Author Archives: Tapan Ray

Are Preventive Medicines always cost effective to be an area of focus in healthcare management?

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American Board of Preventive Medicine defines ‘Preventive Medicine’ as follows:

“Preventive Medicine is the specialty of medical practice that focuses on the health of individuals, communities, and defined populations. Its goal is to protect, promote, and maintain health and well-being and to prevent disease, disability and death.”

The most basic examples of preventive medicines are known to be hand washing, breast feeding and immunization.

Simple preventive measures, such as, increasing awareness against tobacco smoking, misuse of alcohol or unprotected sex, especially in an emerging economy like India, will go a long way to prevent and control such habit related diseases, help saving significant expenditure of the nation towards healthcare.

The purpose:

The primary purpose of preventive medicines could well have dual objectives as follows:

  • Disease prevention of a large section of the population
  • Reduce the healthcare expenses

Primary, secondary and tertiary prevention:

As stated above, primary disease prevention usually would include vaccination against specific disease types, whereas secondary and tertiary prevention are usually done through early detection process and screening of the target population.

Relevance to chronic diseases:

A World Health Organization (WHO) report, titled, “Preventing Chronic diseases – a vital investment” argues that globally of the 58 million deaths in 2005, approximately 35 million were due to chronic diseases, which were expected to increase by 17% in the next 10 years thereafter.

It points out that 80% of all premature heart disease, stroke and diabetes are preventable. This assumes greater significance as 80% deaths due to chronic disease occur in low and middle income nations where most of the world population lives, against only 20% of the same in the high income countries.

The report, therefore, articulates that it is absolutely necessary for the countries to review and implement a comprehensive and integrated preventive public health strategy.

Regular preventive measures:

Experts recommend following regular preventive measures, which are very relevant to India:

  • Counseling on hygienic life style
  • Routine primary vaccinations
  • Counseling on quitting smoking, alcohol misuse, protected sex, losing weight, eating healthy food, treating depression etc.
  • Regular general health check-up
  • Cancer screenings like mammograms and colonoscopies

Immense potential in India:

In a country like India, with high prevalence of many preventable diseases involving a large section of the nation’s population, preventive medicine promises immense potential to reduce the healthcare expenditure of the country significantly and at the same time would promise a much better quality of life to its population.

A counter point:

Another school of thought, primarily US based, advocates that preventive medicines, on the contrary, would raise the healthcare expenditure.

  • Preventive Medicine increases healthcare cost:

In support of this contrarian view, a paper published in ‘The New England Journal of Medicine (NEJM)’ on February 14, 2008 based on 599 studies between 2000 and 2005 infers that though disease prevention in some cases may reduce the cost of healthcare, more preventive medicines in many cases could, in fact, increase  the overall healthcare expenditure.

  • Screening cost is more than savings:

It says that screening cost of a disease for a large section of the population may far exceed the savings from treatment avoidance in those cases where only a small part of the population would have become ill in the absence of preventive measures.

  • Treatment with medicine offers greater value:

The article also points out that:

“The drugs used to treat high cholesterol yield much greater value for the money, if the targeted population is at high risk for coronary heart disease, and the efficiency of cancer screening can depend heavily on both the frequency of the screening and the level of cancer risk in the screened population.”

  • Preventive medicine more expensive:

The authors argue that preventive medicine will be more expensive where to make a small populations free from a particular disease, preventive measures are taken involving a large population, most of whom even otherwise would not have suffered from that illness.

Conclusion:

Coming back to the WHO report which categorically says, contrary to the belief of some section of the society, especially in the USA that measures for control and prevention of chronic diseases are really not too expensive for any nation, not even for the low and middle income countries.

In reality, even chronic diseases can be prevented and effectively controlled to reduce the disease burden of any country very significantly. The WHO article also says that expensive patented medicines are no longer required for prevention of, for example, even cardiac ailments. The cheaper generic drugs, if used along with counseling on life style changes, will be quite affordable to a vast majority of population even in the middle and low income countries.

Weighing all pros and cons, WHO aims to reduce the death rates from all chronic diseases by 2% per year through preventive medicines, which would mean prevention of 36 million deaths due to chronic disease by 2015, mostly in the low and middle income countries.

These statistics will more than vindicate the argument that preventive measures and medicines are cost effective, in the long run for any nation, particularly for a country like India.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Healthcare Industry of India: Being catapulted from a labyrinth to an accelerated growth trajectory

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As reported by the ‘World Health Statistics 2011′, India spends around 4.2 percent of its Gross Domestic Product (GDP) on health, which is quite comparable with other BRIC countries like, China and Russia.This has been possible mainly due to increasing participation of the private players in the healthcare sector.

The following table will highlight this point:

Health Expenditure:

Type Brazil Russia India China
Exp. on Health (% of GDP)

8.4

4.8

4.2

4.3
Govt. Exp. on Health  (% of Total Exp. on Health)

44

64.3

32.4

47.3
Pvt. Exp. on Health      (% of Total Exp. on Health)

56

35.7

67.6

52.7
Govt. Exp. on Health    (% of Total Govt. Exp.)

6

9.2

4.4

10.3
Social Security Exp. on Health (% of General Govt. Exp. on Health)

-

38.7

17.2

66.3

However, the following healthcare indicators suggest quite clearly that the total expenditure on healthcare by a country is not always directly proportional to its health outcome. This holds good for many countries across the world, including the USA, as the overall healthcare system  and more importantly its cost effective delivery mechanism are the key determinants of success:

Health Indicators:

Type Brazil Russia India China
Life Expectancy at birth

73

68

65

74
Neonatal Mortality Rate  (Per 1000)

12

06

34

11
Infant  Mortality Rate MDG 4  (Per 1000)

17

11

50

17
Maternal   Mortality Rate MDG 5(Per 1000,000 birth)

58

39

230

38

Source: World Health Statistics 2011

Fueled by the increasing participation of private players, coupled with a hefty hike in public expenditure on health to 2.5 percent of GDP during the 12th Five Year Plan Period, the Indian healthcare sector, currently at US$ 65 billion, is expected to reach US$ 100 billion by 2015 (Source: Fitch), increasing the total spend of the country on health to around 6.8 percent of GDP during this period.

The expenditure towards healthcare infrastructure is expected to grow by 50 percent from its 2006 number to reach US$ 14.2 billion in 2013, as reported by KPMG.

Growth Drivers:

The key growth drivers are expected to be as follows:

  • A hefty hike in Government expenditure as a percentage to GDP for health
  • 1% of the growing population coming above the poverty line every year
  • Growing middle class population
  • Increasing incidence of non-infectious chronic illnesses and other life style diseases
  • Reasonable  treatment costs due to intense competition and government intervention on health related issues
  • Large public healthcare projects like, National Rural Health Mission (NRHM), National Urban Health Mission (NUHM), ‘Universal Health Coverage’, distribution of free medicines through Government hospitals
  • Expansion of Rashtriya Swasthya Bima Yojana (RSBY)
  • Increasing penetration of private health insurance
  • Increasing direct procurement of medicines both by the Central and also the State Governments
  • A boom in medical tourism

The basic Challenge:

Following areas will throw a tough challenge for a sustainable growth in healthcare:

  • To reach a doctor population ratio of 1 doctor and 2.3 nurses per 1000 population by 2025 from the current 0.06 doctors and 1.3 nurses.
  • To reach a ratio of 2 beds per 1000 population by 2025 from the current 1 bed, which means India would require creating additional 1.75 million beds by that time.
  • An investment of US$ 86 billion will be needed to achieve 1 doctor, 2 beds and 2.3 nurses per 1000 population by 2025
  • Although the health insurance had a penetration to a meager 2.3 percent of the population in 2007, the sector is expected to cover just around 20 percent of the population by 2015 (Source: ICRA).

