There have been many positive developments for the Indian healthcare sector on the digital front. These include, for instance, the announcement of the telemedicine guidelines and the National Digital Health Mission.
According to think tanks and industry bodies, these measures will create incremental value for the Indian economy.
India’s state of healthcare underdevelopment
India is a country of paradoxes for healthcare infrastructure. India has 18% of the world's population and around 18% of the world's disease burden, which is increasing.
To service this burden, India has only 2.4% of the world's land mass and about 0.01% of the world’s land usage for health and well-being purposes. On the clinical manpower supply, India has 1% of world’s lab techs, 9% of health workers, and 8% of nurses and doctors.
To match the global average, India needs a total investment of about $460 billion now. To put things in perspective, 165 countries in the world had gross domestic product of less than $460 billion in 2018.
To address the country’s healthcare needs within the constraints of capital, land and clinical manpower, homegrown solutions are required. India’s per capita healthcare spend is Rs 4,116 ($55), and it is growing at 22% a year.
However, India’s healthcare spend is just 4% of GDP (against the globally recommended 15% of GDP) and it is among the lowest four countries (ranked 129) in the world on healthcare spend, as per Oxfam’s Commitment to Reducing Inequality Index 2020.
Healthcare gold rush due to COVID-19
Let’s set the context under which there has been an accelerated push for healthcare digitization in India—the COVID-19 lockdown. Elective healthcare spending fell 70% due to the lockdown and priority to COVID-19 patients.
The healthcare industry started rumbling and is requesting the government to come out with a bailout package of over Rs 50,000 crore. Doctors needed to restart their practice through work from home or anywhere.
The decade-long deadlock between the Medical Council of India and the health ministry on the telemedicine law suddenly cleared. There was mutual agreement on developing and regulating the gold rush towards telemedicine.
New digital health regulations
The telemedicine regulations were announced by the Niti Aayog and the MCI. Prime Minister Narendra Modi, in his Independence Day speech, also announced the National Digital Health Mission (NDHM). The draft of the digital health regulation was available for the general public to review and critique. This was the backdrop to the industry chorus on digital health in India and the opportunity it offered.
Industry estimates
With the regulations out in the public, the industry voiced its opinion on the real impact to the Indian economy. One industry report estimated the pace of digital healthcare can unlock $200-250 billion in next 10 years in terms of primary and secondary impact to the nation’s economic value. This value creation can be on three key roads:
- Road 1: From episodic care to wellness-oriented care
- Road 2: From volume-based to value-based healthcare
- Road 3: From siloed systems to streamlined processes
While such stratospheric estimates for the digital health segment is great for headlines, let’s not fool ourselves with the history of what the retail (brick and mortar) and e-commerce sectors underwent in the past decade.
Ground reality
Over the last decade around $500 million was invested in different digital health ventures which were cut-paste healthcare business models of the West. The current technology spend on these is around $500 million per annum.
For the $250 billion impact on the ground to be realized, health-tech investments of around 5% ($12.5 billion) is needed right away with a gestational lag of around two years on a conservative 2x on valuations return and not on revenue growth.
In other words, all the sum total of early-stage VC money raised in 2019 globally will have to be directed to India and that too in health-tech. This is a tough ask and a pipe dream.
Let’s also focus on the available data sets, which is the oil to run the digital health motorway, in India. Currently, India’s data sets on healthcare is of the ‘telegraph’ era. These include information on radiology, labs, medicines, monitoring, doctor exam, nurse observations, claims data, billing and transactions. This data set is available for Bharat Stack 1 (the elite 12% of India’s population).
The real driver for growth is Bharat Stack 2 (the next billion of India’s population) and 30-odd points of healthcare data (not under the current NDHM regulations). This will make the digital health silk road truly a reality.
To create a true high-speed digital health motorway of the future, next-generation digital health ventures need incremental investments of $18 billion.
Overall, we require a total of $30 billion of tech investments. Where is that sort of money? We have been tracking around 150 health-tech ventures in our annual healthcare and life sciences investment heat map. We will need to create thousands of ventures that can create the depth and width of healthcare apps for the next billion today!
Capacity creation
On a conservative basis, we estimate that the overall India digital health opportunity is valued at $50 billion as it currently stands with the different constraints in our physical and technology healthcare delivery system. This is on the back of three key multiplier effects on the Indian healthcare economy:
- Increasing per capita spend on the health and well-being of the next 1 billion people as disposable incomes go up and the economy moves from the informal sector to the formal sector in the next 10 years.
- The incremental one-sixth of the disease burden that our population carries as compared to the world due to the genomic makeup and ageing population in next 10 years through alternative healthcare delivery models.
- Emerging alternative digital healthcare delivery models that would play on the shortages in the physical delivery system as penetration and acceptance of mobile-first delivery of healthcare services becomes mainstream and productivity of the clinical manpower is augmented by healthcare technologies.
Kapil Khandelwal is managing partner at Toro Finserve LLP, which is the sponsor to India Healthcare Opportunities Fund (REIT Sponsor), and director at EquNev Capital Pvt. Ltd.
To discuss the business opportunity and the challenges in the healthcare sector, VCCircle is organising the Healthcare Investment Summit 2020—a virtual event—on December 11. Check out the details and register click here https://healthcare.vccevents.com/