limited, Apollo Hospitals Enterprise Ltd., Quest Diagnostics India Pvt. Ltd., Lucid Medical Diagnostics Pvt. Ltd., Suburban Diagnostics India Pvt. Ltd., Oncquest Laboratories Ltd., Span Diagnostics Ltd., Medinova Diagnostic Services Ltd., Dr Lalchandani Labs Ltd., Choksi Laboratories Ltd., Suraksha Diagnostics Pvt. Ltd., Medall Healthcare Pvt. Ltd., Lotus Diagnostic Centre; Lifecare Diagnostic & Research Centre Pvt. Ltd., and 360 Diagnostic & Health Services Pvt. Ltd.

The sector’s attractiveness, marked by low entry barriers and high ROCEs has spurred aggressive competition, with new players entering the market, including online aggregators, hospital chains, and pharmacy chains. The online players offer disruptive pricing at 40 percent to 75 percent lower than incumbents with service offerings spreading across Tier-I and Tier-II cities. Increasingly scarce funding and high customer acquisition costs are compelling online companies to reduce discounts. There is also a lack of price standardization due to which there is a high level of discrepancies between diagnostic test prices of Tier-I and Tier-III cities.

This aggressive expansion has led to a significant tussle for market share, particularly in the West and North India markets, where the highest competitive intensity is observed. It may also be attributed to the increasing demand for faster results and accurate diagnosis, compelling the diagnostic companies to focus on a customer-centric approach. The companies are now largely focusing on the home visit segment and are looking to provide service at par with the lab visit walk-ins. The strategy is to digitize the end-to-end home visit segment by employing various artificial intelligence (AI) and machine learning (ML) techniques since the customers now look for an omnichannel presence for better service.

Established chains are also not immune to these challenges. Despite implementing selective price hikes, patient volume growth in their key markets remains below historic averages. Volume growth is expected to remain in high-single digits, i.e., around 8–9 percent for FY25 and FY26 respectively, lower compared to pre-Covid-19 growth rates of 13–15 percent. Furthermore, they are heavily investing in lab expansions across key regions. However, it typically takes nearly three years for a new lab to achieve earnings before EBITDA break-even, so operating leverage is anticipated to play out positively from FY26 onwards. Returns ratios, such as return on capital employed (RoCE) are likely to remain under check at around 22–25 percent, a decline in comparison to the pre-pandemic range of over 30 percent.

Public-private-partnerships are emerging as game-changing instruments. The model’s strength is its ability to combine the technological sophistication, operational efficiency, and service capabilities of the private sector with the regulatory authority, scale, and equity focus of the public sector.

The diagnostic centers, particularly the lab chains, are undergoing a paradigm shift. Lab automation is high on the list. This combines into an integrated system with full automation of pre-analytics, analytics, and post-analytics, such that specimens are processed, tested, and even stored and disposed of with minimal user intervention.

The labs are moving toward outcome-based diagnostics, prioritizing the clinical relevance and effectiveness of diagnostic interventions, thereby considering not only the accuracy of diagnoses but also how those diagnoses influence patient management decisions. Personalized medicine, coupled with advanced imaging techniques, genetic testing, molecular profiling, and other diagnostic modalities, characterizes diseases at a molecular level, enabling more accurate risk assessment, prognostication, and treatment selection. A shift is seen from the traditional assessment of cost per test toward measuring the cost of diagnostics in terms of outcomes, thereby incentivizing the adoption of innovative diagnostic modalities, ultimately leading to high-quality, patient-centered care, while optimizing healthcare expenditure in a value-based healthcare environment.

The Covid-19 pandemic has underscored the critical role of diagnostics in managing infectious diseases. The sector is expected to witness continued focus on developing rapid and scalable diagnostic solutions to enhance pandemic preparedness.

Policy. Legislation to regulate medical laboratories in many Indian states is either outdated or non-existent, albeit some states have begun updating and enacting their laws. As a result, there are hardly any barriers to entry, and several labs have been set up throughout the country. The majority of them fail to follow protocols and lack accreditations. The National Accreditation Board for Testing and Calibration Laboratories (NABL) does prescribe the criteria for accreditation of various labs. This voluntary accreditation aids in providing comfort about quality and standardized services to consumers as well as the government. However, the compliance norms prescribed by NABL predominantly focus on the quality of equipment more than other aspects of diagnostics. And while bona fide efforts, such as voluntary accreditation and self-regulation are being made, there is the absence of an over-arching, all-comprehensive framework, that regulates diagnostic labs in India. These constraints need to be strategically addressed to retain the pace of IVD innovation and ensure the sector’s resilience and adaptability.

