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The overall, diagnostic space will grow at a CAGR of around 12-15 per cent

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Dr Avinash Phadke, Founder, Dr Avinash Phadke Pathology Labs, and President-Technology, SRL Diagnostics, explains the opportunities and challenges within India’s diagnostics space in a chat with Raelene Kambli

What is your perspective on the future of diagnostics in India? What are the changes that you see?

World over, diagnostics plays a key role in the overall healthcare delivery business. It cannot be outsourced to a large extent and is completely recession proof. In the same light, the future of diagnostics in India is very bright. The question that we all ponder upon is, which vertical of diagnostics will receive much prominence. We are unsure whether the business in the private sector and corporate sector will grow more, or within the public sector with the launch of the Ayushman Bharat scheme or we will see an increase in PPP model. Although this is very difficult to identify, it is also very difficult to ascertain which segment will outpace the other. We still believe that the overall sector will see a lot of positive change. The overall, diagnostic space will grow at a CAGR of around 12-15 per cent.

What is your opinion on the current slowdown in growth rate of large diagnostic companies such as, Lal Pathlabs, Thyrocare, SRL and more?

In recent times, we have seen that a lot of listed diagnostics companies are growing at around 8-9 per cent CAGR, which means a low growth rate. All these companies were earlier growing at 25 per cent CAGR. The reason for this slow down is the business environment within metro cities. The metros have seen an increase in corporate hospitals that have cannibalise the business of small nursing homes, which were once a backbone for these large diagnostic as part of the referral business. However, all these larger companies have a huge turn over and still enjoy a huge market share. Similarly, there are some smaller companies which are making a headway into the market that also show a lot of promise.

There is also a growing trend where larger hospitals are outsourcing their laboratories to diagnostics chains.

Yes, this is a growing trend. In SRL, we are having tie-ups with around 140 hospitals out of which Dr Ajay Phadke manages around 12 hospitals, 35 are Fortis hospitals and the remaining are other private hospitals. At the same time, this trend gives us an assured business but has a lower EBITDA as compared to other business models since there is profit sharing between the hospital and the diagnostic centre.

What are the regulatory challenges?

Regulatory challenges in India are faced by larger corporate chains and listed company only. As you know NABL is not yet mandatory, so all compliance rules are also not mandatory. The waste disposal compliance for laboratories is very tough and for all organised players this is extremely necessary to maintain. If any of the organised laboratory fails to adhere to this compliance they will have to face greater penalty. The rules are different for organised players and unorganised players. Moreover, there are no such entry barriers existing within the sector.

So, do you feel there is a need for making NABL mandatory?

Yes, from a point of view of bringing in quality standards, but what happens to hundreds of laboratories which do not have the potential to get accredited? I think it is a long way for India to reach that level. We are yet battling with access.

So this leads to the most demanded right for the country ‘ The right to health.’ Do you think it would create a negative impact on the over healthcare business?

If you look at any universal healthcare schemes globally, which makes healthcare services free all do not really succeed in raising the required funds for such plans. The current status is such that providing basic care (for instance getting some high cost medicines) for certain patients is also not possible in many occasions. Therefore such scheme lack flexibility.

So what is your opinion on the success of Ayushman Bharat scheme?

The funds allocated for this scheme is just ` 3000 crore, which means not all can and will be covered.

Should health remain a state subject or become the centre’s subject?

I clearly feel that health should be a state subject only. Look at Tamil Nadu, Karnataka and more have some excellent independent schemes and they are doing really well.

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