Opening Up New Vistas


opening-vistasMedical technology companies are accelerating their investments in emerging markets, and India remains their prime target because of its large population, growing middle class and improving healthcare infrastructure, writes Anshuman Ojha of Elets News Network (ENN)


Even before the arrival of the New Year 2015, the government has opened up a whole vista of opportunities for the medical technology companies by allowing 100 per cent foreign direct investment (FDI) in device manufacturing segment. While India has already been on the radar of global medical companies as one of the most promising emerging markets, now they have all the more reason to look towards India. Although most multinationals have been somewhat conservative in their business strategy towards and operating model in India, delivering their existing offerings to the premium segments of the market, the shape of things is set to change once and for ever. Now they would need to look beyond their traditional model to survive the competition that is going to only more fierce in the days ahead.

Global Scenario

Healthcare, among both providers and payers in public and private settings, is a very costly industry sector. Total global health spending was expected to rise by 2.6 percent in 2013 before accelerating to an average of 5.3 percent a year over the next four years (2014-2017). This growth will place enormous pressure on governments, healthcare delivery systems, insurers,and consumers in both developed and emerging markets to deal with issues such as an aging population, the rising prence of numerous chronic diseases, soaring costs, uneven quality, imbalanced access to care due to workforce shortages, infrastructure limitations and patient locations, and disruptive technologies.


Across the globe there have never been more healthcare challenges than there are today. However, these challenges can push stakeholders to innovate in new and exciting ways and to generate scientific, medical, and care delivery breakthroughs that can improve the health of people worldwide.

Most of the countries across the globe are facing a formidable challenge to manage the rapidly increasing cost of healthcare. Although spending rose by just an estimated 1.9 percent in 2012, it is expected to pick up again, with total spending rising by 2.6 percent in nominal terms in 2013 and by an annual average of 5.3 percent until 2017. Given population provi growth, this means that spending per head is anticipated to rise by an average of 4.4 percent a year from 2014- 2017.

Life expectancy is projected to increase from an estimated 72.6 years in 2012 to 73.7 years by 2017, bringing the number of people over age 65 to around 560 million worldwide, or more than 10 percent of the total global population. In Western Europe the proportion will hit 20 percent; in Japan, 27 percent. The aging population will create additional demand for healthcare services in 2014 and beyond. Concurrently, the number of high-income households is expected to increase by about 10 percent, to over 500 million, with over one-half of that growth coming from Asia. Governments in many emerging markets are taking note of this economic growth and planning to roll out public healthcare services to meet consumers rising expectations.

In 2013, the Indian healthcare industry was valued at US$ 85.92 billion and it expected to each US$ 158.2 billion by 2017

Indian-Health-MarketWith aging populations, an increase in those inflicted with chronic ailments that require more healthcare spending, government initiatives to increase the access to care in both industrialized and emerging markets, and treatment advancements expected to drive sector expansion, pressure to reduce health care costs remains and are escalating. Heavy government debts and constraints on tax revenue, combined with the pressures of aging populations, are forcing health payers to make difficult decisions on benefit levels. Europe remains under particular pressure, and not just in those countries most impacted by the regional economic crisis. After forcing through painful cuts to drug prices, wages and staffing levels, some governments are now using the crisis as a chance to push through broader reforms to health care funding or provision. The hope is that these reforms may make healthcare systems more sustainable in the future.

Healthcare-expenditureIndian Healthcare Industry

In 2013, the Indian healthcare industry was valued at US$ 85.92 billion and it expected to each US$ 158.2 billion by 2017, growing at a CAGR of 15 percent. India being a country with growing population, country per capita healthcare expenditure has increased at a CAGR of 10.3 percent from US$ 43.1 in 2008 to US$ 57.9 in 2011 and going forward this figure is expected to rise to US$ 88.7 by 2015.

The private sector has emerged as a vibrant force in India healthcare industry, lending it both national and international repute. Private sector share in healthcare delivery is expected to increase from 66 percent in 2005 to 81 percent by 2015. Private sector share in hospitals and hospital beds is estimated at 74 percent and 40 percent, respectively, according to a report by Equentis Capital.

There is substantial demand for high-quality and specialty healthcare services in tier-II and tier-III cities. To encourage the private sector to establish hospitals in these cities, government has relaxed the taxes on these hospitals for the first 5 years. Many healthcare players such as Fortis and Manipal Group are entering management contracts to provide an additional revenue stream to hospitals.

