Budget 2019: Healthtech, Epharma Startups Demand A New Medical Innovation Fund

Health, as they say, is wealth. This is true of individuals as well as nations. It is all the more relevant in a country like India, which ranks 145th among 195 countries in terms of quality and accessibility of healthcare, according to a Lancet study. It is behind its neighbours China, Bangladesh, and Sri Lanka.

The good news is that the Indian healthcare market is set to grow at a 22% CAGR to reach $372 Bn by 2022, a threefold rise since 2016.

We didn’t need any iteration, but this projection is telling of the untapped healthcare market potential in India. While a slew of healthtech and epharma startups have emerged in the last few years and changing the face of Indian healthcare by bringing healthcare and pharmacy services to people’s homes, their effect and implications have been largely limited to cities only — Tier 1, to be precise.

This is mainly due to the fact that healthcare infrastructure, particularly in rural India, is extremely poor. Rural India lacks even primary healthcare facilities, making it hard for healthtech startups to penetrate these areas.

Saurabh Agarwal, chief financial officer (CFO) of epharma startup Medlife, expects Budget 2019 to address these infrastructural issues in healthcare. “The Budget should support the expansion of digital healthcare. E-healthcare players have great potential to make healthcare more affordable and accessible by using technology to provide doctor consultations, ensure medicine availability and diagnostic services in every nook and corner of the country including the remotest locations,” he said.

Agarwal is spot on. Interestingly, and ironically, 74% of the doctors in India are in cities while only 26% are available in rural India. However, according to the last census (2011), 69% of the Indian population still lives in rural India.

Hence, India’s existing average doctor-to-patient ratio — 1:1700 — against 1:400 as prescribed by the WHO, is actually flawed. The actual ratio in rural India is way wider.

Further, many healthtech startups who hire doctors for consulting purposes told Inc42 that there is a dearth of real doctors in India, as many practising doctors are not qualified doctors. They either don’t have the degree or have fake degrees. This has been another issue for the startups to tackle.

Health insurance is another market with huge potential as 73% of Indians are still not covered. Addressing the gap, the Modi government last year launched the world’s largest public health insurance scheme — Ayushman Bharat.

In 2017, the government had also launched the National Health Policy, which aims to double the government spend — from 1.15 % of the GDP to 2.5% by 2025. However, the budgetary allocation of INR 52,800 Cr for health in 2018-19 was hardly 5% higher than that of 2017/18 (INR 50,079.6 Cr).

Prashant Tandon, CEO and cofounder of epharmacy startup 1mg Technologies, shares his expectations on Budget 2019 with Inc42: “While there must not be any negative surprises, the focus should be on healthcare with a clear articulation of enabling private participation. This requires a quicker regulatory response to encourage innovation and a clear mechanism of developing business models that are sustainable for all players.” The healthtech fraternity are also batting for a medical innovation fund.

As the general election 2019 nears, healthtech as well as epharma startups expect the government to announce some quick-fix solutions as well as some long-term policy-related announcements in the Interim Budget 2019. And here’s what they want from the Budget:

Allocate More Funds, Create Medical Innovation Fund

While healthtech startups welcome the huge step towards health insurance inclusion — Ayushman Bharat — they have been demanding improvement of basic infrastructure which would help them penetrate deeper into Tier 2 and 3 cities as well as villages. Given the exponential rate at which the internet base is expanding and touching more and more lives, the time, certainly, is opportune.

However, the fund allocated to Ayushman Bharat, which looks to provide the health insurance of over 50 Cr of Indians, is merely INR 2000 Cr and has been criticised by many as inadequate.

Varun Gera, founder and CEO of healthcare aggregator platform HealthAssure, said, “With Budget 2019, we would like to see the government walking the talk by increasing expenditure of health and implementing a ground plan for the allocation of funds for announced projects, including the National Health Programme, Mental Health Act, and National Health Policy.”

Agreeing that Budget 2019 should be aimed towards making healthcare better, affordable, and accessible to the common people, Agarwal said he was expecting more health-related policy announcements in Budget 2019. “The focused life coverage and personal accident coverage through the banking sector, along with initiation of Ayushman Bharat for hospitalisation, is the need of the common man. It is definitely a step in the right direction…we are thereby looking forward to enhanced coverage of health protection scheme to build a robust OPD healthcare environment in the country.”

Besides, Nivesh Khandelwal, founder and CEO of LetsMD, which provides medical loans for surgeries in India said,

The government should also come up with a separate medical innovation fund to boost healthtech startups.

The idea of creating the Medical Innovation Fund has been applauded by many. Anand Subra, chief knowledge officer at mobile health service provider PurpleTeal, explained, “Entrepreneurship can be nurtured by spending on incubating new businesses, providing access to business, tech and commercialisation experts, as well as shared facilities, infrastructure, and staffing services on a rental basis. The Budget can certainly devote some funds to enable entrepreneurs to focus on building their businesses rather than getting bogged down in day-to-day operations.”

