The health of the Indian hospital sector has been deteriorating since the early CY2017, whereas the Indian pharmaceutical companies and their subsidiaries exhibited an impressive performance.
The MedTech industry will get a major boost if private hospitals are accorded industry status, along with the support for land acquisition, clearances and funding, as proposed under the Pradhan Mantri Jan Arogya Abhiyan.
Through incentives like viability gap funding of up to 40 percent of the total project cost and gap funding of up to 50 percent of tax on capital cost, the government is providing an opportunity for the emergence of innovative hospital formats, such as no-frills high-quality hospitals. Apart from aiding expansion of bed capacity, the new hospitals will open avenues for employment in tier- II and -III cities, in the healthcare sector.
Current status and projections for 2019
The health of the hospital sector has been deteriorating since the early CY2017. A recent study by ICRA of six leading hospitals, Apollo Hospitals Enterprise Limited, Fortis Healthcare Limited, Narayana Hrudalaya Limited, Healthcare Global Enterprises Limited, Max India Limited and Shalby Limited is not very encouraging. They reported a 7 percent drop in EBITDA, from Rs 556-crore in Q2 FY2018 to Rs 516-crore in Q2 FY2019 and a drop in operating margins from 15 percent to 13.3 percent during this period. The aggregate revenues grew by a modest 5 percent from Rs 3707 crore in Q2 FY2018 to Rs 3889-crore in Q2 FY2019. This comes on the back of the already subdued performance in FY2018, which saw the first fall in aggregate EBITDA of the sample set in over 6 years and also saw operating profitability hitting a multi-year low, dropping to 11.4 percent in FY2018 from the peak profitability of 15.7 percent during this 6 year period.
As per ICRA, the hospital sector profile has been witnessing deterioration since the beginning of CY2017 due to several factors that have adversely affected its profitability. These include the implementation of the Goods and Services Tax (GST), the cap on prices of stents and knee implants by the National Pharmaceutical Pricing Authority (NPPA) and stiff regulatory action by certain states, including putting restrictions on procedure rates, levying penalties and placing operational limitations on erring hospitals. Owing to these factors, the average revenue per occupied bed (ARPOB) of the sample set has grown by a muted 2 percent in Q2 FY2019 on a Y-o-Y basis, much below the 5 year compounded annual growth rate (CAGR) of ~7.2 percent. The intense competition in some of the key markets of operations of the players in the sample set has also resulted in sub-optimal operating and financial parameters. On account of the increase in debt, the rise in financial expenses and the pressure on operating margins, the interest coverage ratio of the sample set has dropped from 2.79 times in H1 FY2018 to 2.05 times in H1 FY2019, while net debt/EBITDA has deteriorated from 2.78 times as on September 30, 2017 to 3.14 times as on September 30, 2018. The aggregate debt coverage indicators of the sample set include the impact of non-hospital businesses as well, such as standalone pharmacies and diagnostics services, which have fared much better.
The regulatory environment continues to be the overarching challenge for the hospital sector. The wide-ranging regulatory restrictions from multiple authorities continue to suppress the day ARPOB of the players with the latest quarter also seeing sub-par growth in ARPOB and a drop in the profitability margin.
This is suggesting that the industry is heading toward a major consolidation in 2019, with large hospitals as (2018 saw for Fortis and Max) Medanta Medicity attracting investments and stake from VCs and equity funds and closure of some individual-driven smaller facilities.
After several quarters of lackluster performance both in net sales and net profit, the leading 50 Indian pharmaceutical companies registered strong growth in sales as well as in profits during the first half of this financial year, ended September 2018. This is expected to continue and growth is likely to be in double digits and with the introduction of new products consistently.
The Indian pharmaceutical companies and their subsidiaries exhibited an impressive performance in getting a large number of final as well as tentative abbreviated new drug application approvals from the US FDA to launch generic drugs in the highly regulated US market during the calendar year 2018. 2019 shall see these companies continue their stellar performance in getting a large chunk of ANDAs from the highly regulated market like US drug market and more and more investment in R&D.
More than four decades after releasing the national list of essential medicines, India has now drafted the first national essential diagnostics list which is a country-specific set of tests for detecting common morbid conditions and priority diseases in the country. The draft list, formulated by Indian Council of Medical Research, is expected to improve the availability of quality diagnostics at all healthcare facility levels and drive down the cost of disease detection and treatment. The government has come out with this diagnostics list to build upon the initiatives of the Health Ministry to provide an expanded basket of tests at different levels of the public health system in the country. ICMR has drafted the list on the lines of the World Health Organisation’s first- ever Essential Diagnostics List published in May, 2018. The WHO’s list concentrates on in vitro tests, i.e. tests of human specimens like blood and urine. It contains 113 products. Among them, 58 tests are listed for the detection and diagnosis of a wide range of common conditions, providing an essential package that can form the basis for screening and management of patients. The remaining 55 tests are designed for the detection, diagnosis, and monitoring of priority diseases such as HIV, tuberculosis, malaria, hepatitis B and C, human papillomavirus, and syphilis. Some of the tests are particularly suitable for primary healthcare facilities, where laboratory services are often poorly resourced and sometimes non-existent. On the same lines, the ICMR has developed the NEDL for different tiers of the healthcare system to address the needs of villages, primary, secondary, and tertiary care centers. Consequently, diagnostic tests are chosen on the basis of the country’s disease burden. So, tests for malaria, dengue, chikungunya, leptospirosis, brucellosis, tuberculosis, hepatitis B and C, HIV, and syphilis are given priority on the draft list.