Sales-report-eHealthMedical Equipment and Devices

The medical equipment and devices market in India was valued at Rs 37,800 crore in 2013 at end consumer prices and is growing at 1012 percent per year. Continued growth rates of 1012 percent until 2025 implies an overall healthcare spend of US$ 250300 billion by then. Medical technology maintaining current penetration levels of 8 percent implies a domestic market of US$ 20 25 billion. Additionally, the focus on local innovation products to drive access and affordability will be an important opportunity and will be equivalent to half of the growth from existing products / business models i.e. an incremental US$ 10 billion growth by 2025.

Globally the medical technology market is expected to be US$ 600 billion+ by 2025 implying a manufacturing base of US$ 200 billion by then. It is estimated that India will capture 10 percent of the share by 2025 in line with China share today. This will lead to an opportunity of at least US$ 20 billion by 2025.

Bridging the gap between the demand for healthcare and the existing supply will necessitate huge investments in the next 10 years. Health is a state subject in India and given the fiscal condition of many Indian states, it is unlikely that they will be in a position to fund major investments in healthcare systems. Realizing its limitations, the government is now actively courting the private industry with the promise of public-private partnerships. From healthcare delivery to diagnostic services to maintenance of medical equipment to provision of ambulance services to establishment of medical colleges, a variety of opportunities exists for Public Private Partnerships (PPPs). Medical technology companies are participating in PPPs in a big way. Examples include GE Healthcare PPP with the government of Gujarat for imaging services and B Braun PPP with The government of Andhra Pradesh for dialysis services.

The opportunities in India are real, and Medtech companies need to move quickly but with a well-thought-out strategy for market success. Given the dynamic nature of the Indian healthcare market, companies will need to reassess their business and operational strategies on a regular basis.

Multinationals should not assume that the opportunistic approach to this market will work in the future. Indian competitors are improving their technologies, manufacturing capabilities, and quality standards — all while keeping costs low. In addition, more multinationals are entering India to capitalize on its market growth.

Competitors are arriving from other low-cost countries, like China, with products that have fewer features for significantly lower cost.

Multinationals that do not develop a comprehensive strategy and operating model tailored for India risk losing market share and watching their competitive position erode. Early movers  either leaders or fast followers that can quickly develop the right capabilities to support an operating model tailored to the local market stand to generate double-digit, sustainable, profitable growth as India healthcare system reaches millions of new consumers.

Import Dependence

In the years following independence, India adopted an import substitution policy encouraging the development of indigenous industries under the umbrella of a strong public sector. The medical technology sector however was not on the list of government priorities and there was no significant attempt to build domestic capabilities in R&D and manufacturing. The seeds of import reliance were thus sown in the early years following independence. In subsequent years, the reliance on imports continued despite high import duties and tariffs. Today approximately 80 percent of the medical technology market belongs to imports. Interestingly, approximately 60 percent of the domestic manufacture of medical technology is exported, according to a report by PwC.

The proportion of imports is highest in the medical equipment and medical implants segments and imports contribute approximately 85 percent of the market. A few indigenous manufacturers in areas such as in-vitro diagnostics, X-ray machines, ECG machines, patient monitoring, and the like have made a name for themselves and can speak of product quality and technical support capabilities.

The medical disposables and medical furniture segment has many domestic players with significant manufacturing capacities. Apart from meeting domestic demand, these companies also export to both, advanced economies as well as developing countries. Domestic companies have created manufacturing capabilities meeting U S Food and Drug Administration (USFDA) standards and but can also speak of marketing alliances and distribution agreements for tapping the overseas markets.

Approximately 80 percent of the medical technology market belongs to imports

The last few years have seen an increase in domestic manufacturing of medical equipment. With impetus from various government schemes, India is finally coming to be recognized as a manufacturing destination for sophisticated medical technology. International medical technology companies are also using India as a manufacturing base by either setting up facilities of their own or by acquiring domestic manufacturers. Examples include 3M manufacturing plant in Pune, Becton Dickinson (BD) manufacturing facility in Haryana, Hollister manufacturing facility in India and Philips Medical Systems acquisition of Meditronics and Alpha X-Ray Technologies. To encourage domestic manufacturing of medical equipment, the government plans to set up medical technology parks.

Notwithstanding these initiatives, the proportion of imports in the market is unlikely to change in the next five years as newer technologies continue to be launched overseas. With the growth in domestic capabilities and MNC investments in the Indian market, the proportion of imports is likely to fall to approximately 60 percent of the market by the year 2020.

