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Health care Services
Healthcare spending trend in India
Today the healthcare industry has emerged as one of the most challenging sectors as well as one of the largest service sector industries in India with estimated revenue of about Rs. 1,763 billion (year 2005) constituting about 5.3% of the GDP. Healthcare spending in India is expected to rise by 12% per annum through 2005-09 (in rupee terms) and scale up to about 5.5 per cent of GDP, by 2009. Estimates also suggest that by 2012, healthcare could employ around 9 million people.
Particulars 2004 2005 2006 2007 2008 2009
Life expectancy - average (years) 64 64.3 64.7 65.1 65.4 65.8
Healthcare spending (Rs billion) 1,582 1,763 1,967 2,216 2,463 2,771
Total Healthcare spending (% of GDP)            
Government spending on healthcare (% of GDP) 1.3% 1.3%       3%*
             
             
* projections.
Sources: US Census Bureau; Economist Intelligence Unit, Economic Survey.
A survey by NCAER, an independent economics research agency, suggests that rising literacy in India is improving health awareness, especially about lifestyle-related diseases, and thereby increasing per-capita expenditures on healthcare. Also, the shift in disease profiles from infectious to lifestyle-related diseases, which are typically more expensive to treat, is expected to raise expenditures per treatment. Based on demographic trends and disease profiles, lifestyle diseases - cardiovascular, asthma and cancer have become the most important segments, and in-patient spending is expected to represent nearly 50% of total healthcare expenditure.

The share of cardiac treatment is estimated to grow from the present 16% to 19% of inpatient spending and over 5% of all treatments, by 2008, making it the single largest.

Government facilities
There are four types of health-care facilities: primary health centers and rural hospitals, government hospitals, private hospitals, and teaching institutions.

The central and the state governments are major players in this sector, running hospitals, nursing homes, medical/nursing/paramedical colleges and medical insurance. Presently, the public spending on healthcare is 1.3% of the GDP, expected to increase to 3% over the next few years. A large majority of the population, particularly in rural and semi urban areas, receives free or highly subsidized treatment in such hospitals and health care centres. There are nearly 25,000 primary health centres, 138,500 sub-centres and about 4,000 community health centres.

The national capacity of hospital beds is around 914,000, resulting in less than 1 hospital bed per thousand population, as against the WHO standard of 3.2 beds. Although India has a vast medical infrastructure, the capacity of hospitals is far less than demand. There are nearly 625,000 registered medical practitioners, or about 1 per 2000 people, a disproportionately low figure for a country with such an immense population.

Private sector
Private sector investment in the sector was opened up in 1983, to bridge the huge gap between demand and government-owned healthcare services.  Since then, the private sector has grown significantly and presently the majority of healthcare services in India are provided by the private sector. In 2002 fee-charging private companies accounted for around 82% of overall healthcare expenditure, with government services covering the remaining 18%. In the last few years, a number of new players have entered the healthcare delivery sector, and set up specialty and super-specialty centres.

There are almost 9500 private hospitals and nursing homes in India, majority of them located in major cities, some of them equipped for providing the most modern state-of-the-art technology and equipment. However, more than 30% of the national bed strength is concentrated in 150-odd corporate hospitals. Important names in the private sector are Escorts, Apollo Hospitals, Max Health Centre, Fortis, and Wockhardt; several foreign healthcare chains have technical/financial tie-ups with Indian private healthcare chains.

Over the last few years an estimated 95% of new hospital beds have come up in the private sector. The increased spending power of the 250-300 million strong middle class is driving growth opportunities for corporate healthcare providers. Factors like privatisation of medical insurance, apart from giving rise to a new healthcare delivery system, are making the market more attractive for international and national corporate players.

These trends have led large corporate players such as the Apollo Group, Wockhardt, Fortis and Max Healthcare to rapidly expand their operations in India. In order to gain competitive advantage, these Indian corporate players are increasingly entering into collaborations with established global leaders.

Apollo Hospitals Group, with a network of over 35 hospitals, 6,400 hospital beds, 30 primary care clinics and more that 120 pharmacies, is the largest private hospital network in Asia. v

A number of ambitious hospital projects are in the planning stage. The Bengal Health City project envisages 100 hospitals over a sprawling 800 acres around 20 km from the city of Kolkata. A group of 12 leading private hospitals is managing the mega project. The project will have 100 hospitals, each having 500 beds and is expected to be operational by 2009. It is estimated that 20,000 beds will be ready in the first phase (2009) and the rest by 2012.

