Despite the current situation of COVID-19, the
diagnostic market of India has witnessed strong growth. As consumer behavior
shift towards preventive testing, there would be more focus and research on molecular
and genetic testing. Government initiatives with respect to introduction of
industry regulations and insurance could be a game changer for the industry in
the coming years.
In conversation with Mr. Arindam Haldar, Chief Executive Officer at SRL Limited, we
attempted to seek his opinion and understand his side of story to ‘India
Diagnostic Laboratory Market’. He
suggested that the diagnostic industry is sure to come back efficiently post
the pandemic. They have been focusing on high end testing and are using
artificial intelligence to build algorithms which would make testing easier and
accurate.
Here are
some excerpts of the interview:
Q1. In the
past few years, what have been the major trends in the market? According to our
research, genetic testing is one sector which has a high potential for growth.
What are your view points on the same?
On a broader perspective, yes, the market has
been growing in the past five years. There have been a number of trends at the
testing level, market level and at the consumer level. Genetic testing would
definitely would one of it. There has also been a shift towards preventive
testing for the general public. At an overall level, health awareness and
consciousness amongst customers is on the rise, and large private chain labs
are also improving market accessibility, making sure the highest level of tests
are available at all market through their hub & spoke model.
Q.2) The industry is highly dominated by the
unorganised sector. How do you think this affects the overall market?
The organized part of the sector is still
minimal. It is difficult to get authenticated; research based proper data,
however the general understanding is that the organized sector, which includes
national and regional level players, contributes to roughly 17-18% of the
overall revenue for the industry.
I would also like to further bifurcate what we
call the unorganised sector. The balance 82-83% has a fair play of single owner
labs along with labs which are hospital based. The truly unorganized (single
lab ownership outside a hospital) would contribute to about 46-47%, however
that too is facing a change, because of a number of mergers and acquisitions
being witnessed in the market , wherein, the bigger companies are taking over
the smaller ones. As for the hospital based lab, it also depends on the kind of
hospital, its bed size, the modlaities performed, and level of professionalism,
which defines this segment.
Q3. With
respect to regulations, despite having the Clinical Establishment Act of 2010,
only 17 states have adopted the same. What is your opinion on current industry
regulations?
Regulations, or rather the lack of it, are
definitely one of the major challenges faced by the industry. At times patients
fail to notice, however it affects them as well. The lack of accreditations and
quality consciousness within the industry is a serious concern. There are a
number of licenses that are needed however; there are hardly any entry
barriers. As a result, anyone is able to open a lab. Unlike a large hospital,
which would be requiring a large amount of investments, the diagnostic labs do
not require that kind of capital. And while we do have a Clinical Establishment
Act, the extent of implementation varies from state to state, and finally the
quality regulations are predominantly self-professed and self-regulated by labs
which believe in quality.
What we need to understand is that the
patients or doctors do not get visibility of the actual testing process inside
the labs. It is only the final report which is received and close to 70% of
doctors’ decisions are based on them. Hence, it is extremely important to have
a stringent quality control system in the labs. If I speak about SRL, we have
43 NABL accredited labs, largest in the country. All the other labs are also
NABL ready. Us, along with a number of other big companies do follow the same
system. If all the labs in the country start following this, it would
definitely help the industry grow. As of
now, we want the government to be stricter and bring in norms to push quality
standards. Along with the implementation of stricter quality control, there is
a dire need for the government to increase healthcare spending.
Q4. If we
divide the market into pathology and radiology, according to us ~60% of the share
comes from pathology. Would you agree to the same?
Broadly yes, the split would be 60-40, with
pathology in the lead. My belief is that the scalability for a pathology lab is
higher. For the same, one could always use a hub and spoke model by which economies
of scale can be achieved. The growth rate for pathology, due to its
geographical spread along with its ability to transport samples, will surely be
higher. At the same time with an overall growth of the diagnostic sector,
radiology would also grow but may not be at the same pace as a pathology lab,
and high end radiology will be mostly centred around hospitals having the
relevant medical program.
Q5. If we
divide the market on the basis of Tier I, tier II and tier III cities, would it
be right to say that majority of the revenue comes from Tier I and Tier II
cities? Would this also be because of the concentration of reference labs in
these cities? If not, what would be the reason for the same?
Tier I and tier II do provide the majority of
the business for diagnostics. However, I do not feel that the location of
reference labs dictates this trend. Despite having reference labs in the
metropolitan cities, if I speak of SRL, we have the ability to pull in samples
from tier II, tier III and rural regions with the help of our regular logistic
systems. And this is how it works in the hub and spoke model which is followed
by most of the established players.