Moving forward, in 2019, besides influencing the government’s future price control policies on diagnostic procedures in the country, the NEDL will also help streamline procurement of essential diagnostics required at primary healthcare centers and encourage local companies to manufacture these products to ensure adequate and uninterrupted supply. In a country where a large number of people are unable to get tested for diseases because they cannot access diagnostic services, the NEDL will be helpful as it will push for making diagnostics available at affordable prices for the common people.
2018 saw many programs introduced from the Ministry of Health and Family Welfare. 2019 shall see the culmination of these.
Ayushman Bharat is an umbrella of two major health initiatives, Health and Wellness Centres (HWCs) and Pradhan Mantri Jan Arogya Yojna (PMJAY).
Nearly 1.5 lakh sub-centres and primary health centres are planned by 2022. Till date, 4503 HWCs have been operationalized in various states.
Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (PMJAY) aims to cover over 10 crore poor and vulnerable families (approx. 50 crore beneficiaries) providing coverage up to Rs 5 lakh per family per year for secondary and tertiary hospitalization. PMJAY has been launched on September 23, 2018. After the launch of PMJAY, RSBY and SCHIS got subsumed in it. At a national level, National Health Agency (NHA) in the form of Society has been registered. MoU has been signed between National Health Agency, Government of India and 31 States/Uts, and 25 have launched PMJAY in September 2018. Ayushman Bharat National Health Protection Mission Council, as an apex body has been set up to provide policy direction to the scheme. More than 1350 packages have been finalized by an expert committee headed by director general, health services and peer-reviewed by NITI Aayog.
The National Health Policy of the country was launched after a gap of 15 years. The major commitment of the NHP 2017 is raising public health expenditure progressively to 2.5% of the GDP by 2025. NHP 2017 had been duly supported by the government through the provision of Rs 47352.51 crore to MoHFW under the Union Budget 2017-18, a 27.7 percent increase in allocation over previous year’s allocation. Further, in 2018-19 as well, there was an increase of 11.5 percent in the outlay of health over 2017-18 with the allocation of Rs 52,800 crore. Also, Rs 24,908.62 crore was provided for NHM in 2018-19, Rs 2967.91 crore more than last year. The 2019-20 allocation is awaited now.
To cater to the global demand (shortage) of healthcare workforce, which is projected to be about 15 million by the year 2030, as per the WHO Global Workforce, 2030 report and for regulation and standardization of education and services by allied and healthcare professionals, the Allied and Healthcare Professions Bill, 2018 was approved on November 22, 2018.
The Medical Devices Rules, 2017 presently has 15 notified categories of medical devices, which are regulated under the provisions of Drugs and Cosmetics Act, 1940 and Rules 1945.
2019 shall also see more registrations to the website portal created by the government, 2hp.mohfw.gov.in. It had 3000 professionals register in the testing phase, the capacity of capturing is more than 10 lakhs.
Under the Pradhan Mantri Swasthya Suraksha Yojana (PMSSY), regional imbalances in the availability of affordable/reliable tertiary healthcare services shall be corrected and quality medical education in the country augmented. Six new AIIMS (Patna, Rishikesh, Jodhpur, Bhopal, Bhubaneswar, and Raipur) have been put back on track and construction expedited. Two more at Jharkhand and Gujarat were announced in 2017-18. The year shall see three more AIIMS atVijaynagar, Samba, Jammu at a cost of Rs 1661 crore; Awantipura, Pulwama, Kashmir at a cost of Rs 1828 crore and Rajkot, Gujarat at a cost of Rs 1195 crore. Sanction for 2019-20 has been sought for one each in Maharashtra, Andhra Pradesh, W. Bengal, Punjab, Poorvanchal in UP, Assam, Himachal Pradesh, Jharkhand, Telangana and Tamil Nadu. Each new AIIMS will add 100 UG (MBBS) seats and 60 B.Sc (Nursing) seats, and the new AIIMS will have 15-20 Super Specialty Departments. Each new AIIMS will add around 750 hospital beds, and cater to around 1500 OPD patients per day and around 1000 IPD patients per month.
Other plans as setting up of hospitals at district headquarters across the state under the Public Private Partnership (PPP) model, on a 60:40 basis where 60 percent of the investment will be from the public and 40 percent from the private as proposed by Niti Aayog, and taking over ESIC hospitals and develop them on the lines of AIIMS are being considered.
The recent launch of the National Health Resource Repository by the Union Health Ministry to create the country’s first registry of authentic and updated geospatial data on all public and private healthcare facilities more than 20 lakh hospitals, clinics, diagnostic labs, pharmacies and nursing homes located across the country will be extremely useful.
In the run-up to the 2019 elections, will the government tighten its reins or give a favorable hearing to the sops as long term financing options, liberalized FDI regime for investments relating to medical education and training to bridge the huge demand-supply gap and meet global norms and provide import duty relief for lifesaving equipment sought by the industry bodies will determine the future of this industry.