Key Developments:

  • As per the Rural Health Survey Report 2009 of the Ministry of Health, the rural healthcare sector in the country is registering an appreciable growth with the addition of the following during the last five years:

-     15,000 health sub-centers

-     20, 107 primary health centers

-     28,000 nurses and midwives

  • According to a report by research firm RNCOS, the health insurance premium is expected to grow at a CAGR of over 25 per cent from 2009-10 to 2013-14.
  • India will curve out a share of 3 percent of the global medical tourism industry (Source:RNCOS)
  • Medical technology industry of India is expected to reach US$ 14 billion by 2020 from US$ 2.7 billion in 2008, according to a report by PwC.
  • E-healthcare in rural areas is gaining popularity with the involvement of both public and private players like, ISRO, Mazumdar Shaw Cancer Center and Narayana Hrudayalaya. Some telecom companies like, Nokia and BlackBerry are also contemplating to extend the use of mobile phones for remote disease monitoring as well as diagnostic and treatment support. Introduction of 3G and in the near future 4G telecom services will further enhance opportunities of e-healthcare through mobile phones.
  • Expansion of major healthcare players in tier-II and tier-III cities of India like, Apollo, Narayana Hrudayalaya, Max Hospitals, Aravind Eye Hospitals and Fortis will help improving access to affordable healthcare in the smaller places, significantly.

Examples of expansion in smaller places:

According E&Y report of November 2010, following key players are expanding their presence in tier II and tier III cities, besides metro and tier I cities:

Company No. Of beds

Presence
Apollo Hospitals Enterprise Ltd 8,500 Chennai, Madurai, Hyderabad, Karur, Karim Nagar, Mysore, Visakhapatnam, Bilaspur, Aragonda, Kakindada, Bengaluru, Delhi, Noida, Kolkata, Ahmedabad, (Mauritius), Pune, Raichur, Ranipet, Ranchi, Ludhiana, Indore, Bhubaneswar, (Dhaka, Bangladesh)
Aarvind Eye Hospitals 3,649 Theni, Tirunelveli, Coimbatore, Puducherry, Madurai, Amethi, Kolkata
CARE Hospitals 1,400 Hyderabad, Vijaywada, Nagpur, Raipur, Bhubaneshwar, Surat, Pune, Visakhapatnam
Fortis Healthcare Ltd 5,044 Mumbai, Bengaluru, Kolkata, Mohali, Noida, Delhi, Amristar, Raipur, Jaipur, Chennai, Kota
Max Hospitals 800 Delhi and NCR
Manipal Group of Hospitals +7,000 Udupi, Bengaluru, Manipal, Attavar, Mangalore, Goa, Tumkur, Vijaywada, Kasaragod, Visakhapatnam

Source: E&Y, November 2010

Healthcare sector is attracting FDI:According to the Department of Industrial Policy & Promotion (DIPP), the healthcare sector is undergoing significant transformation and attracting investments not only from within the country but also from overseas.The Cumulative FDI inflow in the healthcare sector from April 2000 to November 2011, as per DIPP publications, is as follows:

Sector FDI inflow (US$ million)
Hospital and diagnostic centers 1100
Medical and surgical appliances 472.6
Drugs and pharmaceuticals 5,033

(Source: Fact Sheet on FDI (April 2000 to November 2011), DIPP)

Government Policy:

Government has also started focusing on increasing investments towards creation of a sustainable medical infrastructure, especially in the rural areas. The following policy initiatives could help facilitating this process:

  • 100 per cent FDI for health and medical services.
  • Allocation of US$ 10.15 billion to the National Rural Health Mission (NHRM) for upgradation and capacity building of rural healthcare facilities.
  • Allocation of US$ 1.23 billion to create six AIIMS type medical institutes and upgradation of 13 existing Government Medical Colleges.

Overseas players started participating:

BCG Group will open shortly a multidisciplinary health mall that would provide a one-stop solution for all healthcare needs starting from doctors, hospitals, ayurvedic centers, pharmacies including insurance referral units at Palarivattom in Kochi, Kerala. BCG’s long-term plan, as reported in the media, is to set up a health village spanning across an area of a 750,000 sq. ft. with an estimated cost of US$ 88.91 million.

Along the same line, to set up more facilities for diagnostic services in India, GE Healthcare reportedly has planned to invest US$ 50 million for this purpose.

Examples of initiatives by State Governments:

In southern India, the Government of Andhra Pradesh has implemented a Health Management Project funded by the Department for International Development (DFID) of the UK costing US$ 59.68 million. It has been reported that many other State Governments of India are planning to go for similar Health Management models in their respective States.

Improving access to modern medicines in India:

Ten year CAGR in terms of volume of the domestic pharmaceutical industry has been around 15 percent, which clearly signals significant increase in the consumption of medicines, leading to their improving access to the general population of both rural and urban India.

Extension of focus of the Indian pharmaceutical Industry, in general, to the fast growing rural markets further vindicates this point.

The rate of increase in access to medicines may not be directly commensurate to the volume growth of the industry during this period, but a major part of the industry growth could certainly be attributed towards increasing access to medicines in India, which should cover over 60% of the population of the country, by now.

Unfortunately, even the Government of India does not seem to be aware of this gradually improving trend of access to medicines in the country. Official communications of the government still quote the outdated statistics of 1998 (published in 2004), which states that 65% of the population of India does not have ‘Access to Modern Medicines’ even today. No wonder, why many of us still prefer to live on to our past.

Conclusion:

Be that as it may, around 40% of the population still does not seem to have adequate ‘Access to Medicines’ in India. This issue though attracted attention of the policy makers, has still remained mostly unresolved and needs to be addressed following a holistic approach with the newer plans.

A robust model of healthcare financing for all socioeconomic strata of the society with plans  like, ‘Universal Health Coverage’ and continuous improvement of healthcare infrastructure and   delivery systems, as are now being planned by the astute brain trusts of India, are expected to bring significant reform in the healthcare space of India.

Let us also note at the same time that all these are happening, despite shrill voices of naysayer vested interests, continuously projecting to many of us a stagnant, dismal and never improving healthcare scenario of the country, more often than not.

Very fortunately, from an unenviable labyrinth, healthcare industry of India, at last, seems to be on the threshold of being catapulted to a higher growth trajectory riding on a decent number of both public and private initiatives, never than ever before.

Unless it is so, why will the healthcare players from across the world keep on increasing their operational focus, in every way, on India and China?

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Arresting continuous job losses in the global pharma industry call for innovation across the value chain

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In not too distant past, the stocks of the global pharmaceutical companies, by and large, used to be categorized as ‘blue-chips’ for their high return to investors, as compared to many other sectors.

Unfortunately, the situation has changed significantly since then. Most of those large players now appear to be under tremendous pressure for excellence in performance.

The issues of ‘Patent Cliff’, coupled with patent expiries, price and margin pressures from payors’ group in the developed world, have already started haunting the research based pharmaceutical companies and are assuming larger proportions day by day.

The situation continues to be grim:

Collective impact of all the above factors has prompted the major pharma players to resort to huge cost cutting exercises leading to employee layoffs, quite often, in a massive scale.

According to a study done by Challenger, Gray & Christmas, Inc., which was also quoted in the Forbes Magazine, April 13, 2011, 297,650 employees were laid off by the global pharma industry between the years 2000 and 2011.

Year

Number of Job cuts

2000

2,453

2001

4,736

2002

11,488

2003

28,519

2004

15,640

2005

26,300

2006

15,638

2007

31,732

2008

43,014

2009

61,109

2010

53,636

Total

297,650


Source: Challenger, Gray & Christmas, Inc. ©/Forbes Magazine, April 13, 2011

Top of the list layoffs:

Forbes, Pharma and Healthcare, June 10, 2011 reported ‘top of the list layoffs’ in the Global Pharmaceutical Industry from 2004 to 2011. This number reported to be comparable to as many people working at the three largest drug companies combined namely, Pfizer, Merck and GlaxoSmithKline GSK in 2011.

Company No of layoffs
Pfizer 58,071
Merck 44,400
Johnson & Johnson 9,900
Eli Lilly 5,500
Bristol-Myers Squibb 4,600

More recently ‘Mail online’ dated February 3, 2012 reported that ‘Pharmaceutical giant AstraZeneca announces 7,300 job losses as it pares back staff to save money’. Immediately, thereafter, on February 24, 2012 Reuters reported that ‘German drugs and chemicals group Merck KGaA has announced plans for a cost-cutting program across all its businesses that may include job cuts’.