There should be a one-stop shop supportive ecosystem for new innovative models, new ventures and new technologies, opined Tandon. Specifically, “Digital health (epharmacy, telemedicine, IOT, diagnostics, AI-based decision support), AI, drones etc need to be developed with an intent to lead the world,” he added.

Address Healthcare Inflation Issues

We noted a clear urban-rural divide in the Indian healthcare index, which is another cause for concern. The per-person cost increase due to medical inflation is rising at double the overall inflation rate, according to a report by Mercer Marsh Benefits.

This means outpatient costs are increasing at a faster pace than hospitalisation costs. And that the government needs to bring medical inflation in check.

Khandelwal, said, “India’s healthcare inflation is about 15-17%, so, every year, the medical cost escalates by 15-17%. Second, insurance penetration in India is negligible — 80% of India’s healthcare expenditure is out of pocket. And, 50% of that out-of-pocket expenditure is financed through loans. So, a lot of work has to go to into the preventive healthcare side, to make healthcare affordable in the long run in India.”

Provide Tax Exemption And Incentives

Considering that healthtech and epharma startups have to walk the extra mile due to the lack of healthcare infrastructure and policies (in the case of epharmacy), this Budget, one of their major demands is tax rebates and incentives.

Siddharth Upadhyaya, founding partner chief strategy officer of OurHealthMate told Inc42, “As a digital/startup community, we look forward to tax breaks to enhancing the appeal of the segment so its comes across as a major employer of the educated masses.”

They also expect the Budget to announce additional benefits for those opting for cashless transactions through debit cards, mobile wallets and credit cards, he added.

Reiterating his views, Pradeep Dadha, founder and CEO of epharma startup Netmeds (.com), said, “Incentivising electronic payment modes via tax rebates will encourage both the consumer as well the company to move towards the collective goal of Digital India.”

According to Dadha, removal or relaxation of angel tax to encourage angel investments in Indian startups will provide a much-needed push to the startup ecosystem. Considering an increase in the current revenue bracket during the Tax Holiday period as well as an extended tax break would help startups stabilise during its early years.

Khandelwal, said, “The health sector demands incentives for setting up hospitals in smaller towns and cities and that is the primary demand the industry has from this year’s Budget. There should be easy loans available for creating viable healthcare infrastructure in smaller towns and cities. Also, the priority sector status must be accorded to the healthcare industry.”

Tandon is of the opinion that digital health platforms should be given the status of “healthcare service provider” in the tax code, with identical incentives/ tax implications as physical establishments.

Allow FDI And Introduce Policy, Say Epharma Startups

Healthcare apart, Indian epharma startups have been busy in fighting a number of cases across the country due to the lack of a dedicated policy for the epharma sector.

While the Madras High Court recently lifted the ban from companies selling medicines/drugs online, the Delhi High Court upheld it. Agarwal said, “While there should be relaxation in FDI in epharmacy, recognition of epharmacy under the Drugs & Cosmetics Act is something that the government must look into.”

On FDI, Dadha too is of the same opinion.

With the impending change in the new FDI policy in ecommerce sector, we expect FDI relaxation in the epharma sector as well, he said.

Agarwal added that the GST rate on medicines should be relaxed; according to him, a majority of medicines fall in the 12% bucket.

Tandon of 1mg also demanded a clear policy for inviting FDI in sectors like ecommerce and retail, especially in cases where supply chains need massive investment to be organised and domestic manufacturing contributes to the bulk of the industry, which includes local handicrafts, local handloom/ customer designed apparel and jewellery, food processing & pharmaceuticals.

Budget 2019: Why Healthcare Should Be Prioritised

Besides the populist reason that this is the general election season and healthcare touches the majority of lives in a country, and the above-mentioned demands, there are, in fact, more reasons for the government to increase the budgetary allocation for healthcare.

Take mental health illnesses as example. According to Neerja Birla, founder and chairperson of mobile platform Mpower which addresses mental health issues, most developed countries allocate around 4% of the healthcare budget for mental health, but in India, it’s only around 0.4%.

“We need to take effective measures immediately, else the rising mental health issues will not only adversely affect the quality of life but will also impact the economy, explained Birla. By 2030, the losses to the GDP due to mental health illnesses (lowered productivity, inability to work, absenteeism, etc) will be in the trillions of rupees. “We need to support and supercharge the impact of the positive steps (the Mental Healthcare Act 2017) taken so far with the required funding so that we can actually implement changes, build infrastructure, and make mental healthcare accessible and affordable to every Indian,” she said.

Healthcare, education, and agriculture are the three sectors that touch every Indian life. A number of startups are already disrupting these sectors to come up with innovative solutions to pressing problems. They have made huge progress in terms of both funding and impact.

However, healthcare is a basic need, and it is a billion needs that need to be fulfilled in India. Meeting these needs requires the government’s intervention and special attention in the Budget so the way for healthtech and epharma startups can be paved further.