Apollo Hospitals is looking to enhance its presence in the secondary healthcare segment by setting up 100-120 bedded ‘First Med’ hospitals in mini-metros and smaller towns, focusing on specific services such as emergency medicine, maternity and general surgery.

There are reportedly at least 20 international players, not necessarily having healthcare expertise, vying to have a pie of the Indian healthcare market. The Singapore-based Parkway Group Healthcare PTE Ltd set up its first Indian project in 2003 through a joint venture with the Apollo Group to build the Apollo Gleneagles Hospital, a 325-bed multi-specialty hospital at a cost of US$ 29 million. The Parkway Group has also entered into a JV with the Mumbai-based Asian Heart Institute and Research Centre (AHIRC) to set up specialized centres of medical excellence in Mumbai with Parkway holding a majority stake. The Group is also looking for hospital projects in Chennai and other cities.

Singapore based Pacific Healthcare Holdings, Malaysia-based Columbia Asia are some other leading international names already present in the Indian health services landscape.

Service capabilities
India is self sufficient in human resource skills in the sector- doctors, nursing staff, technicians, etc.  Presently there are more than 625,000 doctors employed in 38,000 hospitals and are 840,000 nurses, who look after more than 900,000 hospital beds. During the previous decade, the number of doctors has increased by 36.6 per cent. An estimated 30 per cent of medical practitioners hold specialist qualifications. In fact India is a major source for professionals in the medical field for many renowned hospitals around the world. Indian doctors routinely perform surgical procedures such as robot-assisted heart surgery, which reduces the risk and trauma associated with critical conditions. The leading super-specialty hospitals offer world-class medical services at par with international standards on average length of stay patient stay.  There has been a significant decrease in the number of patients going abroad for treatment for open heart surgeries, organ transplants etc., as these are now available within the country.
Technology and Equipment
The market for medical equipment in India is more than US$ 1 billion and is expected to cross US$ 1.7 billion by 2010, growing at 20% annually. The market is distributed over hospitals, nursing homes, clinics and diagnostic centres, although mainly in the private sector and in urban areas. The demand for hi-tech products constitutes close to 80% of the overall market in India. Since domestic production comprises primarily of low-tech devices; there is a higher involvement of foreign companies in sourcing hi-tech devices such as imaging, cancer diagnostic and treatment and cardiology, which alone account for US$ 770 million of market value. Presently, nearly 90% of the demand is being met by imports from countries like USA, Japan and Germany.

There are more than 90 indigenous manufacturers of medical equipment, including several with foreign collaborations. Major foreign players active in this market include Siemens, GE, Philips, Inchem ATL, Network-Picker, Toshiba-STM and Hewlett Packard. Following import liberalization, many companies have preferred to serve the Indian market through import-based trading, through tie-ups with local companies for distribution and servicing.
Imports (US$ million)
Code Nomenclature 2001-02 2002-03 2003-04 2004-05 2005-06
841920 Medical Sterilizers and Autoclaves 2.94 3.72 4.57 7.76 6.36
9018 Instruments & appliances for medical, surgical  use 336.48 342.84 366.16 455.06 601.96
9019 Mechano-therapy appliances 28.37 14.28 10.58 9.94 15.23
9020 Breathing appliances , gas masks…… 2.67 2.60 2.23 1.58 2.45
9021 Orthopaedic appliances 29.61 27.65 45.03 50.28 68.28
9022 Radiography equipment 65.96 107.48 126.35 137.85 170.54
In addition to the above, substantial imports take place under Project Imports route, which are reported individually.
Origin of Imports 2005-06 (top three countries and The Netherlands), US$ million
Code Nomenclature Country 1 Country 2 Country 3 Netherlands
841920 Medical Sterilizers and Autoclaves Italy 1.42 Germany 1.08 USA 0.72 0.07
9018 Instruments & appliances for medical, surgical .. use USA 173.24 Germany 134.72 Japan 65.71 17.15
9019 Mechano-therapy appliances USA 6.48 China 1.87 France 1.02 0.29
9021 Orthopaedic appliances USA 23.17 Switzerland 11.54 Germany 4.58 0.15
9022 Radiography equipment USA 52.82 Germany 34.47 Japan 17.32 13.68
Germany and USA have been the leading suppliers of medical equipment to India.  The share of Netherlands has been negligible. 
Diagnostics Services
The US$ 500 million diagnostics /pathology industry has been growing over the last five years at an estimated 20% per annum. It currently comprises almost 2.5% of the overall healthcare delivery market. With 40,000 independent pathology laboratories in the country, largely small unorganized players and hospitals, the industry is highly competitive and price driven. The entry of private players in healthcare insurance has resulted in a rising demand of specialized clinics and laboratories affiliated to healthcare insurance companies, in order to maintain high standards in the diagnostic process prior to processing applications. Many large players are in the process of developing national networks - such as Dr. Lal’s Pathlabs, Metropolis, SRL Ranbaxy, Thyrocare, and Nicholas Piramal.  Large players like Max Healthcare and Gribbles (Australia) are also setting up chains of pathology labs in all major cities, to meet the growing demand from the insurance sector.

