Union Budget 2016-17: Roadmap for Healthcare

Healthcare industry stakeholders share their hopes and aspirations for the sector from the Union Budget 2016-17, with Express Healthcare


Healthcare industry stakeholders share their hopes and aspirations for the sector from the Union Budget 2016-17, with Express Healthcare

‘The earlier the government brings clarity in price regulation, the easier it will be for the device and equipment companies to firm up their India strategy’

201602ehm07Medical devices and equipment industry plays a critical role in healthcare delivery. What sets this industry apart, unlike the other components of the healthcare value chain (viz. pharmaceuticals and services) is India’s high dependence on imports (~70-80 per cent). Theoretically, given the large unmet healthcare need and the current thrust of the Indian government, this sector naturally lends itself as a priority for ‘Make in India’. Local manufacturing is expected to ensure product quality and price control making healthcare more accessible and more affordable.

However, the import trend does not seem to be changing anytime soon. A closer look at the current industry dynamics points towards certain policy imperatives that may be necessary to stem the tide.

  • Creation of a robust regulatory framework relevant to medical devices and equipment: The current Drugs and Cosmetics Act treats devices at par with pharma products. This implies that the Act is not sensitive to certain nuances specific to devices and equipment. The amended Drug & Cosmetics Act proposed recently covers theses points. However, the proposed amendments have been awaiting the nod from the parliament for more than a year. The government has also hinted at creation of a separate
    Department of Medical Devices. An amended Act with a separate ministry will be the right step in creating clear ownership within the Government to push the medical devices agenda.
  • Clarity on the price regulations on devices: The Government has been hinting at price control in certain devices in line with drugs. Obviously, such an Act may impact profits and hence, in turn, also the investment decisions of the companies. The earlier the Government brings clarity in this matter, the easier it will be for the device and equipment companies to firm up their India strategy.
  • Propose fiscal incentives specific to the industry: The current ‘Make in India’ programme can be specifically customised for a strategically important industry like medical devices. Features such as ‘medical device parks’ which provide tax holidays to tenants and preferential pricing for locally manufactured products can be considered. Further, rationalisation of the duty structure of imports needs to be done.
  • Develop and sustain the manufacturing eco – system: Skills such as biomedical engineering are in short supply in India. The supply gaps need to be plugged to make the initiative sustainable in the long term. Also, indigenous product and technology development capability needs to be nurtured to ensure truly ‘Make in India’ products in the future.

These concerns pertaining to the medical devices industry in India have always been there and were raised many a times in the past without any modifications seen yet. However, this time we can witness a change with the Government’s actions and the will it demonstrates to address the import dependence through its ‘Make in India’ initiative.

Amit MisraHead – Consulting, North India, IMS Consulting Group

‘To address the issue of affordability, the budget should move towards Universal Health Coverage’

201602ehm082016’s budget should be an appropriate time to announce concrete measures that will propel this nation towards better health, covering issues of affordability, access and some policy level changes to accelerate the rate of change.

  • Affordability: To address the issue of affordability, the budget should move towards Universal Health Coverage through measures like:
  1. Tax incentives for private insurance players to increase health insurance penetration, and increased government spend to subsidise/ cover non-insurable or below-poverty-line (BPL) population
  2. Encourage small and mid-sized businesses which employ a sizeable population to buy group health insurance for their employees by providing them tax incentives
  3. Withdrawal of service tax on health insurance premium to make it more affordable
  4. Tax exemption for primary care expenses and other non-insurable health spends through programmes like health savings account, etc.
  • Access: Increased government spend from the current one per cent of the GDP to augment healthcare access to population viz. primary, secondary and tertiary services to rural areas.
  • Awareness: Drive awareness campaigns on health, safety, sanitation, etc. Educating and promoting the benefits of health finance to citizens
  • Others: Improve efficiencies within the industry by
    allowing for uniformity in data exchange across various healthcare verticals
  1. There is also a need to address few special groups such as senior citizens and differently-abled persons which are vulnerable, through special focus groups and dedicated financing arrangements.
  2. It is definitely encouraging to see the recent reforms introduced to help the burgeoning start-up ecosystem in India. However, this move will need to be backed by specific initiatives within sectors that are expected to grow rapidly over the next few years. And healthcare is definitely tops that list.

Last year alone, we have seen the beginning of the pro care/ preventative approach, and a movement away from a cure-based one, with many players in the start-up ecosystem identifying the gaps in primary care services and leveraging technology solutions to make healthcare easily accessible. However, these steps need to move to the next level with a greater thrust from the government.

