Indian healthcare in 2020’s rearview mirror

The Bill and Melinda Gates Foundation (BMGF) called it the “decade of vaccines”. In 2010, the foundation pledged some $10 billion to help research, develop and deliver vaccines in developing countries, including in India. It spent more in India—$282.5 million—in 2017 as compared to any other country, pouring all of it into building a supply chain and ensuring demand for vaccines in the country.

And now it wants to withdraw, leaving the Indian government to foot an enormous bill. This is one of the main reasons the government’s healthcare expenditure could shoot up in the coming years. 

BMGF and the network of vaccine makers it funded is just the tip of the iceberg. The past decade has seen a slow march towards privatisation of healthcare. This, in a country that sorely needs government intervention to provide for the millions in need but without the means to access quality healthcare. 

The 2011 census put the population of India at 1.2 billion. That number is expected to rise to 1.37 billion by 2020. That’s an addition of nearly 170 million people—if it were a country, it would be the world’s eighth most populous.

Per capita public expenditure on health has grown in the same period. It has gone up from Rs 621 ($8.7) at the turn of the decade to Rs 1,657 ($23.2) in 2017-18. However, as a percentage of GDP, allocations for health continue to remain inadequate, lagging behind neighbouring countries. Including expenditure by states, this amounts to 1.4% of GDP. Nepal, on the other hand, spends 2.3%, while Sri Lanka spends 2%.

With the government taking up more of the burden of preventative healthcare—vaccinations—on its shoulders, it passed the burden of curative healthcare on to hospitals. The onus, therefore, was on private players to provide healthcare to those who cannot afford it.

Through its ambitious $1.54 billion health insurance scheme, Ayushman Bharat, the government fixed treatment prices, racking up a hefty bill for insurance premiums in its quest to make healthcare affordable for nearly 500 million people. In parallel, hospitals had to lose money in the process, too. They were already reeling after the implementation of the Drugs (and Prices) Control Order (DPCO) 2013, which placed caps on the prices of various essential drugs.

As a result, both large and small hospitals have either faced losses or been put up for sale in recent years. The private equity net kept snapping them up. Meanwhile, e-pharmacies remained in legislative limbo, fighting battles with brick-and-mortar pharmacies that wanted to keep the retail drug industry, worth some $13.4 billion, to themselves.

Big banner, big problems

In the first three years of its first term, the NDA government accused hospitals as well as other private healthcare players in the drugs and devices market of profiteering. 

The government widened the ambit of the DPCO, allowing it to cap prices of essential medical devices like stents and implants as well. We predicted that capping prices for these devices would hobble the market, choking imports and, ultimately, leaving patients weaker. 

The DPCO’s move, in turn, lowered the margins of hospitals, who benefited from the sale of these devices. Private insurance players were also pushing hospitals to bring down the price of treatments.

Add Ayushman Bharat to the mix and hospitals have been pushed to the brink.

The government, for its part, is painting a rosy picture of Ayushman Bharat, its big banner healthcare initiative. As of October 2019, hospitalisations worth Rs 7,160 crore ($1 billion) were covered by the scheme. 

“In just over one year… more than 50 lakh [5 million] treatments have been availed by beneficiaries across the country,” Harsh Vardhan, Union Minister for Health and Family Welfare was quoted as saying recently. According to an official statement, this works out to nine hospital admissions per minute in the first year of Ayushman Bharat. 

When we wrote about the scheme shortly after it launched, the main drawback was the pricing. The rates prescribed by the government for some procedures and treatments were as low as 10% of private hospitals’ rack rates. This left many hospitals unwilling to be empanelled.

Hospitals in the ICU

To be sure, the hurt in the hospital space began even before Ayushman Bharat was rolled out.

In 2017, we wrote that big hospital chains like Max Healthcare and Fortis Healthcare were losing money. This kicked off a race amongst private equity firms to buy the beleaguered chains. While Fortis initially sought to strike a deal with  Manipal Health Enterprises in 2018, it eventually struck a deal with Malaysia’s IHH Healthcare Bhd. In 2019, Radiant Life Care, a two-hospital chain, along with private equity investor KKR bought a controlling stake in Max Healthcare. 

In a story written during the 2019 Lok Sabha elections, we illustrated how Ayushman Bharat and the DPCO worked together to drag down the sector—lower margins from medical devices and drugs on one hand, and significantly lower rack rates from procedures on the other.

Some hospital chains like Narayana Health looked abroad for profit instead of expanding in India. Narayana Health is hardly alone in this. Indian single-specialty hospitals like HealthCare Global Enterprises (HCG) are in the process of establishing a cancer care network in Africa. Also, private equity-funded dialysis and kidney care chain Nephroplus is expanding its dialysis centres in Asia this year.

Smaller hospitals, on the other hand, were forced to sell out to larger players. According to our 2018 story, at least 175 hospitals across the country were looking for buyers, while some, such as Shalby, Aster DM, and KIMS Hospital, went public.

The crunch, though, has forced hospitals to get creative. Some, like Max Healthcare, found other avenues for profit. Max took the home delivery route. As of April 2018, Max’s home health business unit was one of the largest players in Indian home healthcare, and their diagnostics arm was one of the largest in the National Capital Region (NCR).

