Transforming the Indian Healthcare Sector : The Road Ahead!

Ever increasing aging and young population, low penetration and high prices of medicines and healthcare services, ambiguous policies, and insufficient health insurance coverage for most citizens has posed a multi-pronged challenge for the Indian healthcare sector. The irony is that on one hand, we aim to replicate world class medical research and care centers like AIIMS, but on the other hand, patients-to doctor ratio in India is one of the lowest in the world. The irony continues with the fact that despite India being the world’s sourcing hub for pharmaceuticals, the quality of medicines supplied locally always remains subpar.

A lot of these challenges arise due to the structural issues in the industry. India follows a decentralized healthcare system. Smaller hospitals and nursing homes dominate the industry and will continue to have the same importance in the coming years. Alongside this, we are witnessing the emergence of boutique care centers which enhance quality of care but continue to be expensive owing to several operational challenges. Typically, smaller healthcare providers are not in a position to utilize economies-of-scale when procuring and offering consumables, medicines, and various products and services. As a result, the earning-per-bed remains lower compared to large facilities. This creates a competitive disadvantage for small providers, and obviously for the end consumers (read: patients). To raise the availability and quality of healthcare services in the country, this segment needs a complete overhaul.

Over the years, several countries in the West have been through a similar situation and have successfully transformed their healthcare ecosystem to bring parity among small, mid, and large service providers in the industry. Some of these countries have moved to predominantly Government managed and funded healthcare while other such as USA have adopted the aggregation sourcing approach. The shift in the developed world has mainly been from a scattered approach to bringing efficiencies in sourcing platforms, i.e., GPOs or Group Purchase Organizations.

GPOs has played a pivotal role to optimize costs and bring efficiency in sourcing and streamlining the healthcare supply chain in the USA. It has also led to better quality of generic drugs delivery in the country. More importantly, GPOs also allows the hospitals to adopt latest state-of-art technology and best practices to manage their operations.

A deep dive into GPOs

GPOs are specialized supply chain players who aggregate large number of customers on their platform and work as an institutional supplier for them. Some of the unique value propositions for customers and manufactures are:

Customers do not have to engage with multiple suppliers. A GPO works as a single window supplier for them, assuring cost saving on current souring base. Customers also get to leverage the best in class technology without having to spend upfront for the same. This means that chances of pilferage are very low and the inventory is optimally utilized. Manufacturers on the other hand have direct access to end consumers. This means that they can reach tier 2-3 towns and smaller customers centers with a simpler supply chain making it a win-win situation for all the stakeholders.

Is India ready for the change?

There have been multiple attempts to introduce the GPO model in India in the past. However, it has never found any serious uptake among healthcare service providers. This is due to multiple reasons. In some cases, the start was not with appropriate product categories or the customer segment chosen was a misfit. Government regulations and tax system were another task. Thus, the transformation was nipped in the buds.

With multiple failures, the question is: is this the right time to reintroduce and enforce this model in India? The answer is- Yes. The Indian economy is at an inflection point as regulation, tax system, technology and infrastructure are all align to drive disruptive change.

• GST has made India a one-tax-one nation. Therefore, the movement of goods is much more seamless.
• The digital drive and demonetization by the Government has created an awareness about the benefit of formal, cashless transactions
• Stringent price controls have reduced easier income source for most of the value chain players
• NABH and other compliance are slowly becoming norms to maintain good brand positioning in market
• Government’s encouragement for startups to participate and contribute in improving healthcare services is already showing the early signs

Given the dire state of Indian healthcare industry, it is a now or never time. Keeping in mind the above triggers, GPO model is a big hope and should be given every chance to flourish.