India - Forecasts for Indian Healthcare

As we gear up for 2012, Murali Rao, Associate Vice President, Healthcare, Technopak gives an overview of the Indian healthcare sector and charts it future growth path

India’s economic growth and rapid urbanisation is bringing with it an expected health transition in terms of shifting demographics, increasing ability to afford quality healthcare, changes in morbidity pattern with growing degenerative and lifestyle diseases, and increasing penetration of health insurance.

By 2021, over 143 million population in the country will be above 60 years of age; close to 16 million households will fall in the category of high-income (annual income more than Rs 5,00,000); towns with million plus population will increase from 35 to 65; heart diseases, diabetes, and cancer will show a combined average decadal growth of 47 per cent; health insurance market will grow at an average 42 per cent CAGR. Such factors have caught the interest and attention of investors, big and small; and have necessitated our healthcare landscape to constantly evolve and mature.

Riding on this wave, the Indian healthcare industry is poised to double from $ 60 billion to $ 120 billion by 2015, growing at a 15 per cent CAGR. While public spend in the sector is likely to be limited to ~ 20 per cent of the annual healthcare spend, most of the expansion would be propelled by organised private players, especially hospitals. What makes this growth story patients’ and investors’ eye is the unprecedented growth that allied sectors like pharma, wellness, medical technology, medical tourism, medical education, and health insurance, will witness in the coming decade. This would be largely fuelled by frugal innovation in technology and delivery mechanisms.

However, successfully meeting the expected level of infrastructure and manpower requirements is going to be a daunting task. So far, the industry has largely been shaped by ‘market forces’ instead of a planned growth based on an ‘inclusive approach’. India’s total health spending at 4.2 per cent of the GDP is way below most developed, and some developing countries. Over 80 per cent of healthcare spend is in the private sector. Less than 16 per cent of Indian population has any form of health insurance at present. Bed to population ratio (1:1) is still short in developing economies, with an additional requirement of 1.1 million hospital beds. The country has an additional requirement of 0.8 million doctors and 1.7 million nurses, apart from facing a significant shortage of paramedics. 45 per cent of the population travels more than 100 km to access tertiary level of medical care. Poor accessibility, accountability, affordability, and availability of healthcare services are key constraints that make the idea of ‘Health for all’ a seemingly impossible accomplishment.

Besides, the sector is largely dominated by unorganised private players, mostly comprising clinics and nursing homes. These facilities offer limited range of services and operate with minimal standards of quality. Moreover, the public sector focus is mainly on primary care with a programme-based approach. Other issues restricting the growth of the sector are high capital expenditure, high dependence on imported medical equipment, long gestation period for the business to turn profitable, archaic norms for medical education, and absence of any central governing authority for paramedical education.

Overcoming such mammoth challenges calls for an integrated effort and investment across the entire value-chain. Three broad components of this spectrum are healthcare delivery, pharma products, and medical equipment. Healthcare delivery, comprising primary, secondary and tertiary care facilities, constitutes a major chunk i.e. 77 per cent of the total market. Pharma and medical equipment segments constitute 14 per cent and five per cent of the total market, respectively. While sustained expansion of healthcare delivery facilities like neighbourhood clinics, day-care surgery centres, single and multi-speciality hospitals etc. is expected, it is also vital that support sectors and sub-sectors like pharma retail, wellness, medical technology, medical tourism, medical education and health insurance grow alongside and with equal vigour.

Though the role of private sector is going to get extremely crucial, government’s contribution towards achieving the above mentioned expected growth in the healthcare sector cannot be undermined. The government's focus on healthcare has seen a positive upswing in the last few years, and this momentum is likely to sustain in the coming decade, with the implementation of a slew of measures proposed. Work is already underway in the setting-up of six world-class institutes of medical education, training and healthcare delivery along the lines of All India Institute of Medical Sciences (AIIMS), Delhi. Also, a total of nine under-graduate and post-graduate medical colleges and hospitals are being established by the Employee State Insurance Corporation (ESIC) not only in metros, but many tier-II and III towns of the country. These two measures will greatly improve accessibility and affordability of healthcare services in non-metro cities, apart from providing quality medical education to doctors and paramedics.

Even at present, government’s role in the area of medical education is commendable. Government-run medical, nursing and dental colleges provide excellent academic learning, practical exposure and hands-on training at an extremely subsidised fee. Healthcare professionals who graduate from these colleges are highly skilled and in tremendous demand, not only in India but across the world. Many of these doctors have pioneered innovative, path-breaking research and treatment programmes in the past, and continue to do so.