Going online

Healthtech startups, meanwhile, went one step ahead and pulled the sector online. Consultation, prescriptions, doorstep delivery of drugs, sample collections for lab testing and delivery—you name it, there’s a startup out there doing it. 

The government, too, seemed keen on the digitisation of the healthcare space but seemed to lose its appetite as it focused on Ayushman Bharat. Take the Integrated Health Information Platform (IHIP)—a health data hub meant to digitise personal healthcare information—for example. A senior executive at one of the three consortiums that sought to build the hub told The Ken in May 2018 that the IHIP file stopped moving once Ayushman Bharat was announced.

The IHIP itself had its roots in the Electronic Health Records (EHR) Standards 2016. The EHR required all patient medical data be uploaded so they could be accessed by any medical personnel, thus promoting interoperability. 

While the IHIP is now gone, the EHR Standards 2016 are still only voluntary. 

In the private space, however, the digital march was unceasing. Today, there are online pharmacies that deliver drugs to your doorstep, websites that facilitate online consultations with doctors, give you basic and accurate medical information in regional languages, and more. 

E-pharmacies, in particular, have had an eventful few years. In October 2015, the Indian Internet Pharmacy Association was set up. The association lobbied for e-pharmacies, seeking regulatory change on the part of the government. At stake was the $13.4-billion market for drug sales, traditionally cornered by small, offline pharmacies. 

The Association’s work seems to have paid off. The government released a draft policy for regulating e-pharmacies in 2018. Optimism about the future of e-pharmacies soared. However, the policy is yet to be finalised.

Vaccine wars

Meanwhile, the government’s vaccination efforts hit a number of stumbling blocks. The vaccination programs—Mission Indradhanush and its subsequent iterations—set a goal of 90% immunisation coverage of India with the government-approved list of vaccines by 2020.

But where can these vaccines be bought? 

The three public sector undertakings (PSUs) the government leaned heavily on—Central Research Institute (CRI), Kasauli, BCG Vaccine Laboratory (BCGVL), Chennai and Pasteur Institute of India (PII), Coonoor—were shut down in January 2008

Consequently, the private Indian vaccine sector grew at a CAGR of 18% to Rs 5,900 crore ($907 million) between 2009 and 2016. Pharma major Pfizer led the way by convincing the government to buy its patented pneumonia vaccine. 

The government’s attempts to move away from the private sector have not gone so well. Over seven years, it pumped about Rs 600 crore ($84.2 million) into condom-maker HLL Lifecare to develop an Integrated Vaccine Complex (IVC). The cost of the IVC has now shot up to over Rs 900 crore ($126.4 million). All without a single vaccine being produced by the facility so far.  

With that being the case, the government turned increasingly towards BMGF. The Foundation ‘fixed’ the supply side of the market by doling out grants to major vaccine producers such as the Serum Institute of India. It is hoping that as it exits the country, the government will step in and fix the demand side concerns by buying the vaccines it helped produce.

The government had also set other targets for itself. Eliminate malaria by 2030. Eliminate tuberculosis by 2025, after previous failed targets of 2017 and 2015. Eliminate polio.

While India was declared polio-free in 2014, TB, on the other hand, was a daunting problem, especially with the rise of the superbugs. In fact, India, for the first time, accepted large donations for bedaquiline and delamanid, the first drugs to be approved in 50 years for drug-resistant strains of TB. 

With the superbug war well underway in India—Indians are highly resistant to new antibiotics. But there also seems to be a glimmer of hope (which of course comes with a catch). The country now has a first-of-its-kind test to diagnose TB drug resistance, but it is not accessible enough. Yet. The country is also seeing a resurgence of vaccine-preventable diseases. 

Private pressures

In the face of all of these challenges, the Indian government is also on the brink of kicking off a healthcare shift in the country. But in the direction of a US-like insurance-driven system, where everything is privatised. This, even when there are indicators that the situation demands a UK-like National Health Service (NHS), where free healthcare is extended at government-operated centres. 

The UK consistently outpaces the US when it comes to pivotal health markers like the Infant Mortality Rate (IMR)—4.3, as opposed to 5.8; and the Maternal Mortality Rate (MMR)—7, as opposed to 19. These are 2017 figures. 

Despite these signs, is it wise for the government to continue on this path? 

All those involved say no, according to our health correspondent Ruhi Kandhari. Pharma companies, insurance providers, device makers, and hospitals are opposed to rapid privatisation in this sector, simply because it is difficult to make a profit from consumers who cannot pay the price of healthcare in the first place. 

In addition, this push towards an insurance-driven system might not even be sustainable, they say. The government would have to provide healthcare to those who cannot afford to pay the price to access healthcare otherwise.

Though the insurance sector is growing—the sector is expecting 5X growth, with 600 million insured by 2024—public sector insurance providers are not making any money. And everyone who needs insurance might not even benefit from this move. Ayushman Bharat aims to cover 500 million Indians, but that’s still less than half of India’s total population. Together with the private players, a projected 1.1 billion will be insured, leaving around one-fourth of India’s 1.4 billion-strong population out in the cold. 

The Indian government tried to privatise healthcare in the hope that it could cut down on expenditure. But as 2020 rolls around, the government might very well be staring down an expensive healthcare barrel.

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