In vitro Diagnostics

The Indian diagnostics market is expanding at a rate of 18 percent per annum and the sector has emerged as one of the best segments in the Indian healthcare industry. However, the diagnostic scenario in India is highly fragmented with a large segment of the industry populated by unorganized players. Various factors such as rising prence of diseases, improving affordability of patients and increasing penetration of health insurance have contributed substantially to spur the demand for diagnostic services in India. In an effort to match to the increasing demand set by the industry, few organized players, approximately 10 per cent, have taken initiatives to increase their pan-India presence through national networks. Tier II and tier III cities are attracting a lot of attention from various industry sectors including IT outsourcing, automotive and healthcare services sector is no exception. For the diagnostic sector, these cities represent an area of underserved need, with a growing opportunity to improve health infrastructure. While there is opportunity in these regions, seeking to establish presence which is largely dominated by local players proving to be a challenge for large organized companies. Hence, it is observed that large players partner with these renowned local playe.


The Indian hospital sector is a key component of Indian healthcare industry with contribution of over 71 percent of total revenues of the industry. Various incentives at the policy level along with legal clearance for FDI have played a great role in driving private sector participation. Most private hospitals are located in urban India with very low penetration in the semi-urban and rural parts. To reach the goals of 12th Five Year Plan, India has to increase bed capacity by adding at least 650,000 beds by 2017. Demand for services and requirement for increasing beds has created huge opportunities for investment in this sector. Increasing investments in this sector from private investors have increased financial risks and thus, the returns the investor expects from his portfolio of investments are much high. Thus, financial performance of hospitals is the key factor that motivates and encourages investments into Indian hospital sector.

“India has to increase bed capacity by adding at least 650,000 beds by 2017”

Medical Insurance

A major part of medical expenses are borne out-of-pocket by the people,thus more people are realizing the importance of medical insurance which would incur the costs of world class healthcare treatment in the country. India now spends Rs 400,000 crore annually on health, but commercial health insurance covers only Rs 20,000 crore, not only because of low penetration but primarily also because of current health insurance products focus on hospitalization. The recent entry of specialist health insurers appears to have changed the grammar of insurance coverage. Now an industry can shift its focus from secondary and tertiary care and include more preventive and primary care. However, retail segment, and outpatient health spends continue to be virgin territories, waiting to be explored.

A recent World Bank publication stated that about half of the country population could be covered with health insurance by 2015, indicating a vast market potential. The awareness about having a health insurance is rapidly increasing due to the rising cost of high end health treatments and thus it has a strong growth potential in the recent years. While, the penetration of the health insurance market is still quite small, it is one of the fastest growing industries in India. The government had introduced the Rashtriya Swasthya Bima Yojna (RSBY) or Government-Sponsored Health Insurance Schemes (GSHISs) to provide the poor with financial coverage. The main objective of the new GSHIS was to offer financial protection against catastrophic health shocks. The scheme has covered more than 120 million poor people and is touted as the largest around the world.

With over 70 percent out-of-pocket expense burden on the consumers, the market is ripe for health insurance entities including global players. Health insurers are spread across the price spectrum and do not necessarily play the price-sensitive game to win premiums.

Star Health is more focused on the low premium segment, while Max Bupa also caters to the high premium segment. But the biggest winner is the customer as we have seen a lot of innovative offerings – mostly from standalone insurers.

Star Health, for instance, has a plan for heart patients and one for diabetes patients. We also have Apollo Munich with its Restore feature in which the cover amount gets restored in case it gets exhausted in a particular year.

More companies are now being forced to offer similar benefits, or better them that too at very attractive prices. With healthcare getting expensive and awareness increasing, more people are going in for sophisticated plans. At the same time, there is also a gradual breakdown of the company group plan support structure. An increasing number of companies are asking employees to share a larger part of the premium burden.

The breadth of cover in group plans is also being reduced like the exclusion of parents from plans provided by the company. The pattern of employee attrition also makes a very strong case for not relying on company-sponsored cover. Firms, on their part, see higher attrition and hence don want to invest in expensive covers for workers. Better to offer employees high erpayouts and make the healthier employees happier.

“A recent World Bank publication stated that about half of the country population could be covered with health insurance by 2015”

Health-InsuranceIf we see changes in FDI rules as growth picks up in the coming years, we might see more specialized health insurance companies setting up shop in the country. The industry is likely to undergo major reforms. Whichever model evolves, it is clear that the entire healthcare financing and delivery system is poised for a major change.