However, despite investing heavily in medical education and producing the maximum number of specialist and super-specialist doctors in the country, government is finding it increasingly difficult to retain them in the public healthcare delivery system. This is primarily because of the lucrative remuneration packages and better work environment and facilities offered by private corporate hospitals. These hospitals, though aggressively growing on the delivery side of healthcare supply chain, have, so far, shied away from entering the field of medical education. With the government relaxing the rules and regulations guiding the setting up of medical colleges, this space offers good business opportunities for private players and more activity is expected from them in the coming years. Nonetheless, government would continue to provide the country some of its best healthcare experts.

Another area which needs the government’s urgent attention is R&Dwhich should include areas like diagnostics, therapeutics, vaccines, medical devices, regenerative medicine, public engagement, education and the application of research in improving patient care. For significant breakthroughs to emerge in this field, it is essential that the government provide researchers, the resources and freedom they need to pursue their studies, and also suitably reward institutes like ICMR for promoting research activities. Such encouragement will pave the way for development of innovative, low-cost, high quality technology and models of delivery that are specifically suitable to India.'s needs. In order to effectively address the issues of poor access, high cost it is imperative that the government pay due attention to the above measures.

Upcoming Trends

Traditionally, surgery has required the healthcare provider to meet inpatient requirements. However, inpatient facilities are expensive, inconvenient, and less than savoury to most patients.

Technological advancements over the last two decades have helped address this gap. A large number of surgeries, called day-care surgeries, can now be performed without the patient having to be admitted at all. This has become a global trend and is expanding throughout the world. By 2020, 75 per cent of all surgical operations will be carried out in ambulatory surgery centers/units. The cost advantage of day surgery is best achieved in free-standing centers or totally free-functioning units within hospitals.

At present, in the UK, 55 per cent of elective surgery is carried out in an ambulatory setting. In US, there are 5000 such centers, with AmSurg Corp being the leading player and it has over 150 centres in operation. In India, the concept is currently in its infancy, with only 20 per cent of all surgical procedures being done on an out-patient basis. 27 per cent of these procedures fall under ophthalmology, 23 per cent under gastroenterology, and 10 per cent under orthopaedics, followed by gynaecology, plastic surgery, general surgery, podiatry, and dentistry. However, India is fast catching up with the trend, and ambulatory surgical care market is expected to reach $ six billion in 2017, growing at a CAGR of 20 per cent. Such day care surgery centres, offer better ambience, convenient scheduling, more organised and friendlier staff as well as more convenient location and parking to the consumer, while making good business sense to the providers. For the healthcare provider, such centres translate into lower investment in infrastructure, manpower and inventory holding, higher operating margins, lesser incidence of hospital acquired infections, and higher turnover rate due to a more streamlined approach to the surgical episode.

Ideally, treatment in these centers should cost about 47 per cent less than that in hospitals, thereby making them an economically better option. However, this cost-advantage is yet to be proven in the Indian market. Insurance firms are also increasingly recognising the importance of this treatment and around 650-700 day-care procedures like cataract, lithotripsy, arthroscopy, haemorrhoidectomy, chemotherapy, dialysis etc. are already being included in the ambit of medical reimbursement. The good news is that this list is only going to grow in future.

Secondary Care Hospitals

In the last decade, most corporate healthcare models were developed with the metro markets in mind. But now, metros with developed healthcare infrastructure and rising competition have reached a saturation level serving a certain socio-economic segment of the population. The healthcare providers have now started realising that they cannot serve all segments of population with high-cost structures. To serve different consumer segments such as lower-middle income, urban poor and rural population, they need to develop low capital-intensive models.

One such relatively low-cost model is that of secondary care hospitals. These are mid-sized (100-150 bedded) hospitals offering upgraded secondary care and basic diagnostic and pharmacy facilities. Such hospitals are rightly positioned to cater to primary care and can be upgraded to incorporate some elements of tertiary care. They generally focus on specialities like general medicine, general surgery, OBG, paediatrics, orthopaedics and trauma, ophthalmology, ENT, dental surgery, endocrinology, and critical care. High-end services like oncology, cardiology, neurology, gastroenterology, nephrology, cosmetology, etc. might be present to a small extent, but are not their key focus areas.

Typical area per bed is around 1000 sq ft, ~ three days, average revenue per bed ~ Rs 12,000, and more than 25 per cent patients are insured. Such hospitals are easily replicable, scalable, flexible, and more affordable. Capital and overhead costs are lower than typical multi-speciality hospitals, workflows are standardised, operational management is easier, and outreach, penetration and patient loyalty higher. In some cases, these centres also function as feeders to the tertiary care hospitals of the same corporate group. The total market for secondary care services in India currently stands at Rs 42,000 crore, and is expected to reach Rs 261,000 crore by 2020. One of the main driving forces for this market is the fact that 80 per cent of ailments can be catered by secondary care. India is likely to see aggressive activity and investment in this market by corporate groups, especially in tier II and tier III cities.

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