The old paradigm is no longer relevant:

To get insight into the future challenges of the pharmaceutical industry in general ‘Complete Medical Group’ of U.K had conducted a study with a sizable number of senior participants from the pharmaceutical companies of various sizes and involving many countries. The survey covered participants from various functional expertise like, marketing, product development, commercial, pricing and other important areas. The report highlighted that a paradigm shift has taken place in the global pharmaceutical industry, where continuation with the business strategies of the old paradigm will no longer be a pragmatic option.

Learning from the results of the above study, which brought out several big challenges facing the pharmaceutical industry in the new paradigm, my submissions are as follows:

Collaborative Research to overcome R&D productivity crisis: The cost of each new drug approval has now reached a humongous proportion and is still increasing. This spiraling R&D cost does not seem to be sustainable any longer. Thus there emerges a need to re-evaluate the R&D model of the pharmaceutical companies to make it cost effective with lesser built-in risk factors. Could there be a collaborative model for R&D, where multiple stakeholders will join hands to discover new patented molecules? In this model all involved parties would be in agreement on what will be considered as important innovations and share the ‘risk and reward’ of R&D as the collaborative initiative progresses. The Translational Medicine Research Collaboration (TMRC) partnering with Pfizer and others, ‘Patent Pool’ initiative for tropical diseases of GSK and OSDD for Tuberculosis by CSIR in India are examples of steps taken towards this direction. Surely such collaborative initiatives are not easy and perhaps may also not be acceptable to many large global players as on date, but they are not absolutely uncommon either. The world has already witnessed such collaborative research, especially in the sectors, like Information Technology (IT). Thus, it remains quite possible, as the industry moves on, that the world will have opportunities to take note of initiation of various cost effective collaborative R&D projects to create a win-win situation for all stakeholders in the global healthcare space. Greater access to fast growing markets: The increasing power of payors in the developed world and the interventions of the Government on the ground of ‘affordability of medicines’ in the developing countries are creating an all pervasive pricing/margin pressure for the pharmaceutical players.

These critical emerging developments can be effectively negotiated with significant increase in market access, especially in the emerging economies of the world, with each country specific business strategies. ‘One size fits all’ type of standardized approach, currently adopted by some large global players in the markets like India, may not be able to fetch significant dividend in the years ahead.

Better understanding of the new and differential value offerings that the payors, doctors and patients will increasingly look for, much beyond the physical products/brands, would prove to be the cutting edge for the winners for greater market access in the emerging economies.

Current business processes need significant re-engineering: Top management teams of many global pharma companies have already started evaluating the relevance of sole dependance on the current R&D based pharmaceutical business model. They will now need to include in their strategy wider areas of healthcare value delivery system with a holistic disease management focus.

Only treatment of diseases may no longer be considered enough with an offering of just various types of medications. Added value with effective non-therapeutic/incremental disease management/prevention initiatives and appropriately improving quality of life of the patients, especially in case of chronic ailments, will assume increasing importance in the pharmaceutical business process in the emerging markets. Continuous innovation required not just in R&D, but across the value chain: Continuous innovation across the pharmaceutical value chain, beyond pharmaceutical R&D, is the most critical success factor. The ability to harness new technologies, rather than just recognize their potential, and the flexibility to adapt to the fast changing and demanding regulatory environment together with patients’ newer value requirements, should be a critical part of the business strategy of  the pharmaceutical companies in the new paradigm. Avoidance of silos, integrating decision making processes: More complex, highly fragmented and cut throat competition have created a need for better, more aligned and integrated decision making process across various functional areas of the pharmaceutical business. Creation of silos, duplication of processes and empire building have long been a significant trend, especially, in the larger pharmaceutical companies. Part of a better decision making will include more pragmatic and efficient deployment of investments and other resources  for organizational value creation and jettisoning all those activities, which are duplications, organizational flab producing and will no longer deliver differential value to the stakeholders. Finding newer ways of customer engagement: Growing complexity of the business environment is making meaningful interactions with the customers and decision makers increasingly challenging. There is a greater need for better management of the pharmaceutical communication channels to strike a right balance between ‘pushing’ information to the doctors, patients and other stakeholders and helping them ‘pull’ the relevant information whenever required. Questioning perceived ‘fundamentals’ of the old paradigm:

Despite a paradigm shift in the business environment, fundamental way the pharmaceutical industry appears to have been attempting to address these critical issues over a decade, has not changed much.

In their attempt to unleash the future growth potential, the pharmaceutical players are still moving around the same old dictums like, innovative new product development, scientific sales and marketing, satisfying customer needs, application of information technology (IT) in all areas of strategy making process including supply chain, building blockbuster brands, continuing medical education, greater market penetration skills, to name just a few. Unfortunately, despite all such resource intensive initiatives, over a period of time, nothing seems to have changed fundamentally, excepting, probably, some sort of arrest in the rate of declining process.

Conclusion:

Such incremental focus over a long period of time on the same areas, far from being able to ride the tide of change effectively, does ring an alarm bell to some experts. More so, when all these initiatives continue to remain their prime catalysts for change even today to meet new challenges of a different paradigm altogether.

The moot question therefore remains: what are the companies achieving from all heavy investments being continuously made in these areas since long…and why have they not been able to address the needs of the new ball game for business excellence, effectively, thus far?

When results are not forthcoming despite having taken all such measures, many of them have no options but to resort to heavy cost cutting measures including job losses to protect the profit margin, as much as one possibly can.

If the issues related to declining rate of global pharmaceutical business performance is not addressed sooner moving ‘outside the box’ and with ‘lateral thinking’, one can well imagine what would its implication be, in the endeavor towards arresting continuous job losses through business excellence, in the years ahead.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Quantum Growth Envisaged in Government Procurement for Pharmaceuticals: A Challenging Ball Game for Pharma Players

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Direct procurement by the Governments of various countries is attracting increasing importance not just at the domestic level, but internationally, as well. The systems adopted for Government Procurement (GP) globally are aimed at making a significant difference in the effectiveness of utilization of the exchequers’ fund and the quality of governance in the respective countries. Absolute transparency in the entire process of GP, extending fair and equal opportunities to all suppliers, is of utmost importance.

According to ‘The Center of International Development at the Harvard University, USA’, Government Procurement of goods and services typically accounts for 10-15% of GDP for the developed countries, and up to 20% of GDP for the developing nations. As a result, the local GP markets have started attracting attention of even the overseas suppliers to make this process an integral part of Free-Trade Agreements (FTAs) between countries.

GP was excluded in the General Agreement on Tariffs and Trade (GATT) negotiated in 1947. However, as the years progressed the members of WTO started exploring various ways to include GP in the multilateral trading system.

The proponents of WTO agreements on GP argue that the purchase decision of the governments on GP of goods and services should be non-discriminatory, irrespective of who produces the goods or renders required services, including foreign suppliers, if any.

GPA- The plurilateral Agreement:

In January 1, 1994 along with ‘Uruguay Round’ a landmark agreement was reached on GP, which is known as “The plurilateral Agreement on Government Procurement (GPA)”. This agreement was administered by a Committee of WTO members, who are Parties to the GPA and was signed by 41 of the 153 members of the WTO.

India joins as an observer in GPA – the first step for membership:

On Feb 11, 2010 ‘Reuters’ reported that “India has joined the World Trade Organization’s government procurement agreement as an observer, a first step to membership in the scheme regulating trade in goods bought by governments”. With this India joined other 22 WTO members with the same observer status, when 9 members including China are in the process of negotiation for full membership of the GPA.

On December 15, 2011, WTO reported a historic agreement by the members of GPA to ‘improve the disciplines for GP and expand the market access coverage valued at between 80 to 100 billion dollars a year’.

The opposition to GPA:

That said, those who oppose GPA also put forth strong arguments. They believe that such agreements instead of creating so called a ‘level playing field’ for all, would further complicate the situation where the developing countries, leave aside the least developed ones, would continue to remain at a disadvantage as compared to  the developed industrial nations.

