Roadmap ahead

Major stakeholders share their plans for steering their respective companies to new heights.

2020 will be an exciting and innovative year for digital health. This space will bring new technologies to the market, as well as operationalize and disseminate current ones. Disseminated technologies include smart electronic health records, closed-loop medication, and lab administration. Operationalized technologies include patient access to medical information and partnership in healthcare, registries and prevention before intervention care, and telemedicine and remote visits. New technologies include advances in machine learning and diagnostic wearables.

This decade will bring significant changes and disruptions. Health and care delivery as well as prevention in the 2020s will become more consumer-centric, with AI-powered tools and virtual interactions between patients and care providers becoming the new normal in many situations. The year 2020 itself will pave the way into this health decade of data-driven, personalized diagnostics, prevention and virtual health assistance by further removing barriers in interoperability, data privacy regulations, and care-provider fragmentation.

Healthcare consumers continue to show strong use of digital technology for self-service care – and the numbers are rising each year, according to Accenture research. Patients are increasingly open to intelligent technologies taking on elements of their care, such as medical consultations and monitoring. And they are using self-service digital health tools that go beyond websites.

In some areas, healthcare providers are keeping pace with demand. But when it comes to virtual care, robotics and artificial intelligence (AI), consumer interest is surpassing what providers currently offer. There is an opportunity for providers to differentiate themselves by offering new, technologically advanced services that satisfy consumer interest and expectations.

While the state of healthcare varies significantly across developing and developed countries, and even within them, the underlying theme of change has a common thread, i.e., minimize disease burden, maximize reach of quality care, and optimize the cost of delivered care. This has essentially brought a fundamental shift in the imperatives for the policy makers, providers and the public, leading to the emergence of cost of care, health outcome, and health consumerism as the key performance indicators of the health system, underpinned by a quest for healthcare and not just sick care.

India is in sharp contrast to the developed world in terms of healthcare cost and expenditure having one of the lowest per capita healthcare spend, total and public healthcare expenditure as a percentage of GDP, and cost of health services. Consequently, issues of high disease prevalence, limited access to provider, and low propensity to avail health services have been a challenge for the large populace with meagre means, which are barely enough to ensure subsistence.

However, the healthcare industry in India is at the cusp of a transformation, which will be characterized by unprecedented opportunities for growth in the affordable quality healthcare service offerings. In response, the healthcare system needs to tailor its current model for inclusion and mass healthcare; aspire to deliver true care with a focus on primary care, wellness, and health outcomes; and build trust across all its principal stakeholders, i.e., policy makers, providers, payers, and public to achieve its agenda of universal health access and right to health.

MedTech industry
The Indian MedTech market offers a great opportunity not only by its size, but also because of encouraging policies and regulations introduced by the government over the last couple of years. It continues to record robust growth despite a hardened stance on pricing for essential devices. Currently valued at Rs 30,300 crore, it is expected to touch Rs 39,260 crore in 2021.

In India, till recently, medical devices had not received appropriate attention from the policy makers. Currently, however, medical devices have come into mainstream policy making, albeit often with the absence of deep understanding about the domain, or without an adequately nuanced approach to factor for its hugely diverse range or spectrum. One major challenge this segment faces is price control. The government controls prices of certain medical devices by either fixing a price at which they may be sold under a formula or by restricting the ability of the marketer of the medical device to increase its price by more than a prescribed percentage at any given time. The presence of multiple regulators, which may make simple tasks (such as rectification of erroneous declaration on the label) quite a tumultuous affair, remains a challenge. Another challenge is presence of archaic laws that do not permit manufacturers and importers of medical devices to promote their product directly to the customer as cures for certain prescribed conditions and illnesses.

Even though the year 2019 witnessed significant developments, there is an urgent need for the government to accelerate further reforms and supportive measures in 2020 to make India a global medical device manufacturing hub, reducing import dependency in this sector which is still at 80–90 percent, minimizing outgo of foreign reserves, and making quality healthcare affordable and accessible to the masses at large.

