A gradual shift of consumer behavior from
preventive testing to a wellness approach has changed the diagnostics sector
drastically. A number of government initiatives such as Ayushman Bharat hopes
to penetrate within rural India, in order to bridge the gap between the rural
and urban areas.
In conversation with Mr. Indranil Roy Choudhury, Chief Operating Officer at Diagno Labs Pvt
Ltd, we attempted to seek his opinion and understand his side of story to ‘India
Diagnostic Laboratory Market’. He
suggested that the diagnostics market of the country has a great potential.
Regulations in the future can help channelize the growth of the sector.
Here are
some excerpts of the interview:
1. How long
have you been associated with this industry? Has there been any major trend
shift witnessed in the market?
If we speak about the diagnostic industry
specifically I’ve been associated for 5.5 years and in the healthcare sector
for around 25 years.
Firstly, in the past, diagnostic landscape in
our country was mainly pertaining to the ill patients. However, now the
wellness is gaining focus as preventive health check-ups are gaining
popularity. Initially it was only Thyrocare focusing on wellness however now
all the major players are focusing on it.
The second shift, even though it’s happening
extremely slowly, is related to organizations and doctors. Initially
organizations were dependent on doctors’ endorsement to drive their business.
Their marketing strategies were highly dependent on the doctors involved. While
all that continues now with the help of increasing awareness among the
population, the patient/consumer has started making an informed choice with
regard to the labs and the testing done. This is mainly prevalent in metros
& tier 1 cities.
Thirdly there is a major shift towards
molecular and genetic testing, which will continue to grow in future.
2. If we
divide the Indian diagnostic market into pathology and radiology, we found out
that majority of the revenue (~60%) comes from the pathology department. What
would be your views on the same?
Be it radiology or pathology, in India none of
the segments / revenues from them are tracked by any government body or agency
so it is difficult to quote an exact percentage but majority would be from
pathology, roughly about 55-60%. Within the country, there are no entry
barriers for pathology which continues to be highly decomposed and fragmented
and region specific. In radiology, the initial investment is much higher than
pathology, where many instruments are available from the global vendors on
reagent rental. Along with this, limited number of qualified radiologist across
the country is also a limitation. This has resulted in comparatively more number
of pathology labs all over the country as compared to truly high end complete
radiology facility. Basic radiology is still in abundance.
3. Currently
the regulations pertaining to the industry are not up to standards. How do you
think, this has affected the diagnostics market?
The lack of regulations is definitely not
healthy. The government needs to have standardized regulatory norms
individualized for both radiology and pathology. There have been speculations
in the past in relation to different regulations; however it is yet to become a
reality. Its impact surely would be different for the organized and unorganized
sectors. The organized sector already maintains a certain level of check &
balances for Quality Assurance due to which standardizations will not impact
them much. But this isn’t the same for the smaller players. Significant part of
their cost cutting is dependent on the lack of regulations leading to
compromised Quality and hence the results. With new rules, they would need to
undergo regular controls & QA procedures, which would again cost them more,
and as a result bring down their profits.
4. Apart
from regulations, what would be the other challenges faced by the industry?
There is a lack of knowledge and awareness
amongst the people about non-regulated labs. Along with that, the nexus that is
present between the pathology labs and the doctors is definitely a concern for
the industry. Many doctors are provided incentives by the labs in order to
prescribe certain tests.
5. Majority
of the market is dominated by the unorganized players. What are your view
points on the same?
In my view, the unorganized players definitely
hold large majority of the share. When we talk about the organized sector, the
main players include Dr. Lal Pathlabs, SRL, Metropolis Healthcare and
Thyrocare, all of whom are more than INR 500 Crores basis their annual revenue
turnover with Thyrocare reporting the most healthy EBITDA. Even if we include
the next group of Chain Pathology Labs like Medall, Neuberg, Vijaya, Ampath,
Vimta, Core, Strand and many other players in the organized sector all put
together the maximum annual revenue turnover would be around INR 10,000 crore.
Whereas, the pathology industry in the country would stand at a minimum of INR
40,000 crore. So according to me the organized sector holds merely a 20-25%
share and about 75-80% for the unorganized sector.
6. How do
you think the industry performs in Tier 1, Tier 2 and Tier 3 cities?
Majority of the organized chain labs are
focused in Metros along with the tier 1 and tier 2 cities. The tier 3 cities
mainly are used as collection points and have their own local players (who are
actually omnipresent) However, what we must also keep in mind is that with
Ayushman Bharat coming up and the government trying to penetrate into the tier
3 cities, there exists a huge growth potential for all in these geographies .
7. If we
divide the entire market on the basis of models such as hospital based labs,
independent/standalone labs and polyclinics, according to us the hospital based
labs have the majority share in the market. Would you agree to it?
The hospital based labs would hold significant
share but at the same time the independent/standalone labs are very close
simply because their volumes are extremely large. Especially the reference labs
have the whole country as their drainage area for the esoteric tests.
8. How do
you think insurance is affecting the industry?
Insurance is seen as a blue sky scenario in
the diagnostic industry of the country. The test to accession ratio in India is
relatively low. This basically refers to the number of tests that can be
conducted with a given sample. Currently in India, that ratio stands at
approximately 3. The same in USA is about 8 to 9 and in Scandinavian countries
it stands at 10. Which means the number of tests performed in those countries
with one sample is much more. One of the reasons why it’s so less in our
country is due to the cost associated with it. With insurance coming in, the
medical fraternity would have a chance to look at the larger picture and get
more relevant tests done from the same sample as per the need of the clinician
to finalize the treatment protocol. It can be a game changer in the diagnostic
industry however we are not sure how & when the government plans to launch
the same. A small indicator of how it can impact and propel growth of the
industry is the increase in wellness revenue and preventive health checkups
recorded in Jan – March period every year as there is a provision of income tax
benefits available on the same as introduced by the government.
9. According
to you, who are the major players in the industry?
It’s a tough race for the apex position
between SRL and Dr. Lal Pathlabs. They definitely take the first two positions.
Following them would be Metropolis Healthcare and Thyrocare. The companies
which have a potential to grow would include Neuberg Diagnostics, Medall
Healthcare, Vijaya, Suburban, Core, and Dr Dang’s Lab. There are a number of
new entrants including Reliance, and Pharma majors like Dr. Reddy’s and Lupin
Labs all these surely makes this one of the most interesting and attractive
space in the healthcare universe.
10. Do you
think COVID-19 would have a major impact on the industry?
Our mindset in the last 45 days has changed
drastically. We have realized that we can live without a number of activities
and expenditures which are not essential. In the post COVID era, people will
concentrate more on what they need, especially healthcare. We all would be more
careful with respect to how we lead our lives and as a result, would have
regular checkups. People will be more conscious with related to lifestyle
related disorders such as hypertension, diabetes, dyslipidemia, thyroid and
many others which needs regular monitoring.
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