Varun GeraCEO, HealthAssure

‘The government must start to prioritise significant, long-term investment commitments’

201602ehm09The government must prioritise significant, long-term investment commitments in some critical areas of healthcare to make it more effective and efficient.

  • Increase investment in healthcare delivery, especially primary care and out-patient settings: To illustrate how NCDs need a fundamentally different approach to healthcare delivery infrastructure, let’s look at diabetes care. On an average, the number of outpatient visits for each in-patient admission in urban India is 10, compared with approximately 50 – 70 across developed countries. Indian diabetics typically visit a care facility when they are much further into unmanaged diabetes and related complications, and treatment costs could be as much as 10-25 times higher than with early-stage detection. With early detection screening and basic management at primary health centres (PHCs), cost and quality of healthcare for Indian diabetics will be much better. Today, state-run PHCs, which primarily serve rural areas, are critically short on staff – they typically have a 50 per cent shortfall in supporting staff and 10-20 per cent shortage of doctors. The next two decades will see a massive disease burden increase of the rural Indian diabetic.
  • Shift to technology based solutions to manage public health disease burden: Today, Aadhar card reaches the length and breadth of the country – latest estimates show that it reaches 68 per cent of adult Indian citizens. This infrastructure can be combined with mobiles to administer healthcare benefits to the urban or rural poor, and urban or rural senior citizens – these should include universal insurance cover, large scale chronic care screening and disease management programmes administered both remotely via call centres/ mobile apps or SMS, combined with improved physical infrastructure at PHCs. Done correctly, this technology-led transformation of our public healthcare infrastructure will be more effective than the Medicaid/ Medicare infrastructure of the US. It would help serve our most affected populations at a much lower cost.
  • PPP initiatives: The private corporate companies have developed India – specific healthcare expertise, especially in tertiary care. They are now innovating new models in chronic care to provide integrated care models of care to our citizens. If the government starts investing significantly in healthcare delivery to manage the oncoming NCD burden over next two decades, a public-private partnership-based approach will be mutually synergistic and will provide faster, more effective, higher quality and lower cost solutions. This can lend a whole new meaning to Make in India.

Gagan BhallaCEO, Apollo Sugar Clinics

‘Healthcare should be exempt from the forthcoming GST’

201602ehm10The Union Budget 2016-17 should look at the following things:

Encourage start-ups

The government’s start-up policy released a few days ago is aimed at stimulating growth and development of the economy by encouraging more entrepreneurs to commence manufacturing goods/ providing services from India itself. Barrier to entry have been diluted, a large corpus of seed funds have been earmarked, tax benefits have been extended and regulatory requirements have been significantly done away with.  So, a large part of what was required to provide an adrenalin boost to this initiative has already been covered in this policy itself.  There is no specific mention for healthcare though which implies that the Government has not focused on any infrastructure or priority sector in this policy; instead, it aims to use this to further its ‘Make in India’ initiative. For start-ups engaged in manufacturing goods in the priority sector of healthcare, the budget should provide a longer tax holiday than the three years just announced – a period of five years would be ideal. There should be higher investment by the government directly and through the PPP mode to increase the human resources required at all levels in the healthcare sector. Encouragement should be provided in various forms (financial and otherwise) to the Indian medical professionals engaged in the healthcare sectors overseas, to return to India.

Healthcare should be exempt from the forthcoming GST – until this new law is rolled-out, healthcare should be allowed full credit for indirect taxes (Service Tax, VAT) paid on its inputs. Essential medicines and implants should be charged VAT/ GST at zero per cent to reduce cost of treatment. Input credit should be made available on VAT paid on medical equipment used in hospitals – alternatively, these should be exempt from taxes altogether. There should be higher incentives for start-ups wanting to invest in education, infrastructure, healthcare, environment and renewable (alternate) energy. Budget should also focus on increasing the talent pool in healthcare, an issue that is restricting the growth of this industry. Government-funded medical colleges in tier II and III cities following a centrally-designed curriculum, cheaper study-loans for those hailing from humble backgrounds, wanting to pursue healthcare as a career are a few suggestions.

Increase GDP spending

Consumer-level spending will increase when money in tax-payers’ pockets increase. This can be achieved by creating a rationalised tax structure in which the cascading effects of taxes is eliminated and final goods and services are made available to consumers at optimum prices.  Implementation of GST, which subsumes a host of indirect taxes currently imposed on goods and services, will go a long way in achieving this objective. At the government-level, spending can increase only if its revenue from collections of direct and indirect taxes increase due to higher realisation of taxes, better compliance and increasing the tax base itself. Government spending will spur job creation and employment which will then result in more disposal incomes, which in turn will encourage spending.  This circle will continue and result in growth of the economy. Government spending has to be judiciously planned. Infrastructure investments in education, healthcare, power, renewable energy, roads and highways should form priority sectors for government investments.