The government has set up a National Medical Devices Promotion Council. The Council, headed by secretary to the Department for Promotion of Industry & Internal Trade (DPIIT), addresses policy interventions to support domestic manufacturing, reduce dependence on imports to meet local demand, and boost exports.

Ayushman Bharat attempts to address large-scale healthcare financing gaps, and thereby has potential to expand the market significantly. However, given the complex nature of medical devices, it would be imperative for policy leaders to align a medical technology growth map to the Ayushman Bharat in the future.

Hospital industry. The hospitals sector has come out of troubled times after more than two years of subdued performance on account of several regulatory measures. The hospitals sector, which posted the best growth in revenues and earnings before interest, tax, depreciation, and amortization (EBITDA) in the second quarter of FY20 since the first quarter of FY17, is likely to report a 10–12 percent growth in revenues in short-to-medium term during the new year, forecasts ICRA.

The cap on prices of stents and knee implants by the National Pharmaceutical Pricing Authority (NPPA), and the negative impact of the rollout of Goods and Services Tax (GST) on profitability are two major regulatory measures that have adversely impacted the industry’s performance. In addition, strict regulatory action taken by multiple states, including restrictions on procedure rates, levying penalties, and placing operational limitations on erring hospitals also had a bearing on the performance. The performance was also impacted due to the start-up cost of new hospitals, owing to significant CapEx and the long gestation period required for the new facilities.

With new standards and regulations emerging, reimbursement rules are becoming more complex, healthcare dynamics evolving, and companies facing an increasingly competitive scenario. Moving ahead, some key trends of the customer will determine the way forward for the hospitals industry.

Severe cost pressure is another major challenge. Both public and private hospitals are caught in a pricing squeeze; as a result, many are emphasizing financial management and operational efficiency by closely watching costs, using technology to become more efficient, and testing different channels and product-mix strategies to maximize per-bed metrics. Also, selectively, private clinics and start-ups are targeting hand-picked clientele by offering high-end diagnostics, maternity care, oncology care, senior day care, and other specialties.

Overall, the health system is seeing a lot of ideating and cutting-edge, small-scale pilot programs around mobile health (m-health), telemedicine, and IoMT, although few are being taken to scale. Numerous public and private hospitals are moving to online patient registration and service-delivery systems, and digital marketing is becoming more common via mobile apps for appointment booking, paying online, downloading test reports, sharing health tips, and more.

Diagnostics industry
India accounts for 1 percent of the global IVD share and is expected to double its share to 2 percent by 2020. The diagnostic services market is expected to continue growing at 27.5 percent for the next five years, estimates Research and Markets. Moreover, with the rise in health consciousness and the rising burden of chronic diseases, this market will swell to approximately Rs 86,000 crore in revenues by 2020.

Though a major portion of diagnostic business is being managed by the unorganized sector, the diagnostic service market is expected to become much more organized and consolidated with a lot of small and independent laboratory players becoming franchisees for the larger players.

The government has already announced the establishment of 150,000 health and wellness centers under AB-PMJAY, which will also offer diagnostic services. The NITI Aayog has called for making these centers operational by 2022-23 to ensure sufficient coverage and to lower the burden on secondary and tertiary care. A government analysis of the geographical presence of laboratories and sample collection centers of three of the largest organized chain players in the private sector reveals that more than half of the districts identified by NITI Aayog as aspirational districts, and lacking the most in terms of basic infrastructure, are being served by one of these three players.

2020 may be poised for a shake up with Reliance Life Sciences (RLS) seeing the pathology segment as a lucrative opportunity in India. RLS, the biotechnology subsidiary of RIL, plans to start pathology labs across India through partnerships with local entrepreneurs. To begin with, they plan to set up 20–30 labs. The company is looking at a 15:85 ratio for revenue sharing, with RLS keeping 15 percent. Revenue sharing would be on net sales basis and the franchise would bear the cost of setting up the labs.