In contrast, jurisdictions like the US and the UK have detailed advisories and regulatory standards, which apply to clinical laboratory testing. In the US, the Clinical Laboratory Improvement Amendments (CLIA) regulate laboratory examinations and other procedures, based on the complexity of the lab tests, and ensure laboratories produce accurate, and timely patient test results, regardless of where the test is performed. Likewise, in the UK, the Public Health Department has issued guidance notes inscribing the standards for microbiology investigations. The guidance aids in the selection of the most appropriate method of testing and accuracy in results through evaluation tests, validation, and verification of diagnostic methods. Conversely, despite the European In Vitro Diagnostic Regulation (IVDR) presenting several pros, it also showcases challenges that have a large influence on clinical laboratories. For instance, imposing restrictions on the use of laboratory-developed tests (LDTs) would impact their availability due to the lengthy certification processes as well as the ability of clinical labs to produce and administer those LDTs.

The lack of data protection laws in the country creates the potential for violation of the users’ privacy when laboratories store data digitally and report it online on government web portals. Caution is warranted in the use of newer technologies until the regulations governing these matters are strengthened.

The Indian Council of Medical Research (ICMR) has begun the process of revising the current National Essential Diagnostics List (NEDL), saying that considerable time has passed since the first list was released in 2019. Stakeholders have been asked to consider some criteria before proposing any additional tests to the existing list: Essentiality of the test, disease burden, alignment with Indian Public Health Standards (IPHS) 2022, suggestions for the inclusion of point-of-care tests are encouraged, and the diagnostics suggested for addition should have obtained the necessary regulatory approvals.

The list includes 117 general laboratory tests for a broad range of common conditions for the diagnosis of communicable and non-communicable diseases. There are 29 disease-specific tests for HIV, hepatitis, tuberculosis, dengue, malaria and area-endemic diseases, and 24 imaging tests, such as X-rays, computerized tomography scans, magnetic resonance imaging scans and ultrasound sonography. The list has been strategically harmonized with other ongoing government initiatives, such as various disease-control programs, and the Indian Public Health Standards to ensure that the diagnostics list is supported by all initiatives.

The cheese has moved. India’s approach toward preventive healthcare has undergone a change post the Covid-19 pandemic. Individuals are now more inclined toward preventive healthcare than curative healthcare. There is an increase in demand for early disease diagnosis and the identification of root causes as soon as possible to acquire the suitable and best therapy.

A major part of the diagnostic business is driven by doctor recommendations. For the precise prescription for the patients, doctors are conducting diagnostic tests for most of the patients before prescribing the medication, which was not the case earlier.

Owing to a sustained increase in the patient pool, be it because of an ageing population, rising income levels, advanced healthcare diagnostic tests offerings, penetration of healthcare insurance and healthcare measures by the central government, or a sedentary lifestyle that leads to increased chronic diseases like obesity, diabetes, and hypertension, growth is anticipated.

India’s appeal as a cost-effective destination for high-quality medical treatments and advanced healthcare facilities has resulted in sequential improvement in international patient footfalls.

Crucial trends are shaping the future of diagnostics. These include a growth in the use of companion diagnostics; direct-to-consumer testing and automation; and the transformation of pathology and radiology, using AI and advanced analytics. The convergence of digital pathology and AI is revolutionizing diagnostic processes.

The forefront of diagnostics is witnessing unprecedented breakthroughs in molecular diagnostics. Specifically tailored to the individual’s needs with allergies defined, genetic testing is gaining traction. AI and ML are redefining diagnostic precision and efficiency, along with technology usage for pre-analytical examination setting the stage for a new era of medical insight.