The developing countries and the relief organizations argue that the growing industries of the developing nations will suffer most, if matured global companies are allowed to compete for GP together with the domestic players. Such a situation, they apprehend, could snow ball into huge balance of payment issues for the developing and the least developed nations.

Pharmaceuticals: Second largest item in public healthcare budget:

According to WHO, for the developing countries like India pharmaceuticals are the second largest item of expenditure, after personnel costs, ranging from 8 per cent to 12 per cent of the public health budget. Thus, such fund should be utilized with utmost care within a transparent and highly efficient GP system. It is envisaged, that efficient GP systems will play critical role in improving access to medicines in India.

GP for Pharmaceuticals in India:

The process of procurement of drugs and pharmaceuticals by the Ministry of Health of the Government of India is usually entrusted to an agency known as ‘Hospital Services Consultancy Corporation (HSCC)’. This multidisciplinary consultancy organization was set up to extend quality consultancy services in healthcare and other social sectors of the country.  HSCC undertakes the following:

  • Procurement of drugs and pharmaceuticals
  • Tendering process
  • Placement of orders
  • Follow-up, inspection and dispatch

So far, many World Bank supported programs for procurement of drugs and pharmaceuticals for Malaria, Tuberculosis, and Reproductive Child Health etc. were initiated by the HSCC. The procurement services of HSCC are in line with the procedures adopted by the World Bank.

Health being a State subject in India, pharmaceutical procurement is made by both the Central and State Governments, besides large private health institutions.

Though over 25 per cent of the total public sector drug volume is procured by the Central Government, there is no single Central Government procurement agency. Following are the key agencies currently handling the Central Government procurement for pharmaceuticals through competitive tendering process:

  • Central Government Health Services (CGHS)
  • Armed Forces Medical Services (AFMS)
  • Medical Stores Organization (MSO)

Examples of GP in the states:

Many state Governments have already started putting in place the GP process for pharmaceuticals in their respective states. This process is expected to gain momentum as we move ahead. Examples of GP system of some of the State Governments in India are as follows:

Delhi:

In 1996, to promote rational drug use with high quality of medicines, the ‘Delhi Society for Promotion of Rational Use of Drugs (DSPRUD)’ with the technical assistance from WHO introduced a pooled procurement system for all state-run hospitals and 150 Primary Health Centers (PHCs) in Delhi.

This robust procurement system with a competitive bidding process has reportedly resulted in price reduction of high quality medicines by 30-40 per cent. State-run hospitals and the PHCs now supply these prescriptions medicines to over 80 per cent of patients.

WHO, encouraged by the success of the ‘Delhi Model’, has recommended it to the other States of India. Currently the following State Governments are implementing the program in their respective states:

  • Maharashtra
  • Rajasthan
  • Punjab
  • Himachal Pradesh

Tamil Nadu:

In January 1995, Tamil Nadu Government had set up a Government-run Company known as, Tamil Nadu Medical Services Corporation (TNMSC). The main purpose of TNMSC was to make all essential drugs available in nearly 2000 government medical institutions throughout the State, with a well-structured, uniform and standardized system for procurement, storage and distribution of medicines.

To ensure efficient procurement of high quality drugs at competitive prices, TNMSC follows an open tendering system for purchases only from reputed manufacturers with a pre-specified minimum overall business turnover, having a market standing of not less than three years. Standby suppliers are also selected at the same time to eliminate any drug shortages for delayed or non-supply by the first supplier.

The competitive procurement bid system has reportedly enabled TNMSC to save on drugs to the tune of 36% of the allocation.

Andhra Pradesh (AP):

In AP public health care system delivers services at all levels of primary, secondary and tertiary care.

In 1998, a centralized pooled drug procurement system was implemented in AP with the establishment of the Drug Procurement Wing (DPW) within the ‘Andhra Pradesh Infrastructure State Development Corporation (APISDC)’.

For high quality GP they introduced a two tier system for bidding and procurement, starting with the technical bid and followed by the actual financial bidding process.

In this system, details of drug requirements are collected from public hospitals within the state, collated by the DPW and thereafter consolidated orders are placed to the competitive bid winners for supplying required essential medicines at the medical stores of each district of the state.

Odisha:

Odisha has a centralized system of procurement of drugs featuring in the National List of Essential Medicines (NLEM).

To ensure quality procurement, a pre-qualification stipulation of quality parameters and competitive price quotations are looked at.

Small Scale Industries (SSIs) are entitled to 5 per cent price preference along with other relaxations like, partial exemption from earnest money deposit and concession in sales tax.

A recent evaluation of the Drugs Distribution System in Odisha by WHO has highlighted that the key NLEM drug availability in all the centers except one in the state ranged from 80 to 100%.

UHC – A potential GP growth booster:

The recommendation no. 3.1.10 of the report titled ‘High Level Expert Group Report on Universal Health Coverage (UHC) for India’, instituted by the Planning Commission, clearly indicates that purchases of all health care services under the UHC system should be undertaken either directly by the Central and state governments through their Departments of Health or by quasi-governmental autonomous agencies established for the purpose.

PMO push for free drugs at Government hospitals:

Quoting the Prime Minister’s Office (PMO), ‘The Times of India’ on February 13, 2012 reported that availability of free medicines to all patients visiting any government health facility across the country will soon be a reality, as the Ministry of Health (MoH) is planning to spend around Rs 30,000 Crore under ‘free-medicines-for-all’ scheme with the  strong support of the PMO.

Quantum growth envisaged in the GP system:

UHC along with the above free medicine initiative by the MoH and expanded coverage of the National Rural Health Mission (NRHM)/ National Urban Health Mission (NUHM) are expected to make GP for pharmaceuticals a critical procurement initiative of the nation.

This appears more realistic when seen together with the increase in public spend allocation on health by the Planning Commission of India from current 0.9 per cent to 2.5 per cent of GDP during the Twelfth Five Year Plan period.

Thus a quantum growth is envisaged in the GP system for pharmaceuticals within the country.

Conclusion:

From all available indicators, it appears that GP for pharmaceuticals in India will assume immense importance to both the global and local pharmaceutical companies.

The Central Government, with ‘The Draft Public Procurement Bill, 2011’, seems to have already started moving in this direction. The enactment of this Bill will facilitate the Government not only to effectively leverage the state bargaining power for the prices of medicines, but also to ensure efficient delivery of high quality products to a very large section of the society.

Quite in tandem various State Governments should also either create afresh or revamp the existing procurement system, as the case may be, to put in place a robust GP mechanism in their respective states.

One clear outcome of the expansion of GP system for sure will be enormous pricing pressure on the pharmaceutical players in India, which will be quite challenging to navigate.

The scenario will get even more complex and heated up, especially for the smaller pharmaceutical players, as and when India becomes a signatory to the GPA of the WTO, opening its door wide ajar for the large global players to participate in the pharmaceutical bidding process of the Government, well facilitated by various FTAs.

In this rapidly evolving environment, are the pharma players, both global and local, ready with appropriate strategies and systems in place to participate in yet another challenging new ball game of low margin and high volume pharmaceutical business in India?

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

The Vaccine Market of India: A rejuvenation is in progress

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Even in couple of decades back, ‘Vaccines Market’ in India did not use to be considered as a focus area by many pharmaceutical companies. Commoditization of this market with low profit margin and unpredictable interest of the government/the doctors towards immunization were the main reasons. Large global players like Glaxo exited the vaccine market at that time by withdrawing products like, Tetanus Toxoid, Triple Antigen and other vaccines from the market.

Currently, the above scenario is fast changing. The vaccine market is getting rejuvenated not only with the National Immunization Program (NIP) of the country, but also with the emergence of newer domestic vaccines players and introduction of novel vaccines by the global players, which we shall discuss below.

In addition, the ‘Indian Academy of Pediatrics (IAP) Committee on Immunization’ now recommends the ‘best individual practices schedule’ for the children in consultation with their respective parents. Such schedule may not conform to NIP and include newer vaccines, broadening the scope of use of vaccines in general.