The market for medical laboratory instruments is estimated at about US$ 125-150 million and is growing at 20-30% per year. About 80-85% of the total demand is met through imports, for items such as electron microscopes, ELISA instruments/readers, spectrophotometers, multi-chemistry analyzers, radio immuno assay instruments/readers, instruments used in in-vitro fertilization, and high performance liquid chromatographers.
Medical Insurance
Medical insurance is a rapidly growing market in India. However, even now less than 1% of India’s population have some sort of medical insurance cover, having increased from 4-5 million about six years back to over 12 million today. Even for those insured, the average insurance cover is less than Rs. 50,000.  With the opening up of the sector to private insurers, there are now several private sector insurers, some of them offering medical insurance. The important international names in the sector are New York Life, Aviva, AIG, Allianz, Royal, Chubb, Lombard and Tokio Marine. In December 2002, the regulations were amended to provide for third party administrators, to increase the dispersion and also make medical insurance more consumer friendly. Miliman is the latest multinational to make a foray into the Indian health insurance sector. A large number of companies are also waiting in the wings to make a foray into the market, including leading global players such as Aetna, Brooke Shield, and Blue Cross, among others.

Health insurance premium is set to touch US$ 533.3 million by the end of 2005-06 as against US$ 385 million in 2004-05. In the year while the four public sector players collected a health insurance premium of US$ 317 million registering a growth of 24% over the previous year, the eight private players collected a total health premium of US$ 67.6 million, growing by a phenomenal 148%.

In order to spur the private health insurance sector, the Insurance Regulatory & Development Authority (IRDA) has increased the FDI limit from 26% to 51%. It has further reduced the minimum capital requirement to US$ 11.1 million. The government is mulling over a proposal to further lower the minimum threshold limit for standalone health insurance companies to US$ 5.6 million.
Medical Value Travel
India’s super specialty hospitals have earned their reputation as world-class institutions, with the state-of –the art technology, yet prices that are attractively low in comparison with the West. As a result, there has been a rapid growth in international patients from the Middle East and the Far East, as well as Europe, visiting India for medical treatment for cardiac and other major surgery. While this saves insurance companies claim related costs, it also reduces waiting times for patients by providing options to use approved medical facilities outside their own country. Some hospitals are gearing up for the international market and are obtaining accreditation under international hospital standards and referral arrangements with global insurance companies.

India received over 180,000 medical tourists in 2004 and this figure is rising at a high pace. The medical tourism market in India, estimated at US$ 333 million in 2004 grew by about 25 per cent and is projected to reach US$ 2 billion-a-year by 2012. New Delhi has emerged as a prime destination for cardiac care, as has Gujarat. Similarly, Chennai has established a niche for quality eye care, while Kerala and Karnataka have emerged as hubs for state-of-the-art ayurvedic healing.

India’s value proposition for medical tourism is highly cost-competitive medical treatment and technological advances in areas such as cardiology, cosmetic and orthopaedic surgery, dentistry, eye care and preventive health checks. India offers world-class cardiac bypass surgery, hip replacements, organ transplants, cosmetic, dental surgery and vision correction.