Reforms for medical devices

On Jan 19, 2016, the government has already initiated steps to stimulate production of devices within India by increasing basic custom duty on imported devices by 2.5 per cent, removing Special Additional Duty (SAD) exemption of four per cent for imported devices and reducing import duty on raw materials, accessories and components required by Indian manufacturers by 2.5 per cent. This is a significant step to stimulate domestic manufacture and reduce dependence on imports.  Recently unveiled “Start-up Policy” should provide further incentives to entrepreneurs to enter this sector.  Reducing dependence on imported devices by substituting these with equivalent-quality, lower-priced Indian goods will eventually bring down the cost of healthcare for the common man.

Measures to protect Indian healthcare and pharma trade from market volatility

Market volatility is a function of many factors, a large number of which are outside the control of individual organisations. However one key parameter that affects share price movements is the financial performance (earnings). Generally speaking, in healthcare, there exists a big mismatch between the number of beds available for providing the core service itself to an exponentially large volume of customers. An organisation that provides this service at an acceptable price-point and follows good standards of corporate governance, transparency and reporting, will be profitable and remain so over time.  The rate of growth of profit slows down with the passage of time as economies and benefits of scale are reached.  At the EBITDA-level, organisations generally deliver anywhere between 20-30 per cent, depending on their size, scale and product offering.  Share price of these organisations is insulated from market swings since its fundamental financial parameters are healthy and continue to remain slow.  So , the ability of an organisation to improve/ protect its profitability will insulate it from market volatility.

Sandip KhoslaGroup CFO, Paras Hospitals

‘Focus investments on India-specific solutions’

201602ehm11GDP spending would need to increase in line with the proposed increase to 2.5 per cent by 2020. The government would need to be clear about its healthcare agenda. Policies would need to be tailored for India in terms of programmes, insurance or trained and qualified human resources. While alternative stream doctors are being considered to provide healthcare and the allied health sector sticks to rigid norms for nursing staff, we need to ensure that well trained staff is available and recognised by accrediting agencies.

  • Enable a paradigm shift to proactive rather than reactive healthcare through healthy living, with a focus on prevention and primary care through greater public spending on prevention, individual incentives for healthy living and broader engagement with multiple stakeholders (for example: using technology, incentivising food and beverage companies for health(y) food, promoting healthy lifestyles through media and schools).
  • Institutionalise standards for minimum quality of delivery across products and services, and initiate tracking of outcomes. Minimise sensationalisation of success and infections.
  • Use technology and IT in healthcare to overcome access barriers in remote areas and engage patients. Focus investments on India-specific solutions.
  • Inculcate a culture of personal responsibility for health through education, awareness, schooling, public mandates and incentives— for example, through health savings accounts and co-payments.
  • Active Pharma Ingredients (APIs) should be manufactured as it is a large part of generics in India. With adequate focus, it can provide high quality and affordable drugs and would contribute to the India pharma market. ‘Make in India’, through reforms and subsidies focussed on the generics manufacture, could help increase the quality of products available and also make them compete with the branded market.
  • Bio-technology parks needs to be established and strengthened to support existing and new entities. With adequate research personnel and equipment, technology could be developed and thereafter licensed out to manufacturers. While reverse engineering is an approach and could be a start point, we would need innovation and invention to be competitive and also to develop products relevant to India.
  • Integrated manufacturing hubs could be created to collocate complementary and ancillary manufacturing companies. No company today is self-sufficient in making all parts that go into an equipment. Often LCD panels and specialised switches are sourced from East Asia for convenience and cost advantages. If we want to truly Make in India, manufacturing ecosystem would need to be nurtured with technology, capital and skilled resources.
  • Reduce the customs duties on spares. Currently the entire device, if imported, attracts a duty of 11 per cent, however if a printer (thermal) or power cable needs to be brought in, it is considered a generic device and attracts a duty of 30 per cent. This indirectly pushes up the cost of healthcare as the incremental costs are borne by the end-user (patient).
  • Reduce cost of capital for the trade through reduced interest on borrowing would allow them better cash flow and help make them more competitive in the international markets. There is a need to ensure that the intent of reforms is percolated down. While the leadership at the centre, and in most departments, is extremely proactive, there is a disconnect with the staff on the ground, who seem anchored to the earlier systems.
  • There is an urgent need to establish a Central Directorate for Medical Devices. Currently, the DGCI looks at around 10 devices that have been notified, and the Proposed Amendment to the Drug and Cosmetics Act, looks at adding two members as experts to the DGCI. Considering the volume of the industry, it is not clear whether this would be feasible in the long term. The directorate would have many advantages.
  • Allow certification of Indian manufactured products by a central body (DGCI or QCI) and makes them eligible for public procurement. Currently, devices with FDA and CE certification are preferred. Getting them is laborious and often superfluous for companies not looking at export. By having our own certification body quality could be ensured and would also help promote local cost effective options.
  • Need to have a control in place to ensure that technology imported is vetted and evaluated to register these devices. Today imported devices without any quality check can be brought into our country and used without approval.
  • Leverage the new diplomacy initiatives to open large markets such as China and remove protectionist regimes. We also need to ensure that Indian manufacturers are allowed to sell in China. Currently, clearance with the local FDA would take two to three years.
  • Pharma market, across the world, is consolidating through M&A. It may happen in India as well. Further focus on enhancing quality of products made by Indian companies, India is likely to be a self-contained market and insulated from international volatility.
  • Improved cold chains would ensure that vaccines and critical medicines are not spoilt by the climate fluctuations.