Global Market:

According to GBI Research Report, overall global vaccines market was valued at US$ 28 billion in 2010 and is expected to reach US$ 56.7 billion by 2017 with a CAGR of 11.5%. The key growth driver of this segment will be introduction of newer vaccines, which are currently either in the regulatory filing stage or in the late stages of clinical development.

The important international players in the vaccines market are GlaxoSmithKline, Sanofi, Pfizer, Novartis AG, Merck and SP-MSD, representing around 88% of the total vaccine segment globally.

Indian Market:

Year

Value

   Rs. Cr.

Growth  %

2007

389

-

2008

383

-2

2009

476

24

2010

726

53

Source: IMS – Health MAT June 2010

India is one of largest markets for all types of vaccines in the world. The growth is being driven by the new generation and combination vaccines, like DPT with Hepatitis B, Hepatitis A and Injectable polio vaccine. The demand for veterinary vaccines is also showing ascending trend. Pediatric vaccines contribute to around 60% of the total vaccines market in India.

McKinsey in its report titled, “India Pharma 2020: Propelling access and acceptance, realizing true potential“ stated that at 2% penetration, the vaccines market of India is significantly under-penetrated with an estimated turnover of around US$ 250 million, where the private segment accounts for two-thirds of the total. McKinsey expects the market to grow to US$ 1.7 billion by 2020.

In India companies like, Serum Institute, Shantha Biotecnics, Bharat Biotech and Panacea Biotech are poised to take greater strides in this direction. Bharat Biotech is incidentally the largest Hepatitis B vaccine producer in the world. Likewise, Serum Institute is reportedly one of the largest suppliers of vaccines to over a 130 countries of the world and claim that ’1 out of every 2 children immunized worldwide gets at least one vaccine produced by Serum Institute.’

Indian Vaccine Market:  Domestic vs MNCs:

In the domestic vaccine market the market share of the Indian players is gradually improving as compared to their multinational counterparts.

Types

June 2009 MAT

% Value Growth

June 2010 MAT

% Value Growth
Indian Companies

55%

27

59%

64
MNCs

45%

21

41%

38

Source IMS-Health – June 2010 MAT

Indian Vaccine Market: Top 10 Companies:

Rank

Company

Value     (Rs. Cr)

%Market Share

%Value Growth
Vaccine Market

726

100

53

1

GSK

131

18

23

2

 Sanofi Aventis

129

18

>>

3

 Pfizer

71

10

75

4

 Novartis

68

9

-12

5

 Serum Institute

68

9

40

6

 Panacea Biotech

59

8

57

7

 VHB Lifesciences

33

5

>>

8

 Zydus Cadila

32

4

56

9

 MSD

31

4

>>

10

 Shantha Biotech

24

3

15

Source IMS-Health – June 2010 MAT

Indian Vaccine Market: Top Therapies:

Therapies

Value

     (Rs.Cr.)

%Market Share

% Value Growth

Incr. Value          (Rs. Cr)

June’09 MAT

June’10 MAT

June’09 MAT

June’10 MAT
Vaccine Market

726.1

100

24

53

93

250
Toddler Vaccine

211

29

55

60

47

79
Adult Vaccine

205

28

-4

22

-7

37
Paediatric Combination Vaccines

146

20

67

>>

28

77
Paediatric Single Vaccines

131

18

25

32

20

32
All Other Vaccines

33

5

—

431

6

27

Source IMS-Health – June 2010 MAT

Indian Vaccine Market: Top 10 Brands:

Rank

Brands

Company

Value

       (Rs.Cr.)

Value Growth %

Incr. value   

(Rs. Cr.)

June’09 Mat

June’10 MAT

June’09 Mat

June’10 MAT
Vaccine Market

726

24

53

93.1

250
1 Prevenar Pfizer

71

150

75

24

30
2 Rabipur Novartis

68

4

-12

3

-9
3 Pentaxim Sanofi Aventis

46

>>

>>

7

39
4 Havrix GSK

37

9

47

2

12
5 Varivax VHB

33

59

>>

5

18
6 Vaxirab Zydus Cadila

32

-11

56

-3

11
7 Varil Rix GSK

25

-3

-9

-1

-2
8) Gardasil MSD

22

—-

>>

5

16
9 Verorab Sanofi Aventis

21

—-

—-

0

21
10 Rotarix GSK

21

—-

>>

10

11

Source: IMS-Health – June 2010 MAT

Indian Vaccine Market: Top 10 New Introductions:

NIs

Company

Launch Date

Value

(Rs. Cr)

Incr. Value

(Rs. Cr)
Vaccine Market

104

79
Gardasil MSD 10/2008

22

16
Rotarix GSK 07/2008

21

11
Pentavac Serum Institute 10/2008

16

12
Cervarix GSK 02/2009

11

10
Polprotec Panacea Biotech 07/2008

9

6
Xprab Ranbaxy 10/2009

7

7
Quadrovax Serum Institute 11/2008

4

3
Comvac- 5 Bharat Biotech 02/2009

3

3
Pentavac – SD Serum Institute 11/2009

2

2
Shan HIB- DPT Shantha Biotech 09/2008

2

1

Source:IMS-Health – June 2010 MAT

Action areas to boost growth:

McKinsey in its above report ‘India Pharma 2020’ indicated that the action in the following 4 areas by the vaccine players will drive the vaccine market growth in India:

  • Companies need to go for local production of vaccines or leverage supply partnerships. GlaxoSmithKline’s local partnership for the HiB vaccine with Bio-manguinhos in Brazil has been cited as an example.
  • Companies will need to conduct studies on the economic impact of vaccination and establish vaccine safety and performance standards.
  • Extension of vaccine coverage beyond pediatricians and inclusion of general practitioners, consulting physicians and gynaecologists will be essential.
  • Companies will need to enhance supply chain reliability and reduce costs.

Conclusions:

On January 7, 2012, while requesting the ‘Overseas Indian Medical Professionals’ to partner with the institutions in India, the Health Minister, in his address, announced that the Ministry of Health has already introduced the second dose of measles vaccine and Hepatitis-B vaccination across the country. Moreover, from December, 2011 a ‘Pentavalent Vaccine’ has been introduced, initially in 2 States, covering 1.5 million children of India.

All these augur quite well for the country. However, keeping in view of the humongous disease burden of India, immunization program with various types of vaccines should receive active encouragement from the government as disease prevention initiatives, at least, keeping the future generation in mind.

If such policy measures are initiated in the country, without delay, the domestic vaccine market , in turn, will receive further growth momentum, together with newer players and modern vaccines coming in, to help addressing effectively a significant area of the healthcare concerns of the country.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Should high prices of new drugs, causing low access to majority of patients, be attributed to high R&D cost?

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Many thought leaders have been arguing since long that pharmaceutical R&D expenses are being over stated and the real cost is much less. An article titled “Demythologizing the high costs of pharmaceutical research”, published by the London School of Economics and Political Science in 2011 indicates that the total cost from discovery and development stages of a new drug to its market launch was around US$ 802 million in year 2000. This was worked out in 2003 by the ‘Tuft Center for the Study of Drug Development’ in Boston, USA.

However, in 2006 the same figure increased by 64 per cent to US$ 1.32 billion, as reported by a pharmaceutical industry association. Maintaining similar trend, if one assumes that the R&D cost will increase by another 64 per cent by 2012, the cost to bring a new drug to the market through its discovery and development stages will be around US $2.16 billion. This will mean a 2.7 times increase from its year 2000 estimate, the article says.

The authors mentioned that the following factors were not considered while working out the 2006 figure of US$ 1.32 billion:

  • The tax exemptions that the companies avail for investing in R&D.
  • Tax write-offs amount to taxpayers’ contributing almost 40% of the R&D cost.
  • The cost of basic research (should not have been included), as these are mostly done in public funded universities or laboratories.

The article comments that ‘half the R&D costs are inflated estimates of profits that companies could have made if they had invested in the stock market instead of R&D and include exaggerated expenses on clinical trials’.