The Indian Pharmaceutical Industry has shown immense potential and continues to grow consistently. The Indian generic drug sector is robust and is establishing its presence in foreign markets too. The new- drug sector is also expected to record a healthy growth owing to significant industry wise increase in R&D expenditure and proposed new drug launches. On the concern side, fragmented Indian pharmaceutical market is facing high volatility and uncertainty. Increasing number of drugs in National List of Essential Medicines (NLEM) and price controls, changing FDI Policy, compulsory licensing, aggressive acquisition strategies by MNCs, and declining global generic market opportunity is creating a new normal. Pharmaceutical companies need to re-visit their traditional growth strategies to succeed in a volatile world. With 70 percent of India population residing in rural areas, pharma companies have immense opportunities to tap this market. Demand for generic medicines in these regions has seen a sharp growth, and various companies are investing in the distribution network in rural areas. The share of generic drugs is expected to grow and it could represent about 90 percent of the prescription drug market by 2016. The Indian Pharmaceuticals industry is growing at a healthy pace despite the few challenges in the domestic market. There is continued uncertainty over the New National Drug Pricing policy that will have moderate impact on Indian Pharmaceutical players. Anything on GST will be closely observed by the industry and any minor steps will not have the substantial impact on the industry.

Healthcare IT

The healthcare sector in India is ripened with numerous opportunities for the IT companies to capitalize and grow. While IT previously merely enabled automation, it now affects integration across the entire healthcare delivery value chain. These developments are in line with the need for better collaboration among healthcare providers, payers, and governments to enhance the customer experience. As data is the foremost element that drives customer ownership and engagement, digitization strategies that generate meaningful data will become a central feature of the healthcare industry over the next five years. Healthcare players and IT vendors are already investing in tools that liberate data from organizational silos and put it in the hands of the consumer.

Using an integrated, holistic approach which allows the healthcare organizations to remain flexible to the inexorable complexity, compliance and developments, has necessitated the requirement of information systems in healthcare organization over the years. With greater number of people moving toward better equipped healthcare institutes, technological advancements become an imperative need for such healthcare organizations in order to meet the increasing demand of the population. Maintaining quality of the healthcare services offered by the organizations along with being cost effective due to rising competition have become a key concern for the healthcare providers in India. IT, in such a case has acted as a key component in order to solve this problem. The usage of technology in healthcare sector has helped in improving various processes such as patient diagnosis, data management, e-prescription, pathology lab management, scheduling of appointments, case analysis etc.

Digital health knowledge resources, electronic medical record, mobile healthcare, hospital information system are some of the technologies gaining acceptance in the sector. Going forward, the healthcare sector spending on IT products and services is expected to rise from US$ 609.5 million in 2013 to US$ 1.8 billion in 2020. The top three states with highest number of hospitals with HIS installed in India are Maharashtra, Delhi and Andhra Pradesh. Electronic health records market has conventionally contributed the largest share in the market. The Laboratory Information System (LIS) though form a niche market segment in India presently; however growing systemization and a steep rise in the number of various types of laboratories will stimulate the adoption of LIS adoption in the healthcare information technology market in India in the future.

“With 70 percent of India population residing in rural areas, pharma companies have immense opportunities to tap this market”

MedicinesStrong mobile technology infrastructure and launch of 4G is expected to drive mobile health initiatives in the country. Mobile health industry in India is expected to reach US$ 0.6 billion by 2017.

Telemedicine is also a fast emerging sector in India. In 2012, the telemedicine market in India was valued at US$ 7.5 million, and is expected to rise at a CAGR of 20 percent to US$18.7 million by 2017. With increased private participation, the healthcare sector has also witnessed rise in FDI inflows. As per law, 100 percent FDI is permitted for all health-related services under the automatic route.

The future of healthcare IT industry is predicted to be digital and fully inter- connected. Spurring investments, new hospitals, insurance penetration, and regulatory push and manpower shortages will drive the growth of the industry in the future.

Medical Tourism

The cost of medical treatments in India is quite less, when compared to the west and the country has a number of top rated hospital chains/medical staff. India has the most number of US FDA approved drug manufacturing units and its healthcare system is based on western medicine (predominantly). The country also offers a large number of wellness tourism options like yoga, ayurveda, naturopathy, acupuncture, spa/massages, etc. Most of the traditional medicine systems in India focus largely on prevention. However, the country needs to work on increasing efficiency at the immigration to make the travelling experience hassle free for patients and also better infrastructure in terms of highways and roads would add to the overall satisfaction of medical tourists. Affordable hotels, availability of language interpreters are a few areas which also need to be given significant consideration to increase medical tourism in India.

The medical tourism market in India is projected to hit US$ 3.9 billion mark this year having grown at a compounded annual growth rate of 27 percent over the last three years. The inflow of medical tourists is expected to cross 320 million by 2015. The medical tourism industry in India gets maximum patients for heart surgery, knee transplant, cosmetic surgery and dental care as the cost of treatment in India is considered to be the lowest in Asia, much lower than Thailand, Indonesia, Singapore and Hong Kong.