The company is developing business opportunities in bio-therapeutics (plasma proteins, biosimilars, and novel proteins), pharmaceuticals (later-generation, oncology generics), clinical research services, regenerative medicine (stem cell therapies), and molecular medicine. The company plans to follow a hub-and-spoke model for its pathology business, with a reference lab serving as a regional hub providing super-specialized tests. Supporting the reference lab would be a chain of network labs that would provide routine as well as specialized tests. And assisting the network labs would be collection centers and points, which will collect tests and send them to reference and network labs for processing.

To sum up, the diagnostics industry in India continues to offer unprecedented opportunities to present and potential investors and stakeholders, now more than ever before.

Pharma industry
The Indian pharmaceutical sector still looks solid. The market is estimated at Rs 273,600 crore in 2019, which includes exports. The country is the largest provider of generic drugs globally and accounts for 60 percent of all vaccines produced worldwide. This sector is growing by 7 to 8 percent a year, according to the Indian Pharmaceutical Alliance, while rating agency ICRA expects growth of 11 to 13 percent in 2020. The country’s growing capabilities in contract manufacturing, research and development, as well as clinical trials, also make it a preferred partner for the global pharmaceutical industry

Strong demand is buoyed by better access to medicines in the domestic market, increased spending on healthcare, and a higher incidence of chronic diseases. This is supported by a rising middle class whose disposable income keeps growing rapidly; a large proportion of these funds is being spent on healthcare and health insurance as the country and its people develop and mature. Currently, Indian consumers are spending nearly 1 percent of their total income on drugs and pharmaceuticals. With the rise in the per capita income, current spending is going to triple, to approximately Rs 2375 per annum, by 2020.

However, major challenges remain. Healthcare infrastructure in India is inadequate when compared to the size of its population. Fewer than a third of Indians have health insurance, the rest deal with medical bills directly.

The inability to pay for medicines is another challenge that many people face. The Indian government’s expenditure on healthcare is low, about 1 percent of GDP compared to 2.5 to 3 percent of GDP when analyzing other developing economies, such as China, Malaysia, and Thailand.

Despite the potential for growth in the Indian pharmaceutical industry, it is being squeezed from many sides. Generic drugs manufacturers are facing stringent pricing pressures from the government that is keen to make treatment more affordable, yet Indian medicines are already the lowest-priced in the world.

Unlike mature markets such as the US, where drug prices are market-controlled, here, the government and regulators play a pivotal role in the entire process. Regulators fix both the price companies pay for bulk drugs and the price at which they sell their products in the market, leaving little leeway to build profitable businesses. The list of price-controlled drugs, by the department of pharmaceuticals under the ministry of health and family welfare, has swelled from 74 in 1995 to almost 860 in 2019.

For the last few months, their businesses have been buffeted by an over 50 percent increase in the cost of raw material imported from China, leaving businesses hobbled by shrinking margins and questions of long-term viability. This distress caused them to appeal to the National Pharmaceutical Pricing Authority (NPPA) for price increases. The regulator used the rarely invoked Para 19 of the Drugs (Prices Control) Order to enact these rates providing some relief.

The Indian pharmaceutical industry has been slow to innovate when it comes to new molecules or complex generic drugs. There is also a limited government-supported research ecosystem. The industry is seeking that the government resume tax exemption of 200 percent on R&D. It is pushing for incentives to set up 4–6 bulk drug clusters across India to reduce dependence on import. The government had introduced a weighted tax deduction of 200 percent on company expenditure on in-house research and development (R&D) in the 2010 Budget, in order to boost innovation in the country. In weighted tax deduction, double the amount spent on R&D is deducted from the profit of the company providing them additional cash to invest in R&D. However, the 200 percent weighted deduction on R&D was short-lived, with the government in 2016 Budget cutting it to 150 percent from 2017 onwards and to 100 percent from 2020 onwards.

To allay industry concerns, the government in the same budget announced a patent box-type of incentives for the first time, wherein income received by Indian companies in the form of royalties and technology license fees would be taxed at a reduced rate of 10 percent from the fiscal year 2016-17 onwards. The government said this move was designed to stimulate innovation by raising the revenue that companies could earn from their intellectual property. The industry now wants taxes to be eliminated on royalties and technology license fees it earns.

