Why is the change being made?
Across India, there has been a historical lack of access to quality health care, caused primarily by poverty and uneven distribution of health infrastructure across the country. Until recently, more than half of India’s population—over 700 million individuals—did not have health insurance. Moreover, according to a study by the Public Health Foundation of India, out-of-pocket health care expenditures—representing over 11% of non-food costs for the average Indian family—pushed about 55 million Indians below the poverty line between 2011 and 2012, and the Indian National Health Authority estimates that this occurs for 7 percent of the population every year.
What are the main parts of ABY?
As a result, in September 2018, the Indian government launched Ayushman Bharat Yojana (ABY), the world’s largest government-funded health care plan. Through this plan, the government aims to establish a network of community-based primary health care centers as well as to provide insurance coverage for secondary and tertiary care to nearly half of the country’s population, specifically targeting poor families in rural regions.
More specifically, ABY can be segmented into two major components: the Pradhan Mantri Jan Arogya Yojana (PM-JAY), which will provide over 100 million low-income and vulnerable families with up to 500,000 INR per family for secondary and tertiary care, and the establishment of some 150,000 “health and wellness centers” throughout the country, with a particular focus on rural areas, in order to provide free primary care. Given that the central impediments to receiving health care in India have traditionally been affordability and a lack of access in rural areas, ABY will have a significant impact on the ability of Indian patients to receive treatment, and it is expected that this will substantially bolster procedure volumes in various markets going forward.
What opportunities and challenges will ABY pose for medtech?
While the expansion of health care provision in India will provide the medtech industry with ample opportunities for significant growth, it also poses a number of challenges for medical device competitors in the country. Among these is the need to ensure the availability of a steady and reliable supply of medical devices to a much larger group of patients than these companies have become accustomed to.
In addition, as the patient population in the country expands, so will the need for increased physician training and education; the onus in this regard will lay almost entirely with medtech companies, which will not only need to provide training with their devices and equipment to avoid procedural complications and achieve the best possible outcomes, but will also find it critical to provide training as a means of fostering brand loyalty among a larger body of physicians, which may allow them to capture market share in the future.
How will ABY challenge medtech MNCs differently than domestic companies?
Because adapting to ABY will be a highly resource-reliant process, large MNCs—which have substantial capital and sizable manufacturing capabilities—will be best equipped to address the needs of the rapidly expanding medtech market in India. With that said, however, MNCs will also face a set of distinct challenges going forward, stemming from an increasing government emphasis on supporting local manufacturing and domestic companies.
Traditionally, nearly 80% of medical devices used in India have been imported; however, in line with recent government efforts to bolster local industries, namely the “Make in India” initiative, the Department of Industrial Policy and Promotion issued an order in June 2017—since revised in May 2018—stipulating that all procurement bodies must give preference to local suppliers and that at least 50% of a product’s value must stem from a local source, with some discretion given to the relevant government authority, which can increase or decrease this threshold or utilize a different calculation to determine locally sourced value.
Nonetheless, foreign companies will still be able to win 50% of tenders valued at over 5 million INR, provided that they are able to offer the lowest bid; if no local supplier is able to match the lowest bid for the other half of the tender, the remaining balance can also be granted to the foreign bidder. Additionally, tenders valued at less than 500,000 INR are exempt from the order’s conditions. Furthermore, the government allows foreign competitors to invest directly—up to 100%—in domestic companies; the purpose of this policy is to attract investments in the local industry and thereby bolster the Indian medical device sector. Foreign competitors can also engage in partnerships with local companies or construct local production facilities in order to satisfy the requirement for minimum local content.
This order will undoubtedly boost the local medtech industry; in 2018 alone, Sahajanand Medical Technologies, S3V Vascular, and Trivitron Healthcare all announced plans to set up large new manufacturing facilities in various parts of the country to provide lower-cost alternative to imported devices. Interviewed industry sources note that “ABY is going to be a big-time game-changer for medtech growth in India. With the increase in the number of procedures in the country, the medtech market will also witness proportionate growth. No surprise that in the next 10-20 years, this industry may show double digit growth.”
Some initial challenges are likely
On the other hand, the order may also delay access to care if a required product is not available within the Indian manufacturing ecosystem, which is of particular concern given that ABY will be accompanied by a substantial increase in demand for medical devices and procedures across the country. Critics also note that raising the barriers to foreign companies may also hinder competition and innovation locally, and some industry sources have also raised concerns about the possibility of further lowering the cost of devices in the various subsidized packages offered under the ABY scheme.
Apart from manufacturing conditions and requirements for competitors (both local and foreign) to comply with minimum local standards for safety and quality, another notable challenge faced by some companies in India is pricing; a number of medical devices, such as coronary stents and knee implants, are priced under the Drug Prices Control Order, and devices are also subject to a GST tax that can be as high as 28%, which will force competitors to develop and manufacture products at competitive prices or risk trailing behind lower-cost manufacturers. This will impact foreign companies in particular, given that many of them may have to deal with additional costs stemming from importing device components.
Collaboration will be imperative for ABY’s success
Therefore, the advent of ABY will present a number of challenges for medtech companies, and only those that are well prepared to overcome these challenges will be able to capitalize on the immense opportunities that will arise in the coming years. Of paramount importance to the success of ABY will be the collaboration of medtech companies, investors, physicians, and the government; if these entities are able to cooperate effectively, they will be able to play a critical role in radically improving health care provision in the world’s second-most populous nation, which will not only enhance the health of hundreds of millions of Indians, but will also contribute substantially to reducing poverty and bolstering the country’s economy.
DRG Medtech continues to monitor developments pertaining to Ayushman Bharat Yojana. Additional changes from the Indian government are expected; please stay tuned for further updates to this paper.
For more information on DRG’s insights into Indian medical device markets, check out the nearly 40 Medtech 360 reports that cover India as part of our Asia Pacific geographical coverage. Visit the Marketrack homepage to learn more about our brand-level pricing and market share tool. For any questions or to request a demo, contact us at firstname.lastname@example.org.
- Megha Maheshwari, MBA: Principal Analyst, Medtech Insights – follow Megha on LinkedIn
- Zaid Al-Nassir: Analyst, Product Support – follow Zaid on LinkedIn