The authors alleged that “Pharmaceutical companies have a strong vested interest in maximizing figures for R&D as high research and development costs have been the industry’s excuse for charging high prices. It has also helped generating political capital worth billions in tax concessions and price protection in the form of increasing patent terms and extending data exclusivity.”

The study concludes by highlighting that “the real R&D cost for a drug borne by a pharmaceutical company is probably about US$ 60 million.”

Declining Pharmaceutical R&D productivity:

That pharmaceutical R&D productivity is fast declining has been vindicated by ‘2011 Pharmaceutical R&D Factbook’ complied by Thomson Reuters, the key highlights of which are as follows:

  • 21 new molecular entities (NMEs) were launched in the global market in 2010, which is a decrease from 26 NMEs of the previous year.
  • 2010 saw the lowest number of NMEs launched by major Pharma players in the last 10 years
  • The number of drugs entering Phase I and Phase II clinical trials fell 47% and 53% respectively during the year.

Does pharmaceutical R&D always create novel drugs?

According to a recent report, US-FDA approved 667 new drugs from 2000 to 2007. Out of which only 75 (11%) were innovative molecules having much superior therapeutic profile than the existing ones. However, more than 80% of 667 approved molecules were not found to be better than those, which are already available in the market.  Thus, the question very often being raised by many is, why so much money is spent on discovery and development of ‘me-too’ drugs and thereafter for their prescription generation through aggressive marketing, when the patients pay for the entire cost of such drugs including the profit after being prescribed by the doctors?

A global CEO challenged the status quo:

By challenging the status quo, Andrew Witty, the global CEO of GlaxoSmithKline (GSK) in his speech  in Mumbai on September 27, 2011 to the members of the Indian pharmaceutical industry commented that the cost of over a billion dollar to bring a new molecule to the market through its discovery and development stages is “unacceptable.” He attributed such high R&D expenses to the ‘cost of failure’ by the industry.

Witty said, “High in-house failure rates are slowing progress on pricing affordability… We need to fail less and deliver more”.

He commented during his deliberation that success in reducing the R&D cost to make innovative drugs more affordable to the patients of all income levels, across the globe, will be the way forward in the years ahead.

Ways to reduce the R&D cost:

Some other experts articulated that sharp focus in the following areas may help containing the R&D expenditure to a great extent and the savings thus made, in turn, can fund a larger number of R&D projects:

  • Early stage identification of unviable new molecules and jettisoning them quickly
  • Newer cost efficient R&D models, like one implemented by GSK
  • Significant reduction in drug development time.

An opposite view:

The book  titled “Pharmaceutical R&D: Costs, Risks, and Rewards”, published by the government of USA states that the three most important components of R&D investment are:

  • Money
  • Time
  • Risk

Money is just one component of investment together with a long duration of time to reap the benefits of success intertwined with a very high risk of failure. The investors in the pharmaceutical R&D projects not only take into account of how much investment is required for the project against expected financial returns, but also the timing of inflow and outflow of fund with associated risks.  It is thus quite understandable that longer is the wait for the investors to get their return, greater will be their expectations for the same.

The publication also highlights that the cost of bringing a new drug from the ‘mind to market’ depends on quality and sophistication of science and technology involved in a particular R&D process together with associated investment requirements for the same. In addition, regulatory requirements to get marketing approval of a complex molecule for various serious disease types are also getting more and more stringent, increasing their cost of clinical development simultaneously. All these factors when taken together make the cost of R&D very high and unpredictable.

Thus to summarize, high pharmaceutical R&D costs involve:

  • Sophisticated science and technology dependent high up-front financial investments
  • A long and indefinite period of negative cash flow
  • High tangible and intangible costs for acquiring technology with rapid trend of obsolescence
  • High risk of failure at any stage of product development

Conclusion:

While getting engaged in to this debate, one should possibly keep in mind that effective patent exclusivity period in the pharmaceutical industry is much limited as compared to any other industry across the globe. This is mainly because a long period of 8-10 years goes between drug discovery/grant of patent, drug development and market launch of the new molecule, when it starts recovering the cost and making a profit. Thus the period of effective commercial exclusivity that a new drug enjoys through patent protection usually lasts not more than 10 to 12 year period.

For all these reasons and despite such a huge controversy, I wonder, even if the R&D expenditures are brought down to the year 2000 level of US$ 802 million through various productivity improvement measures, whether it will really be possible to develop a commercial R&D model by any pharmaceutical company to deliver low price innovative drugs ensuring high access to majority of the patients. For that one should possibly look at other R&D models like, ‘Patent Pool’ and ‘Open Source Drug Discovery (OSDD)’ systems along with various funding options.

Thus in my view, high prices of new drugs, causing low access to majority of patients, should by and large be attributed to high R&D cost. However, there is not even an iota of doubt about commercial unsustainability of such ballooning research and development expenditures even in the medium term.

That said, the arithmetic of pricing for a new marketable molecule could change dramatically, if “the real R&D cost for a drug borne by a pharmaceutical company be just about US$ 60 million”, as argued by the authors of a publication quoted above, though the figure, I reckon, is quite unrealistic.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Pharmaceutical innovation and Public Health Interest: Ways to achieving the dual objectives

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Healthcare industry in general and the pharmaceutical sector in particular have been experiencing  a plethora of innovations not only to cure and effectively manage ailments to improve the quality of life, but also to help increasing overall disease-free life expectancy of the population with various types of treatment and disease management options. Unfortunately despite all these, over half the global population is still denied of basic healthcare needs and support.

A 2011 official estimate of the current world population reads as 6.93 billion. Out of which over three billion live with a subsistence of less than US$ 2 per day. Another billion population is surviving on even less than US$ 1 per day. According to published reports around 18 million people die from poverty-related causes across the world, every year.

The World Health Organization (WHO) has estimated that over a billion population of the world still suffer from neglected tropical diseases.

On February 3, 2012, quoting a ‘World Bank and PwC report’, ‘The Economic Times’ reported that “70% of Indians spend all their income on healthcare and buying drugs.”

In a situation like this, challenges that the governments and the civil society are facing in many developing and to some extent even in some developed countries (although for different reasons), are multi-factoral. It has been well established that the humongous global healthcare challenges are mostly of economic origin.

In such a scenario, ongoing heated debate on innovation, Intellectual Property Rights (IPR) and public health interest keeps gaining momentum all over the globe and has still remained unabated.

Argumentative Indians have also got caught in this raging debate. I reckon rightly so, as India is not only the largest democracy of the world contributing 16.7% of the global population, it is also afflicted with 21% of the global burden of disease. Thus, the reason for similar heated debate in our country is indeed no brainer to any one.

Thorny issues:

One of the thorny issues in this debate is the belief that huge R&D budgets of the global pharmaceutical companies are worked out without any consideration of relative value of such investments to the vast majority of population in our society, across the world. These thought leaders argue, as the poor cannot pay for the expensive innovative drugs, they are mostly denied of the fruits of pharmaceutical innovation in their battle against diseases.

These experts also say that safeguards built into the patent system in form of compulsory licenses are not usually broad enough to improve access to innovative medicines to a larger section of the society, whenever required.

In addition, they point out that wide scope of patent grants in areas of early fundamental research, quite often is strategically leveraged by the patentee to block further R&D in related areas without significant commercial considerations to them. Such a situation comes in the way of affordable innovative drug development for public health interest, when need arises.

Inadequate access to medicines in India:

The key issue in the country is even more complicated. Inadequate or lack of access to modern medicines reportedly impacts around 50% of our population. It is intriguing to fathom, why has the nation not been able to effectively address the challenge of access to relatively affordable high quality generic medicines to the deprived population of the society over a period of so many decades?

Thus IPR in no way be considered as the reason for poor access, at least, to generic medicines, especially in India. Neither, it is the reason for inadequate availability of affordable essential medicines for the diseases of the poor.

The key reason, as is widely believed, is inadequate focus on the deprived population to address their public health concerns by the government.

Pharmaceutical innovation and the burden of disease:

A study  titled, ‘Pharmaceutical innovation and the burden of disease in developing and developed countries’ of Columbia University and National Bureau of Economic Research, to ascertain the relationship across diseases between pharmaceutical innovation and the burden of disease both in the developed and developing countries, reported that pharmaceutical innovation is positively related to the burden of disease in the developed countries but not so in the developing countries.