Microfluidic lab-on-a-chip devices enable multiple diagnostic tests to be performed on a small chip, reducing the volume of samples required and accelerating testing times. Nanotechnology is being used to develop highly sensitive diagnostic tools for detecting biomarkers, pathogens, and other health-related indicators. Nanoscale sensors and probes improve diagnostic accuracy. Advances in genomics and proteomics allow for the comprehensive analysis of an individual’s genetic and protein profiles, aiding in personalized medicine and targeted treatment. Biotechnology innovations have led to the development of specialized diagnostic assays and the integration of bioinformatics tools for data analysis, interpretation, and storage. Enhanced immunoassays and antibody-based tests are used to detect specific proteins and antibodies, playing a critical role in the diagnosis of infectious diseases and autoimmune conditions.

Data analytics is becoming the cornerstone of diagnostic decision making. The shift toward personalized medicine, driven by individual patient data, is not only reshaping treatment plans but also revolutionizing the entire diagnostic process.

The future of IVDs is set for an extraordinary rise, marked by a paradigm shift toward decentralized testing, as epitomized by fully automated point-of-care testing (POCT) solutions. This transformative trend promises to replace well-known, expensive laboratory-based analyses with more viable, affordable, and user-friendly systems. Such innovations will not only broaden the reach of state-of-the-art diagnostics to underserved regions but also take a significant stride toward more equitable healthcare. For instance, the advent of microfluidic paper-based analytical devices (μPADs) signifies a pivotal moment, introducing new avenues for infectious disease detection through their affordability, efficiency, and simplicity, thereby democratizing sophisticated diagnostic systems. Such options are laying the groundwork for a future where healthcare decisions are driven by immediate, precise data, fostering a shift from reactive sick care to proactive and preventive strategies.

From wearable devices tracking glucose levels to real-time PCR testing, real-time diagnostics represent innovative breakthroughs. Wearable biosensors, integrated into various accessories, such as smartphones, provide a comprehensive set of physical health data, offering continuous monitoring and timely insights for clinical decision-making. They create a paradigm shift, in which a much broader range of non-invasive biomaterials (urine, saliva, perspiration, breath, etc.) can be tested. They are becoming indispensable devices in the diagnostics sector, enabling the development of low-cost diagnostic tools that can, almost in real-time, wirelessly generate data where the results are interpreted by medical professionals.

Liquid biopsy technologies have seen a significant improvement in the last decade, offering the possibility of reliable analysis and diagnosis from several biological fluids. The use of these technologies can overcome the limits of standard clinical methods, related to invasiveness and poor patient compliance. Along with this, there are now mature examples of lab-on-chips (LOC) that are available and could be an emerging and breakthrough technology for the present and near-future clinical demands that provide sample treatment, reagent addition and analysis in a sample-in/answer-out approach. The possibility of combining non-invasive liquid biopsy and LOC technologies could greatly assist in the current need for minimizing exposure and transmission risks.

Investments in digital platforms are poised to attract and retain patient footfalls via asset-light franchisee models, increasing home collection volumes and focusing on specialized tests.

Global scenario
The global diagnostic laboratory services market size estimated at USD 189.45 billion in 2023 is projected to register a CAGR of 9.5 percent to USD 207.5 billion in 2024, and a CAGR of 7.3 percent to USD 275.39 billion in 2028.

The market is expected to be limited by the rising prevalence of self-care diagnostic equipment. These tools can be used by patients without assistance from medical personnel, to diagnose particular disabilities or disorders. Common self-care diagnostic devices include glucose monitoring devices, blood pressure monitoring devices, sleep apnea monitors, and temperature monitors. Some virtual applications are also aiding in the diagnosis of certain health conditions. Self-care diagnostics is expected to have a negative impact on the traditional medical and diagnostic lab services market.

Another setback ahead is from select digital markets adjacent to diagnostics, including clinical decision support, remote patient monitoring, and population health management. They are projected to outgrow the core diagnostics market over the next several years, according to a research study from McKinsey.

Diagnostics is moving from its traditional back-office, pay-for-service role to a critical stakeholder role within the healthcare delivery ecosystem. Three main shifts occurring today give digital and analytics the chance to play a part in transforming the IVD industry:

Improving the diagnostic tests themselves. Health systems are anticipating two main improvements in diagnostics. The first is providing true measurement metrics for outcome-based healthcare. This means going beyond a simple result (for example, hemoglobin A1c is above the normal range) and tying it to key outcomes (X points of reduction in HbA1c means Y fewer complications for patients). The second is bringing these measurements forward to clinicians as insights rather than just as results, applying local context, trends, and patient-specific data points to help clinicians make more-accurate care decisions.

