Medical Inflation
In India, the medical and hospitalization costs have spiraled thru the roof in the last decade. While access to medicines and hospitals have become more prevalent, their costs have soared to unaffordable levels. The opening up of the insurance sector to private insurers in 1999 by IRDA (Insurance Regulatory and Development Authority) paved the way for more people to be covered by health insurance policies popularly known as "Mediclaim". The coverage could be obtained either through corporate group health insurance policies or by an individual directly purchasing a health insurance policy. Similarly with the unprecedented growth of the pharmaceutical industry in the country, a wide range of medicines is made available locally. Why then have the prices soared so much? Let us look at the background.
The Indian pharma industry..
The Indian pharmaceutical industry is the world's third largest in terms of production volume and has received $11.3bn in FDI last year. It is expected to grow from $12bn in 2009 to $55bn in 2020. Domestic market is about 30% of total revenue. The dominance of the Indian pharma industry in the world market is due to the manufacturing of generics - patent expired drugs manufactured and sold at 60-90% lesser price than when its patent is in force. Recently the DPCO (Drug Price Control Order) prescribed a ceiling price on several essential medicines so as to make drugs affordable to a vast majority of Indians. This move is resisted not just by domestic players but also by the US government due to lobbying by US pharma industry so as to protect their profit margins at the cost of Indian lives. Interestingly Pharma industry has unique political and economical motives leading to confrontations at all stages of a drug's life.
The Indian hospital sector..
The Indian hospital sector clocked $45bn (Rs.2.70 Lac crores) in revenue in 2012 and is expected to grow at 20% CAGR p.a. This sector received $1.9bn in FDI last year. Profits of some of these hospitals were at Rs.300 crores last year. Although the market leaders (Apollo, Fortis) are listed, several hospitals and diagnostic centers are run private (listing of hospitals and running them like businesses is itself a conflict of interest, oh well, thatz a whole new blog saved for another day). Unlike the pharmaceutical industry the hospital sector in India is not regulated, not audited and charges not standardized. Treatment costs could vary by as much as 3x-10x for the same treatment depending on the brand and popularity of the hospitals. When compared to government hospitals, the cost differential could well be over 20x. An absence of regulator and grievance redress forum exclusively for this sector is much needed at this juncture. Presently grievances are taken up only via consumer court or high courts which could take about 7-20 years for resolution.
Whatz the medical inflation?
Per recent studies, India's medical inflation has been rising at 13% p.a, more than our CPI inflation rate and higher than other emerging economies. This means your medical cost doubles every 6 years. There are several initiatives from the government and RBI on financial inclusion. A similar initiative for healthcare inclusion needs to be the agenda of the government and proper funds need to be allocated towards implementing the same. Several asian countries have set a role model for universal healthcare for all its citizens and that doesnt cost much if structured well - especially in a country that is a world leader in pharma industry. Setting up of such facilities would not only make healthcare affordable to all but would also generate huge employment opportunities in the country across the entire healthcare spectrum comprising hospitals, medical infrastructure, medical devices, outsourcing, diagnostic centers, telemedicine, health insurance and medical equipments. The economies of large scale would then bring down the costs of medicines and hospitalization services significantly. Would that day dawn for India? Only policymakers would know the answer..
The Indian pharma industry..
The Indian pharmaceutical industry is the world's third largest in terms of production volume and has received $11.3bn in FDI last year. It is expected to grow from $12bn in 2009 to $55bn in 2020. Domestic market is about 30% of total revenue. The dominance of the Indian pharma industry in the world market is due to the manufacturing of generics - patent expired drugs manufactured and sold at 60-90% lesser price than when its patent is in force. Recently the DPCO (Drug Price Control Order) prescribed a ceiling price on several essential medicines so as to make drugs affordable to a vast majority of Indians. This move is resisted not just by domestic players but also by the US government due to lobbying by US pharma industry so as to protect their profit margins at the cost of Indian lives. Interestingly Pharma industry has unique political and economical motives leading to confrontations at all stages of a drug's life.
The Indian hospital sector..
The Indian hospital sector clocked $45bn (Rs.2.70 Lac crores) in revenue in 2012 and is expected to grow at 20% CAGR p.a. This sector received $1.9bn in FDI last year. Profits of some of these hospitals were at Rs.300 crores last year. Although the market leaders (Apollo, Fortis) are listed, several hospitals and diagnostic centers are run private (listing of hospitals and running them like businesses is itself a conflict of interest, oh well, thatz a whole new blog saved for another day). Unlike the pharmaceutical industry the hospital sector in India is not regulated, not audited and charges not standardized. Treatment costs could vary by as much as 3x-10x for the same treatment depending on the brand and popularity of the hospitals. When compared to government hospitals, the cost differential could well be over 20x. An absence of regulator and grievance redress forum exclusively for this sector is much needed at this juncture. Presently grievances are taken up only via consumer court or high courts which could take about 7-20 years for resolution.
Whatz the medical inflation?
Per recent studies, India's medical inflation has been rising at 13% p.a, more than our CPI inflation rate and higher than other emerging economies. This means your medical cost doubles every 6 years. There are several initiatives from the government and RBI on financial inclusion. A similar initiative for healthcare inclusion needs to be the agenda of the government and proper funds need to be allocated towards implementing the same. Several asian countries have set a role model for universal healthcare for all its citizens and that doesnt cost much if structured well - especially in a country that is a world leader in pharma industry. Setting up of such facilities would not only make healthcare affordable to all but would also generate huge employment opportunities in the country across the entire healthcare spectrum comprising hospitals, medical infrastructure, medical devices, outsourcing, diagnostic centers, telemedicine, health insurance and medical equipments. The economies of large scale would then bring down the costs of medicines and hospitalization services significantly. Would that day dawn for India? Only policymakers would know the answer..
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