Saturday, March 1, 2008

Union Budget 2008 will usher an era of nationwide corporate healthcare

The Union Budget 2008 - 2009 presented by Shri P Chidambaram (PC) is a radical one with respect to healthcare. One tends to think Mr. Ram Vilas Paswan, and various other pharmaceutical and healthcare industry bodies have lobbied well. Never before has healthcare and pharmaceuticals been highlighted to this extent.

PC has alloted Rs. 16,534 crores which is 15% more than last year. This is a positive move. An insurance cover of Rs. 30,000/person has been declared for below the poverty line people and workers of unorganized sector (Rashtriya Swasthya Bima Yojana).

Corporate hospitals will spread wings beyond urban areas

One of the interesting policy announcements is the tax break for five years for setting hospitals in non urban areas. This means, coming at the right time, for the top hospital chains like Wockhardt, Fortis Healthcare, Manipal, Narayana Hrudayalaya, and Apollo - they will expand to tier 2 and tier 3 cities. Suddenly, the valuations of potential prime real estate for these hospital projects in tier 2 and tier 3 (5 to 10 lakh population) areas will go up, local nursing homes will get a good valuation for outright sell out to these chains or for setting franchisee hospitals. These tier 2 and tier 3 hospitals of chains will act as feeder hospitals to the main hospitals in the metros. Thus, a branded ecosystem will be created. So it will not be a surprise to see a Manipal Hospital in places like Belthangady, Karkala or Moodbidiri!

Riding on these corporate branded hospital chains will be the health insurance companies in a bid to get more premium payers (a large untapped base lies in Tier 2 and Tier 3 cities) and the branded retail pharmacy chains. For eg., Apollo retail chain, Fortis Healthcare, and Manipal Cure and Care will get commercially benefited by this trend - leading to the retail chain's market expansion.

What will this mean to patients? No doubt, a better healthcare facility in a nearby place (can avoid going all the way to costly cities) - but definitely a costlier option.

Already, Apollo hospital chain magnate Dr. Pratap Reddy sees the opportunity and has praised the policy initiative in the media, Mr. Shivinder Mohan Singh, Chairman and CEO of Fortis healthcare, and Mr. Vishal Bali of Wockhardt have given positive thoughts on this approach of the budget 2008. Wockhardt Hospitals was recently in the news to try and raise funds from the share market through its IPO (for hospital chain expansion).

This massive and fast expansion of corporatized healthcare sector to non urban areas will put a pressure on HRD of these chains, due to non availability of qualified manpower.

The Rs. 75 crore soft power fund

It is interesting to note that Union Budget 2008 has proposed a fund of Rs. 75 crores to promote the soft power of India through the Indian Council of Cultural Relations. It is an interesting strategy as soft power is very important in international relations and world commerce. The Union Finance Minister's speech mentions Indian music, dance, literature, art, cuisine, and films as soft power components. However, AYURVEDA AND YOGA ARE ALSO TWO IMPORTANT SOFT POWER COMPONENTS OF INDIA THAT DO NOT FIND A SPECIFIC MENTION IN PC's SPEECH. It should have. Ayurveda and Yoga are very vital elements and need to be promoted through the fund.

Reduction of excise duty (ED) and customs duty

It appears that PC has tried to work the magic of TATA NANO EFFECT on Pharma! Excise duty has been reduced from 16% to 8%. This will increase affordability of medicines and will hopefully promote patient compliance and off take. The reduction of ED will also help small and medium size pharma companies.

For pharma marketers there will be increased pressure to generate more prescriptions and sell more units. Normally, sales targets are fixed on gross sales value (which includes ED), so even if the MRP is reduced, sales targets will not be reduced, and there will be a increased focus to sell more units to earn the incentive (many companies calculate incentive or commission payable to field force on assessable value that is Gross Sales Value - Excise Duty).

There will be no excise duty on anti AIDS drugs and this will certainly help patients and the National AIDS Control Mission.

Customs duty on bulk drugs is cut down from 10% to 5%.

Overall, it appears that the thrust is boost volumes and make drugs affordable.

This indicates that market penetration will improve and a hint to pharma marketers to strengthen rural market/semi urban market penetration through marketing programs to enhance unit volumes (or targeted sales figures will be tough to reach).

Outsourcing R & D will get fiscal benefit

Recently R & D divisions were hived off as seperate entities by Nicholas Piramal, Sun Pharma, Wockhardt, and Ranbaxy ... and now coinciding with this trend is the move to offer 125% weighted reduction on outsourced R & D.

Paying medical insurance premium of parents will get income tax benefits

This is a brilliant move by PC. In our country without any significant social security system, this will encourage earning children to offer medical insurance to parents and not just family dependents.

Fringe Benefit Tax is untouched

The FBT regime is untouched. Pharma companies invest on travel, physician's samples, gifts, and other forms of product sales promotion. This has attracted FBT and added financial pressure. Relief from the same was expected...but PC has decided otherwise ... mind you Pharma marketers will ask for more "inputs" to increase sales units this year...

There are still some untouched points like biopharmaceuticals and herbal products (both herbal extracts and finished dosage formulations). Polio eradication finds special mention with a focus on UP and Bihar but malaria is not given priority. Similarly, undernutrition or hidden hunger is a cause of morbidity and mortality and needs to be addressed. Overall due thanks to the Union Govt. for a focus on healthcare. I got the above picture from HERE.

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