Government Initiatives

The Ministry of Road, Transport and Highways, the Department of AIDS Control and Ministry of Health and Family Welfare have signed a Memorandum of Understanding with an objective of providing HIV preventive services to transport sector workers.

The Central Government has requested the Government of Odisha for allotment of 25 to 30 acres of land for setting up a satellite centre of the All Indian Institute of Medical Sciences (AIIMS) Bhubaneswar as a super specialty healthcare facility.

India and Maldives signed three agreements after delegation level talks between Abdulla Yameen Abdul Gayoom, President, Maldives, and Dr Manmohan Singh, the then Prime Minister of India, on January 2, 2014. The pacts included a MoU on health cooperation.


According to data released by the Department of Industrial Policy and Promotion (DIPP), hospital and diagnostic centers attracted foreign direct investment (FDI) worth Rs12,413.57 crore between April 2000 and July 2014.

Some of the major investments in the Indian healthcare industry are as follows:

  • LifeCell, India largest umbilical cord blood stem cell bank, plans to set up a public stem cell bank at a cost of Rs30 crore.
  • Max India plans to dilute its stake in Max Healthcare in favor of its South African partner Life Healthcare in an all-cash deal of about Rs794 crore.
  • TPG Capital is in advanced talks to invest up to Rs900 crore for a minority stake in Manipal Health Enterprises (MHE).
  • HLL Lifecare has teamed up with Tata Memorial Centre for constructing a modern women and children cancer hospital at Parel in Mumbai.
  • BlackBerry plans to launch a healthcare service that will integrate thousands of medical devices to enable early detection of illnesses, in partnership with healthcare technology firm NantHealth, as it looks beyond smartphones in the Indian market.

The Union Cabinet has approved the proposal for setting up of National Cancer Institute (NCI) at a cost of Rs 2,035 crore. NCI will be set up in the Jhajjar campus (Haryana) of AIIMS, New Delhi. The project is estimated to be completed in 45 months.

Under the Union Budget 2014-15, some of the major initiatives taken by the Government of India to promote the healthcare sector in India are as follows:

  • Free Drug Service and Free Diagnosis Service to achieve Health For All
  • Two National Institutes of Ageing to be set up at AIIMS, New Delhi and Madras Medical College, Chennai
  • A national level research and referral Institute for higher dental studies to be set up
  • AIIMS-like institutions in Andhra Pradesh, West Bengal, Vidarbha in Maharashtra and Poorvanchal in UP. A provision of Rs500 crore made
  • 12 new government medical colleges to be set up 15 Model Rural Health Research Centers to be set up for research on local health issues concerning rural population

The coming years will see great outof- the-box thinking by the strategists in the field of healthcare, beginning with the way healthcare is delivered. To begin with, a rise in retail clinics,single speciality, secondary and tertiary care centers are seen coming to the fore including the recent examples of NOVA day care, BEAMS, and Apollo clinics. The tier II/III cities have suddenly become attractive to the healthcare players, especially because of the tax sops and increasing disposable incomes among Indian families across the country and dearth of quality healthcare infrastructure in these locations.

Specially focused on medical tourism, health cities are being designed and uted and hospitals with bed strengths of 1500/2000 which were never heard in the private domain are now coming to light.

Technology will play a major role in bringing quality in healthcare, be it better nursing communication systems, patient monitoring devices or telemedicine to provide low cost diagnosis to remote patients, etc.

Companies like Blackberry, HCL and HP are already investing heavily in healthcare technology and Google trying to ambitiously woo the consumers for a centralized healthcare database. What is in store for the future of healthcare is limitless.

The Cabinet has approved the proposal for setting up of National Cancer Institute at a cost of Rs2,035 crore


Year-on-year, the challenges facing the sector have remained the same. While we are looking at a US$ 100 billion growth by 2015, the perennial problems facing India are still those arising from malnutrition (infant mortality, lacking overall development), sanitation and access to affordable hospitalization and clinical care.

On the other end of the spectrum, availability of a skilled workforce – both doctors and nursing and support staff – is cringing. Doctor-nurse density per 10,0000 persons of the Indian population is an abysmal 19. Most of the skilled medical workforce is being sought out by countries in Europe and the Middle East and retained by attractive compensation packages there vis a vis India.

Compliance to regulations is still a cause for concern in both government as well as private-run organisations. What more the system suffers from the lack of a quick response and redressal system, with matters related to medical negligence and failure largely relegated as consumer affairs troubles.

Further, we need an effective mechanism to address demand for safe, affordable and quickly available Healthcare for All.

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