Dr Kaushik MuraliPresident- Medical Administration, Quality & Education, Sankara Eye Foundation India

‘Government needs to bring in policy changes that can provide a boost to the growth of health services sector’

201602ehm12Healthcare is traditionally seen as a social sector in India, with less government focus and low budget allocation. India currently spends cumulatively 4.2 per cent of its GDP on healthcare, with just one per cent being contributed by the public sector, which is amongst the lowest globally. India’s public healthcare system is patchy, with underfunded and overcrowded hospitals and clinics, and inadequate rural coverage. It is high time that we realise the significance of healthcare as an economic development opportunity at national as well as state levels. The Indian healthcare market is growing at a CAGR of ~16 per cent and is expected to reach $280 billion by 2020. A paradigm shift in terms of our healthcare policy as well as our approach towards the sector is needed for India’s economic growth. The government needs to bring in requisite policy changes that can provide boost to the growth of health services sector in reaching out to the masses.

Reforms for medical devices sector focusing on ‘Make in India’

From a diagnostic industry perspective, our business is hit very badly due to rupee depreciation because 30 per cent of our P&L goes in chemicals to conduct tests. These chemicals are imported and are heavily taxed. We pay almost 25-30 per cent of tax on these imported chemicals. Today, the problem is that as the rupee fluctuates, our cost of importing these chemicals goes up and we can’t pass on the cost burden to our patients. The other problem is that we don’t have good indigenous chemical manufacturers in India from whom we can buy these chemicals and reagents. So, if the industry is encouraged to produce these chemicals in India, it will not only benefit these manufacturers but also the entire diagnostic industry and off course patients at large as this will even help in reducing the cost of diagnostic tests. Therefore, the ‘Make in India’ campaign should not only focus on equipment but also diagnostic chemical and reagents. Also ‘Make in India’ is being looked at as manufacture in India while ideally it should be innovate in India. Today, even in the medical devices sector, we are procuring devices from other nations and these devices have not been built for our population. The technology first needs to be calibrated to the Indian market and population. This can be avoided if we innovate for the Indian population and ‘Make in India’.

Ameera ShahMD, Metropolis

‘There must be a budget allocation for R&D of low cost drugs, preventive vaccines and personalised medicines’

201602ehm13It is important to have a clear roadmap as we frame the forthcoming budget. India is set to lose $4.8 trillion between 2012 – 2030 due to non-communicable diseases. Correct distribution of funds, improving infrastructure and skilled resources and preventing loss of money in unused/ misused resources is key while allocating the budget for India’s complex and vast healthcare system.

Improvement in GDP spending

One of the major needs is to focus on increasing the GDP spend on healthcare, mainly public health which stands at one per cent, to improve services. With heavy privatisation in urban sectors and the associated increase in out-of-pocket expense, it is important for the government to improve healthcare infrastructure in both rural and urban areas. It’s time to get rid of old issues like insufficient doctors, including specialists, and less facilities and poor infrastructure to support the treatment process. There is also a need to equip hospitals with modern medical devices and techniques as well as increase bed capacity in a few hospitals.