The most plausible explanation for the lack of a relationship between the burden of disease in the developing countries and pharmaceutical innovation, as pointed out by the study, is weak incentives for firms to develop medicines for the diseases of the poor.

A healthy debate:

Many experts argue that greater focus on the development of new drugs for the diseases of the poor, should not be considered as the best way to address and eradicate such diseases in the developing countries. On the contrary, strengthening basic healthcare infrastructure along with education and the means of transportation from one place to the other could improve general health of the population of the developing world quite dramatically.

However, another school of experts think very differently. In their opinion, health infrastructure projects are certainly very essential elements of achieving longer-term health objectives of these countries, but in the near term, millions of unnecessary deaths in the developing countries can be effectively prevented by offering more innovative drugs at affordable prices to this section of the society.

Creation of IGWG by WHO:

Responding to the need of encouraging pharmaceutical innovation without losing focus on public health interest, in 2006 the ‘World Health Organization (WHO)‘ created the ‘Inter-governmental Working Group on Public Health, Innovation and Intellectual Property (IGWG)‘. The primary focus of IGWG is on promoting sustainable, needs-driven pharmaceutical R&D for the diseases that disproportionately affect developing countries.

‘Reward Fund’ for innovation and access – an idea:

A paper  titled, “Optional reward for new drug for developing countries” published by the Department of Economics, University of Calgary, Institute of Health Economics, proposed an optional reward fund for pharmaceutical innovation aimed at the developing world to the pharmaceutical companies, which would develop new drugs while ensuring their adequate access to the poor. The paper suggests that innovations with very high market value will use the existing patent system, as usual. However, the medicines with high therapeutic value but low market potential would be encouraged to opt for the optional reward system.

It was proposed that the optional reward fund should be created by the governments of the developed countries and charitable institutions to ensure a novel way for access to innovative medicines by the poor.

The positive effects of the debate:

One positive effect of this global debate is that some global pharmaceutical companies like Novartis, GSK and AstraZeneca have initiated their R&D activities for the neglected tropical diseases of the world like, Malaria and Tuberculosis.

Many charitable organizations like Bill & Melinda Gates Foundation and Clinton Foundation are allocating huge amount of funds for this purpose.

On January 30, 2012, on behalf of the research-based pharmaceutical industry, Geneva based International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) by a Press Release  announced donations of 14 billion treatments in this decade to support elimination or control of nine key Neglected Tropical Diseases (NTDs).

Without creating much adverse impact on pharmaceutical innovation ecosystem of the country, the Government of India is also gradually increasing its resource allocation to address the issue of public health, which is still less than adequate as of now.

All these newer developments and initiatives are definitely ushering in an era of positive change for a grand co-existence of pharmaceutical innovation and public health interest of the country, slow and gradual though, but surely a change for the better.

Innovation helps to improve public health:

In India, various stakeholders of the pharmaceutical industry feel that there is a need to communicate more on how innovation and IPR help rather than hinder public health. Some initiatives have already been taken in this direction with the pioneering ‘patent pool’ initiative of GlaxoSmithKline (GSK) in Europe and ‘Open Source Drug Discovery (OSDD)’ by the Council of Scientific and Industrial Research (CSIR) of the Government of India.

The pace needs to be accelerated:

The pace of achieving the dual objectives of fostering pharmaceutical innovation without losing focus on public health has to be accelerated, though progress is being slowly made in these areas through various initiatives. Additional efforts are warranted for sustainability of these initiatives, which have not yet gained the status of robust and sustainable work models.

However in India, the government in power should shoulder the key responsibility garnering all resources to develop and implement ‘Universal Health Coverage’ through appropriate innovative healthcare reform measures. Such steps will help achieving the country its national goal of providing affordable healthcare to all.

At the same time, creation of a variant of ‘reward fund’ to encourage smaller pharmaceutical players of India to pursue pharmaceutical innovation needs to be considered expeditiously. This will help encouraging pharmaceutical innovation in a big way within the country.

Address the basic issue of poverty:

It is a well-accepted fact that the price is one of the key determinants to improve access to modern medicines to a vast majority of the population. However, the moot question remains how does one make medicines more affordable by not addressing effectively the basic issue of general poverty in the country? Without appropriately resolving this issue, affordability of medicines will continue remain a vexing problem and a critical issue to address public health in India.

Conclusion:

Innovation, as is widely acknowledged, is the wheel of progress of any nation. This wheel should move on… on and on with the fuel of IPR, which is an economic necessity of the innovator to make the innovation sustainable.

In the book titled, ‘Pharmaceutical Innovation: Revolutionizing Human Health‘ the authors have illustrated how science has provided an astonishing array of medicines to effectively cope with human ailments over the last 150 years.

Moreover, pharmaceutical innovation is a very expensive process and grant of patents to the innovators is an incentive of the government to them for making necessary investments towards R&D projects to meet unmet needs of the patients. The system of patent grants also contributes to society significantly by making freely available patented information to other scientists to improve upon the existing innovation through non-infringing means.

Altruism, especially in the arena of public health, may be demanded by many for various considerations. Unfortunately, that is not how the economic model of pharmaceutical innovation and IPR works globally. Accepting this global reality, the civil society should deliberate on how innovation and IPR can best be used, in a sustainable manner for public health interest, especially for the marginalized section of the society.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Healthcare Tourism: India needs to step on the gas

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Healthcare Tourism or Medical Tourism are the terminologies initially coined by the travel agents and the media when patients travel outside their national boundaries to seek either more specialized and/or cheaper but high quality healthcare available in other countries.

World Health Organization (WHO) defines Healthcare Tourism as an activity that covers:

  • Medical care
  • Sickness & well-being
  • Rehabilitation & recuperation

The reasons:

The main reasons of healthcare tourism are:

  1. High medical costs, especially for those patients who are under-insured or uninsured
  2. Long waiting period for elective surgery
  3. To avail technologically more advanced medical treatment and care

For example, USA though globally recognized as one of the technologically most advanced countries in providing high quality healthcare to the patients, the cost of comprehensive healthcare in the country is often beyond reach of many Americans.

In not too distant past (2000), the World Health Organization (WHO) ranked USA as the country with most expensive healthcare systems in the world. Moreover, it has also been reported that in the US, the fees paid to doctors for medical services are usually much higher for an ‘uninsured’ patient than one who is ‘insured’.

Such a scenario has given rise to situation where many Americans travel out of the country for a lower cost medical care, if not adequately insured.

‘Time Health’ in an article titled ‘A Brief History of Medical Tourism’ stated as follows:

-       In 2006: 150,000 US citizens underwent medical treatment abroad

-       In 2007: the number grew to an estimated 750,000

-       In 2008: it increased to 1.3 million

-       In 2010: the figure further swelled to an estimated 6 million citizens.

The article commented that “Patients are packing suitcases and boarding planes for everything from face lifts to heart bypasses to fertility treatments.”

The key influencers and preferred destinations:

The most common influencer for healthcare tourism globally, as stated earlier, is lack of or inadequate health insurance and the most common emerging destinations for healthcare tourism in the world are Thailand, Singapore, Costa Rica, Panama, Brazil, Mexico, Malaysia and India. This is mainly because of fact that the costs of availing high quality healthcare services in these countries are much cheaper- on an average around 80%. For example, a cardiac surgery, which will cost more than US$ 50,000 in the US, can be availed for US$ 20,000 in Singapore, US$ 12,000 in Thailand and between US$ 3,000 and US$ 10,000 in India.

Other factors influencing Healthcare Tourism, particularly in India, besides significant cost advantages, are:

  1. High quality treatment and hospital stay with world class medical technological support
  2. Rigid compliance with international treatment standards
  3. No language barrier with the western world
  4. Government taking active steps and interest in the medical tourism sector

In all these four areas significant advantages that India offers will need to be adequately leveraged in a sustainable manner by the country.

