The Indian healthcare sector is emerging as mainstay of India’s economic growth and is split between private and government space. Wherein, over 70 percent of the services is provided by private healthcare, mainly because of the advantage it possesses like quick response and scaling innovation.
This inequitable difference along with emergence of communicable and non-communicable diseases has pushed the government to increase spending on public healthcare system, which witnessed a CAGR of 15 percent over the last 5 years. This has allowed healthcare services in India to be available at affordable rate compared to other countries. Even, the total per capita government expenditure on healthcare increased by `936 to `1944 in FY20 compared to 5 years ago.
The positive effect of this growing investment has been evident in different parameters such as increasing life expectancy, reduction in mortality rates, improving immunisation, among others. Meanwhile, it has also seen rapid stride in greater health awareness, emerging technologies, health insurance penetration and increased precedence of lifestyle diseases.
The existing healthcare infrastructure of India is not sufficient to meet the needs of the rising population. For this, the Government of India is taking efforts and planning to raise public health spending to 2.5 percent of the country’s GDP by 2025.
With unprecedented COVID-19 outbreak, the countries have realised the importance of healthcare system and is now placing more emphasis on it to mitigate or abate any future pandemic conditions. In near future, we would see more investment in R&D for effective medicine, hi-tech medical equipment, and reinforcement of telemedicine services.
Outline of the diagnostic industry
The diagnostic space in India has come a long way from 20 years ago. Moving from standalone centre owned by single lab owners toward consolidation to create shared value. With the motive that by becoming as franchisee of large diagnostic entities will unlock the potential to strengthen the overall network and chain for better customer convenience.
This consolidation to some extent has aided the industry to cross over USD 9.5 billion market, which includes of pathology and imaging test. Wherein, about 70 percent of the market share accounts to pathological tests, with the rest from radiology tests. These services are priced lowest in the world; therefore, it is largely driven by volumes. In the last 5 years, the price of the testing has remained flat or at best increased by 5-10 percent.
Lack of regulation: a long standing ailment
The diagnostic industry in India is highly fragmented with stand-alone centres, hospital-based labs, and diagnostic chains.
Almost 70 percent of clinical decisions are based on a diagnostic report and yet, in India, all it takes to open and run a medical laboratory is a simple shop and establishment act. A largely unregulated environment has left a lot of room for malpractice.
It is estimated that there are over 100,000 laboratories in India and due to low entry barriers, there is varying degree of quality and reliability and no minimum standard that is guaranteed to the patient.
A shop & establishment act is the only requirement to set up a lab. There is no a minimum standard protocol or governance framework in place. Around 70 percent of the medical decisions today are taken based on diagnostic reports and yet there is no one checking if labs are doing the right thing.
To give you a perspective, estimated number of labs in the country are over 100,000 and yet only about 1900 labs (both private and government) are approved for COVID-19 testing by NABL and ICMR.
We believe that regulation, compliance, and adherence to quality will become more important in the coming decade and the industry is well placed to consolidate further; ultimately helping the citizens of the country with good quality reports at affordable prices.
COVID 19: A catalyst for consolidation of Indian diagnostic industry
Strong brands to benefit. Unorganised standalone labs are facing challenges in terms of operations due to stringent quality norms and lack of customer faith in their operations.
Customer to focus on quality rather than pricing. Expecting the Indian consumer to be more quality conscious with respect to healthcare thereby benefiting the larger organized diagnostics chains
Faster consolidation and regulatory adoption. We expect faster consolidation in the industry and positive changes in the regulatory framework
COVID-19 capable labs. COVID-19 will become a new normal test in times to come; consumers will view diagnostics chains as COVID-19 capable labs and non-COVID-19 labs
Consumer connect. Diagnostics chain with lean balance sheet, strong consumer connect, and high focus on quality will gain market share
The golden decade for diagnostics
The diagnostic industry will witness more consolidation and regulation in the next 10 years;
Mobile health, telemedicine, and Internet of Medical Things have triggered customer-centric innovations, and this will also have a positive impact on diagnostics;
Companies that constantly adapt to the evolving landscape are set to benefit from new opportunities. Companies that fail to take the leap may be left behind; and
Insurance will be a big game changer: currently patients are paying out of pocket for pathology tests. Once these come under the purview of insurance, more tests will be ordered for better clinical and treatment management.
We envisage that over the next decade, the sector will witness a gradual integration of Artificial Intelligence at various stages. Multiple healthcare segments including diagnostics and hospitals will leverage data analytics and machine learning to disrupt their markets and deliver competitive edge. Technology is already helping hospitals and clinics to collect, store and share critical patient data. By adding an analytics layer to this, the care providers will be enabled to provide a much better analysis of the condition and recommendations to the patient.