To give fillip to exports, the Indian Pharmaceutical Alliance is appealing to the government to announce a new scheme of export incentives or subsidies in place of the now scrapped Merchandise Exports from India Scheme (MEIS) to promote pharmaceutical exports. Under the Merchandise Exports from India Scheme (MEIS), the government provides duty benefits at different rates, depending on product and country. The government had to scrap MEIS, as it was not compliant with WTO regulations. Pharma companies were major beneficiaries of the scheme. India’s pharmaceutical exports rose 11 percent to Rs 138,250 crore in 2018-19.

At the same time, growth in its key US export market is moderating, due to price erosion and greater scrutiny from regulators. The woes of Indian generic companies are likely to continue as the regulatory action by the US Food and Drug Administration (USFDA) will delay their product launches in the US markets. The warning letter issued by USFDA to large pharma companies more than doubled in the first 10 months of 2019 compared with the previous year. According to CRISIL, close to 180 generic-drug launches will be pushed out from their intended launch dates due to it. The growing regulatory action in the US could bring down the US growth of Indian companies to 10-–11 percent from the current 16 percent in the next two years. Indian companies’ total sales from the US market is estimated to be Rs 55,000 crore.

Government initiatives
2019 saw many programs introduced by the Ministry of Health and Family Welfare. 2020 shall see the culmination of these.

The government has taken several initiatives such as 100 percent FDI for pharma sector, greenfield investment opportunity, flagship schemes, such as Ayushman Bharat and Pradhan Mantri Jan Aushadhi Yojana, and setting up of R&D centers.

Under the Ayushman Bharat program, 150,000 existing sub-centers (SCs) and primary health centers (PHCs) are to be upgraded into health and wellness centers (HWCs) with a widened scope of primary care services by 2022. The program is a step in the right direction toward the goal of Universal Health Coverage (UHC) as primary care is the foundation of healthcare for all.

As on February 22, 2019, approximately 10,252 HWCs had been operationalized in various states, which is just over two-thirds of the targeted 15,000 that was to be achieved by March 2019. At the current pace, the ambitious rollout target of HWCs for the next three years seems quite challenging to achieve.

While the intent of the plan to upgrade health sub-centers is positive, there is no evidence to build confidence on the effective implementation, given that the allocation itself, which is the pre-condition for implementation, falls short by 51 percent. A lot more impetus could be lent since primary care is the firm foundation of the healthcare system in India.

In December 2019, NITI Aayog has proposed to bring all medical devices under one regulatory regime in a phased manner and have a separate Medical Devices Administration (MDA) with four divisions – health and safety division, conformity assessment division, enforcement division, and the laboratories and medical devices testing division. The new regime aims to bring in ease of doing business, as the NITI Aayog has proposed to do away with the need to have manufacturing licenses to register a medical device or get a certificate of compliance. The government also moots to have a National Register of Medical Devices. These devices are presently governed by the Drugs and Cosmetics Act, 1940. The proposed bill is to be notified within the next six months.

NeHA (National eHealth Authority), which is the brainchild of the Ministry of Health and Family Welfare, is a proposed authority that is intended to be responsible for the development of an integrated health-information system in India. It will be the nodal authority that will develop an integrated health-information system along with the application of telemedicine and mobile health by collaborating with various stakeholders. Apart from this, it will also be responsible for enforcing the laws and regulations relating to the privacy and security of the patients’ health and information records.

The government is also negotiating lower procurement prices of medical devices and implants with the industry through Government e-Marketplace (GeM). Currently, the public hospitals are authorized to use GeM. Indian medical devices manufacturers and their re-sellers are listed on GeM, and they offer discounted products based on the defined payment terms, directly or through their authorized dealer network. The industry has been arguing that even private hospitals empaneled under PM-JAY may be authorized to procure under GeM, as a subcontracted facility of the government.

Call to increase spend on healthcare
The healthcare sector has sought the finance minister to increase spend on healthcare proportionate to GDP. The Budget of 2019-20 saw Rs 62,398 crore outlay for the healthcare sector which was just 1 percent of GDP. This should be increased to 2.5 percent or around Rs 150,000 crore to drive the health sector fast forward.