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The Future of Diagnostics Market in India: Ken Research

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.

For any queries or feedback, reach out at namit@kenresearch.com

For More Information, Click on the Link Below:-

India Diagnostic Laboratories Market

Related Reports:

Diagnostic Laboratory Market in India – From Preventive Testing to a Wellness Approach

Diagnostic Laboratory Markets in India-A Healthcare Revolution in the Making

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