What we also need to consider is the kind of
testing done in reference labs. They mostly have high end esoteric tests, which
are related to severe diseases, and people are willing to wait for the results
of the same. It is very different for a regular blood based routine tests which
might take only a couple of hours to provide results, and the customer expectation
of turnaround time is different.
The main reason for the split of revenues from
different tiers is because of lack of qualified medical and para medical
professionals in smaller cities. It is extremely difficult to get a qualified
molecular biologist in a remote district of the country. We fail to have expert doctors in the
smallest of labs. It is for the same reason that high end testing cannot take
place in such areas and as a result the revenue share is minimal. Thus, for
most major surgeries or complicated medical conditions, patients do travel to
nearest large cities, state or district headquarters, where you have better
clinics and hospitals. The lab diagnostics revenue mirrors the same trend, as
it is a corollary business segment.
Q6. Would
medical insurance be a game changer in the market of diagnostics?
Currently testing cost in India is almost
1/5th of that in the United States of America, however it is still not
affordable to many middle and lower class families. As of now more than 60% of
the expenditure is out of pocket expenditure , insurance coverage would be in
single digit and the remaining would be a corporate spent and a little bit of
government initiatives taken place in some of the states.
The government is currently trying to bring in
schemes such as Ayushman Bharat, which if entered, the diagnostics sector would
do wonders as individuals with an Ayushman ID would have an access to
diagnosis.
Despite our costs being lower, the reagents
and equipments are the same if compared to any other country; and our doctors
in the country are equally qualified as their western counterparts. Also, most
of the equipment used for conducting tests in India are imported and also come
with the impact of import duty. The only way a commercial enterprise can
survive in the market would be by consolidating volumes, and getting higher
efficiencies from their lab machinery and manpower. This is especially true for
high end tests.
Thus, diagnostics tests and OPD coverage under
medical insurance for paying patients, and government schemes like PM JAY for
poorer sections of the society would surely help both the consumers along with
the players in this industry.
Q7. If we
divide the market on the basis of the models such as diagnostics chains,
hospital based labs and the standalone clinics, how the revenue split be
between them?
According to me, the organized (national and
regional diagnostic chains) would have about 16-17% of share, hospital based
labs would have a share of 36-37% and the balance 46% would be for the
standalone labs.
However, in the future there is a possibility
of change. The hospital based labs would remain the same but an increase of
organized diagnostic chains’ revenue salience to atleast 20% can be expected.
This would be at the cost of the standalone labs. Some of the reasons for the
same would include mergers and acquisitions wherein the bigger players take
over the smaller players. Along with this, the current situation of COVID will
make it difficult for the smaller players to sustain in the market.
Q.8. How do
you think COVID-19 will affect the diagnostics department of the country?
As of now, I believe that because of the
lockdown, there is a short term stump in sales even in healthcare, as it is
with other industries. But I strongly believe that in diagnostics, the recovery
would be at a faster pace and in an extremely efficient manner. Once can’t
specifically mention the exact number of months, but it should be less than a
year.
There would be a number of new trends with
respect to consumers, company spending and even the involvement of the
government. The consciousness amongst consumers is definitely set to go up,
people would want to understand their immunity levels in general. People also
understand what molecular testing is, thanks to higher consciousness of RT PCR
tests for COVID-19. There would not only be a rise in preventive checkups but
also in preventive genetic testing.
Even for the corporates, spending on the
health of their employees would go up. I also hope the government expenditure
on healthcare would increase in the coming years. The aim should be to reach
out to the people who currently do not have an access to medical healthcare
facilities.
Q9. SRL
being a major part of this industry, how do you see its growth in the next few
years? What are the future plans for the company?
Despite the pandemic, we remain bullish on the
future. We expect the challenges to be short term in nature and we expect to
get back to normal in the long run. We are expecting a number of growth areas
for the same, first being the specialized side of the business such as
molecular biology and clinical pathology. Our specialization also lies in the
same. People have recently started talking about RT-PCR tests due to Covid
tests being done on this platform, but for us we had our first one back in
2002. If I’m not wrong, we were probably the first private lab outside a
hospital to conduct the same in India. Being in the molecular sector for this long,
our expertise lies here. We expect both B2B and B2C sales of the same to grow.
Along with that we are also focusing on new
technologies such as AI and data analytics to help us improve testing. We are
currently working with Microsoft on artificial intelligence to develop
algorithms for two fields namely histopathology and cytogenetics. This would
assist pathologists to reduce subjectivity in their results and increase the
speed of response.
On the market side, we are constantly trying
to increase our accessibility. The hub and spoke model has been the easiest way
to do so. Most of the collection centers are franchised making it easier and it
becomes an asset light expansion.
So for us, it’s a mixed approach including
product strategy and a market accessibility which would hopefully help us grow
in the future.
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queries or feedback, reach out at namit@kenresearch.com
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