Transforming care delivery. Diagnostics sits at the center of clinical decision making and, therefore, is a critical component of enabling care delivery in the future. There are three main elements of future care delivery, the first of which is new care models, such as home and virtual care. As health systems evolve these care models, diagnostics will have to define new workflows and tests that enable remote care without sacrificing quality. The second trend in care delivery is an increased focus on prevention. This necessitates new IVD tests that can help screen patients more accurately and in a cost-effective manner. For example, a molecular colon cancer screening test powered by algorithms could improve accuracy and enable earlier detection. Finally, personalized medicine (selecting the right treatment based on patient data) will be critical to improving care delivery. Here, IVD players will need to screen new diagnostic panels that will allow physicians to select the right therapy among increasing options for patients.

Expanding the remit of diagnostics within healthcare. Broader applications of diagnostic tests beyond disease identification will generate tremendous impact, both for IVD players and for society. The most vivid example of this is that diagnostics can be used as a primary line of defense for future pandemics and related health emergencies (such as bio threats). Furthermore, diagnostics can increase the efficiency and effectiveness of drug development. This allows for more targeted medical therapies as well as companion diagnostics to identify patients who are most likely to benefit from a specific treatment or who are at risk of an adverse event due to therapy, enabling the selection of a more appropriate alternative.

Digital diagnostics combines data and analytics with traditional IVD testing to generate new clinical insights and more-efficient workflows. This value is not only for IVD players to capture. Other players, such as health tech and data companies, are also eyeing the space. However, as developers of data-generating equipment are already being integrated into key clinical workflows, IVD companies have a right to play, and could potentially use their position to become key stakeholders in the healthcare delivery ecosystem.

The first step in exploring digital diagnostics is to define where an IVD manufacturer can provide differentiated clinical value. Potential ways to do this exist across the patient journey, including developing screening tests that use local data, providing long-term health tracking and personalized treatment suggestions, and developing algorithms for companion diagnostics.

And then how best to deliver digital diagnostics in these areas. It will require the IVD players to build new capabilities (such as connectivity and data analytics), navigate a complex data regulatory environment, and clearly articulate a value proposition that resonates with customers, who are often skeptical. Many players are likely worried about growth and interested in making use of the vast data sets they have access to. By determining where and how to play in digital diagnostics and approaching strategy in the right way, they can put these natural resources to use and get on the path to growth.

The potential of advanced diagnostic tests to address unmet patient needs is growing rapidly as genomics, proteomics, and other technologies fuel biomarker discovery and deepen understanding of disease pathways.

The success of any advanced diagnostic depends heavily on the commercialization efforts behind it, with significant sustained investment over many years and often periods of negative profitability. For example, for select companies with on-market products earning more than USD 100 million in revenue, the combined cost of R&D (including clinical evidence generation) and sales and marketing can surpass 100 percent of revenue, says a BCG report.

While the challenges are vast, so are the rewards. Like a biopharmaceutical blockbuster, an advanced diagnostic that is commercialized well can improve the standard of care for millions of patients and bring in substantial revenue. Conversely, a test that is not optimally commercialized could lose tens to hundreds of millions for the company that develops it.

The journey to commercialize advanced diagnostics is a complex and multifaceted endeavor that demands a long-term commitment from companies and investors. As the industry continues to evolve, the companies that adeptly navigate the complexities of commercialization will not only reap financial rewards, they will also contribute to a paradigm shift in health care, moving us closer to a future where medicine is truly personalized.

The diagnostics sector is on the cusp of transformative changes, driven by technological innovations, shifting adoption patterns, and persistent challenges. As we step into the upcoming fiscal, the industry’s ability to harness these developments will play a pivotal role in advancing healthcare outcomes and meeting the evolving needs of patients and healthcare professionals alike. It will undoubtedly brighten the diagnostics’ future where healthcare is no longer solely reactive but anticipative, preventive, and proactive, advancing the science of longevity so that people live longer, healthier, happier, and fuller lives.

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