Most popular treatment areas:

The most popular treatment areas are as follows:

  1. Alternative medicines
  2. IVF treatment
  3. Bone-marrow transplant
  4. Cardiac bypass
  5. Eye surgery
  6. Dental care
  7. Cosmetic surgery
  8. Other areas of advanced medicine

Evolving scenario:

Since last several years healthcare tourism is fast evolving as one of the key growth drivers of the global healthcare sector as a whole.

Dr. Fred Hansen in his article titled, ‘A Revolution in Healthcare’, highlighted that increasing number of high-quality healthcare facilities in the developing coun­tries are attracting medical tourists from the developed countries like the US and the European Union (EU).

Apprehension in the US about growing Healthcare Tourism of India:

India Knowledge@Wharton in its June 2, 2011 issue reported as under:

  • In the past, US President Barack Obama had singled out India for what he sees as the country usurping American jobs and business.
  • In May 2009, he removed some tax incentives for US companies who allegedly preferred to outsource rather than create domestic jobs. “Buffalo before Bangalore” was his rallying call at the time.
  • In April 2011, he told a town hall gathering in Virginia that Americans shouldn’t have to go to India or Mexico for “cheap” health care. “I would like you to get it right here in the U.S.,” he said.
  • In January 2012, President Obama reiterated the same intent in the run up to the forthcoming US presidential election for his second term.

The Global Market:

In 2006 the global market for healthcare tourism was around US$ 60 billion. According to McKinsey & Company, this market is expected to expand to over US$110 billion by 2012.

India – a contender for supremacy:

Healthcare tourism in India, despite being smaller compared to the western world, is surging ahead both at the national and the regional levels with enormous potential for future growth, if explored appropriately with a carefully charted strategic game plan in its evolution process.

Currently India is emerging as one of the preferred destinations for global health tourists. The country received 150,000 medical tourists in 2004, which grew by 33% to 200,000 in 2008, mainly from the USA, UK and the Gulf countries, primarily due to low-priced and high quality healthcare in wide ranging disease areas. More and more people from these countries are finding the prospect of high quality and value added medical care in India financially attractive.  As per estimates, India will receive over 500,000 medical tourists per year come 2015.

While visiting India for healthcare, patients not only get treated by the best medical professionals with western medical training, but also are able to stay in deluxe accommodations fully equipped with the latest television set, refrigerator and in some cases even a personal computer, without facing any language barrier and that too by paying just around 1/10th of the price charged in the developed nations.

Moreover, according to John Lancaster of ‘The Washington Post’ (October 21, 2004) Indian private hospitals have a better mortality rate for heart surgery than American hospitals.

With over 8,500 beds ‘Apollo Hospitals’ chain runs 53 different hospitals across the country, followed by “Max Healthcare” that runs 8 medical centers in the National Capital Region (NCR) in India.

Indian Market:

Economic Times, in its January 6, 2009 edition reported, “Indian medical tourism to touch Rs 9,500 Crore (around US $ 2.1 billion) by 2015”.  Another report titled “Booming Medical Tourism in India”, published in December 2010 estimated that the medical tourism industry will generate revenues of around US$ 3 billion by 2013, though with a market share of just around 3% of the of global healthcare tourism industry.  Thus, in healthcare tourism, India still remains a smaller player with enormous growth potential.

New job creation:

Both Public and private sector studies estimate that healthcare tourism in India could attract around US$ 3 billion to the country by 2013 with around 40 million direct and indirect job opportunities.

Cost advantage in India:

Cost Comparison: India vs UK:

Nature of Treatment

Treatment Approximate Cost in India ($) *

Cost in other Major Healthcare Destination ($) *

Approximate Waiting Periods in USA / UK    (in months)

Open heart Surgery

4,500

> 18,000

9 – 11

Cranio-facial Surgery and skull base

4,300

> 13,000

6 – 8

Neuro-surgery with Hypothermia

6,500

> 21,000

12 – 14

Complex spine surgery with implants

4,300

> 13,000

9 – 11

Simple Spine surgery

2,100

> 6,500

9 – 11

Simple Brain Tumor -Biopsy -Surgery

1,000 4,300

> 4,300 > 10,000

6 – 8

Parkinson -Lesion -DBS

2,100 17,000

> 6,500 > 26,000

9 – 11

Hip Replacement

4,300

> 13,000

9 – 11

* These costs are an average and may not be the actual cost to be incurred.

(Source: Health Line)

The key components:

The following four basic components constitute the healthcare tourism industry: • Healthcare Providers: Hospitals, mainly corporate hospitals and doctors • Payers: Medical/ Health insurance companies • Pharmaceutical Companies: for high quality affordable medicines • IT Companies: operating in the healthcare space

Growth drivers and barriers:

Following are the key growth drivers:

  1. Government support through policies and initiatives
  2. High quality, yet low cost care
  3. Much less or no waiting time
  4. World class private healthcare infrastructure
  5. Rich source of natural and traditional medicines. Ministry of Tourism is  promoting the traditional systems of medicines, like,  Ayurveda, Siddha, and Yoga to project India as a the destination of choice for spiritual wellness and healing

In future, the world class and low cost private sector healthcare services are expected to drive the growth of the medical tourism in India.

However, any shortages in the talent pool and inadequacy in other basic infrastructural support like roads, airports and power could pose to be barriers to growth of this sector, if not addressed immediately.

Government Assistance:

The government of India is now supporting the hospitals to get the Joint Commission International (JCI) accreditation.

In 2009 the government announced a revised guidelines for ‘Marketing Development Assistance (MDA)’ scheme for approved Medical Tourism service providers like, representatives of hospitals accredited by Joint Commission for International Accredited Hospitals (JCI) and National Accreditation Board of Hospitals (NABH) and Medical Tourism facilitators (Travel Agents/Tour Operators approved by Ministry of Tourism, Government of India and engaged in Medical Tourism (MTSP) and to the approved Wellness Centers i.e. representatives of the Wellness Centers accredited by the State Governments.

All these measures are expected to accelerate the growth of healthcare Tourism industry in India.

List of JCI Accredited Hospitals in India:

Following are the JCI Accredited Hospitals in India till 2007:

Name and Place Accredited on
1. Indraprasta Apollo Hospital, New Delhi June 18, 2005
2. Wockhardt Hospital, Mumbai August 25, 2005
3. Apollo Hospitals, Chennai January 29, 2006Disease- or Condition-Specific Care (DCSC)Certification for Acute Stroke: 29 April 2006
4. Shroff Eye Hospital, Mumbai February 18, 2006
5. Apollo Hospitals, Hyderabad April 28, 2006
6. Asian Heart Institute, Mumbai October 20, 2006
7. Satguru Pratap Singh Apollo Hospital, Punjab February 3, 2007
8. Fortis Hospital, Mohali June 15, 2007

Source: Joint Commission International, 2007

The challenges:

Following are the key challenges that India will need to address to emerge as a healthcare tourism hub of the world:

  • Improving the infrastructure
  • Adequate training of the staff
  • Enhancement of the image of India as a corruption-free country
  • Continuous improvement of overall service to the patients

Conclusion:

While encountering the global economic meltdown many corporate business houses, even in the developed nations of the world, are under a serious cost containment pressure, which includes medical expenses for their employees. Such cost pressure has already started prompting many companies to send their employees to low cost destinations for treatment, without compromising on the quality of their healthcare needs. This trend could offer an additional growth opportunity in the healthcare tourism sector in India.

According to the ‘Medical Tourism Climate Survey 2010’ report, the leading medical tourism destinations are currently India, Thailand, Hungary and Malaysia and the leading source of patients being again the USA, UK and Russian Federation.

The survey rates Thailand, India and Singapore as the best in terms of quality of overall patients’ care. Insurance and liability issues for the patients from some major markets of the world could pose to be a challenge for speedy growth of this industry.

Countries like, Thailand, Singapore and Malaysia, located in quite closer proximity to India, will continue to offer a tough competition in the healthcare tourism space of the country.

In an increasingly heated-up fast evolving competitive scenario, the name of the game for India will be to ‘step on the gas’, sooner and effectively.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.