Besides cost advantage, India’s health care sector has also established itself for high quality of service. The death rate of coronary bypass patients at India’s Escorts Hospital is just 0.8%. The overall success rate of cardiac bypasses is 98.7% in India, as opposed to 97.5% in USA.
Leading Indian medical care facilities are increasingly complying with stringent international quality standards. For instance, Apollo Hospitals has already applied for Joint Commission International (JCI) accreditation, from the Chicago-based Joint Commission of Accreditation of Hospital Organisations (JCAHO). There is a growing acceptance of India-based medical care among global insurers. For instance US-based private health insurers Blue Cross and Blue Shield and British health insurer Bupa now insure clients treated at a number of private hospitals in India.
Foreign Direct Investment
Foreign direct investment in Indian hospital projects has been from donor bodies like the IFC, CDC and, in some cases, healthcare service players like Gleneagles, Singapore and Cleveland Clinic, US. Several foreign collaboration proposals have not taken off despite approvals from the government due to various reasons. In medical and surgical appliances, a total of about 73 foreign collaborations have been approved.  However, foreign investment values are not available as these are clubbed under the broader category of Electrical and Electronics equipment.
Government Programmes & Policies
The government has initiated several steps towards inducting private, including foreign, participation in the sector. The important steps in this regard have been:
Arrow Partnerships with private healthcare companies for super-specialty hospitals to provide the latest state-of-the-art-techniques within India
Arrow Reduction in import duties for high technology devices and capital goods
Arrow Deductibility up to 150% of actual R& D expenditure in healthcare for calculating income tax liabilities
Arrow Guidelines for health insurance by private sector including foreign companies
Arrow The government has recognized hospitals as an industry thereby making it possible for banks and Investment Institutions to fund hospital projects, and provided for tax exemptions for new hospitals with 100 or more beds.
Arrow Foreign Direct Investments (FDI) has been allowed in this sector with automatic approval up to 74% in hospital services, and upto 26% in insurance
Arrow Some state governments have taken up telemedicine projects for providing health advice and treatment to patients in remote areas through a satellite connection. Karnataka is implementing a telemedicine network of 27 coronary care units covering 27 districts.
Tax regime
The basic customs duty on imported equipment for the sector is 12.5%.  However, the final effective duty, including the additional and special additional duty, works out to 27%. 

Life saving equipment and notified projects attract customs duty exemptions and concessions, depending upon the equipment specifications and proposed end-use.  In fact, significant imports of medical equipment take place in this category at zero duty.

Government hospitals are allowed to import medical equipment and consumables free of customs duty if they provide free treatment to at least 40% of the patients and if the equipment is not manufactured locally. Medical research establishments run by the state are also allowed duty-free imports. 

Import of used equipment is allowed provided it has minimum residual life of five years.
Projects (including plans of multi-lateral or bilateral institutions)
Most of the large, national level projects related with health and medical services, pertain to disease control programmes, for eliminating diseases such Polio, Leprosy, Kala Azar etc.  The Pulse Polio Immunization Programme for eradication of polio has been hailed as one of the largest and most successful of its kind in the world.  WHO, UNICEF, USAID, Rotary International and the India National Polio Surveillance Project (NPSP), are jointly implementing and monitoring the programme, which targets 127 million children across 11 states in the country.

In the private sector, ADB has sanctioned its first ever private sector healthcare loan of US$ 20 million to Max Healthcare Institute Ltd., for creating an integrated healthcare system in the country.
Investment & Business Opportunities
Arrow Hospital project design and consulting
Arrow Trade in medical equipment and products, including warehousing, selling and servicing the latest medical electronics equipment, diagnostic kits, reagents and consumables
Arrow Telemedicine systems, for treating patients in remote areas through a satellite connection.
Arrow Corporate health care clinics for providing high quality basic services in consultation, diagnostics, minor surgeries etc.
Arrow Business Process Outsourcing of medical transcriptions and other hospital management administration tasks.
Arrow Joint ventures for offering medical insurance and other insurance services
Arrow R&D base for new molecule development, clinical trials, etc., utilizing the high quality scientific manpower and low costs
Arrow Preventive healthcare and health insurance
Arrow Outsourcing of pathology and laboratory tests
 
 
 
 
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