Rural areas too need better infrastructure along with improved availability of specialists and skilled auxiliary workers. Together, they would help reduce the number of advanced stage diseases, promote early detection and prevention of diseases, decrease spending on travelling to distant places for treatment etc. Moreover, there is almost negligible attention towards mental health in India. We need to improve focus in this area as well. All these measures would aid in reducing healthcare expenditure. The growth in ageing population, which is the most vulnerable to disabilities, diseases, terminal illness and dementia, also calls for economic reforms without delay.

Also, with the current available resources, there is a need to increase the use of technology. Only having five AIIMS is not going to resolve accessibility, quality and affordability issues in Indian healthcare.

Information technology and connected healthcare

IT should be deployed effectively to enhance healthcare. It would help in simplifying healthcare delivery and improving its effectiveness. It would also aid if reducing a significant number of
problems being faced by millions daily. Hence, all hospitals should get a budget allocation for its IT infrastructure.

Health insurance

Apart from health insurance premium benefits that we witnessed in the last budget, there is a need to introduce measures for prevention and early detection of diseases. This will reduce healthcare costs to a great extent by making insurance companies incorporate policies covering complete/ partial cost of diagnostic tests and consultations. Giving benefits and subsidies, tax exemption to those availing the services will encourage people to get an insurance plan and avoid huge out-of-pocket healthcare expense. Indians currently spend about $120 per capita (PPP) on healthcare each year, of which only a quarter comes from the government. Mexico, whose Seguro Popular universal insurance scheme is regarded as a model for upper middle class income countries, spends nearly $1,000 per capita, with half coming from the government.

Medical education, R&D

It is important to prevent brain drain to tier-I cities and other countries in pursuit of specialised education after post-graduation and careers opportunities in nursing, pharma, physiotherapy, paramedical sciences by increasing budget allocation to modernised medical education, exchange programmes with international colleges, scholarship for participation in conferences with a definite outcome, increase in the salaries of doctors practising at government hospitals etc. There must be a budget allocation for research and development of low cost drugs, preventive vaccines and personalised medicines. Tax sops for units focusing on R&D and an improvement in patent laws would also be welcome.

Health education

Like many countries, it is important to keep a part of spending on incorporating health education classes for students in schools.

Social entrepreneurship

In a densely populated country like India, it is important to seek support from not-for-profit organisations to improve healthcare delivery. There should be a special authority to help these organisations utilise their funds and a minimum CSR funding allocation for organisations working towards health and education. An accurate yearly report should also be submitted to ensure the effectiveness of the initiatives undertaken.

Dr Anurupa RoyFounder, WHO AM I

‘Government should allocate funds to promote holistic and alternative medicine’

201602ehm14In its strides towards the haloed developed country status, India faces major challenges in the field of healthcare. A burgeoning population, poor health infrastructure and paucity of funds allotted in the budget have hindered the country’s progress. At one per cent of GDP, our public healthcare expenditure is the least among BRICS countries. This year, we expect more focus on reducing patients’ out-of-pocket expenditure (currently at over 60 per cent) through initiatives focused on health insurance, setting up of more affordable quality medical institutions. The government can also focus on promoting India as a medical tourism destination. I believe that the following should be areas of focus in the government’s annual health budget:

Develop a roadmap for strategic health initiatives such as telemedicine, digital health record adoption etc. These initiatives will help compensate for the inadequate number of doctors and the lack of connected healthcare platforms. Special tax breaks for startups in this sector or public-private partnerships (PPP) with them could lead to a faster development of these technologies.

Focus on providing tax benefits to medical device manufacturers in India, along with promoting FDI in the sector with an aim to developing a more robust local medical manufacturing industry. Currently, we import over 70 per cent of all medical apparatus used in the country.

To reduce out-of-pocket expenditure, the Rashtriya Swasthya Bima Yojana was launched in 2008 for BPL families. Having received appreciation by the UN, World Bank and the ILO as one of the world’s best health insurance schemes, it fell short in that it only benefitted patients through cashless hospitalisation facility but could not provide assistance in the case of OPD patients. The National Health Assurance mission which was expected to be launched last year, could go a long way in providing universal healthcare for Indian citizens.

With India extending its Visa on arrival scheme, more tourists may prefer India for their medical treatment. The government should allocate funds for promoting holistic and alternative medicine to foreigners, and tax earnings from medical tourism could be used to subsidise healthcare for the underprivileged in India. Telemedicine facilities also contribute to providing more support to prospective or recovering patients, thus increasing India’s attractiveness as an affordable healthcare destination.

Sagar SambraniIndependent Financial Analyst

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First published on: 08-02-2016 at 19:57 IST