Much like drugs, medical devices and equipment play a key role in the healthcare sector. Widespread availability and easy access to quality medical devices are critical to the country’s goal of universal healthcare. India is currently the fourth largest medical devices market in Asia, after Japan, China and South Korea. This market in the country is expected to grow to US$ 50 billion by 2025. The global medical devices market is likely to grow to a whopping US$ 120 billion by the end of the period, 2018-2022, according to a report by market research firm Technavio.
By Sanjay Jha
With a rapidly expanding healthcare sector, India is today a lucrative market for all global companies manufacturing and selling medical devices and equipment. Most global companies are already selling products in India or are planning to enter the market. Even as the diversity and complexity of the Indian market remains a challenge for distributors, a series of new developments and trends are laying the ground for improved regulatory standards, cost-effective interventions as well as improved supply chain management.
Here are some prominent new trends that are expected to impact medical devices distribution in India in the next few years.
For OEMs, managing distribution networks and sales channels effectively has always been a significant area of concern. Today, many OEMs have devised a strategy of focusing on their core job of developing products, leaving the distribution conundrum to specialist group purchasing organisations. As seen in the US, the complete distribution model is outsourced to a few national distributors, commonly referred to as group purchasing organisations (GPOs). The latter’s expertise and established tiers of distribution make available the medical products to healthcare professionals. ColMed is one such company, which has been at the forefront of this revolution in India. The GPO’s big-dollar investments in quality manpower and sophisticated inventory control systems help local distributors in Tier 2 and Tier 3 cities cater to health centres, by enabling them to procure quality products at affordable prices.
This is a win-win model for all, since OEMs can focus on enhancing product awareness, GPOs can use their expertise in distribution, Tier 2 and Tier 3 distributors can purchase products at low prices in spite of limited buying volumes, and customers get access to a wide array of products at a reasonable price.
Pricing regulations by the government and its implications on distribution
Recognising the need to improve the regulatory standards for medical devices, the Indian government has initiated measures to set up a separate regulatory authority for this sector, which earlier came under the domain of the Central Drugs Control Standards Organisation. The government is planning to set up a Medical Devices Authority (MDA) that will frame Indian regulatory norms for the entire spectrum of medical devices, which till now adhere to FDA (the USA’s Food and Drug Administration) regulations. The government is also working on rules for rationalising the trade margins for medical devices that have been categorised as drugs. In fact, price caps have already been introduced on devices such as stents, reducing the profit margins of hospitals as well as distributors.
All these measures are set to make regulations more stringent for devices, even as price regulations will have an impact on trade margins. Distributors are now trying to work on finding innovative distribution strategies that are more cost effective.
Reducing the quality differentiation
A number of factors have helped bridge the quality gap between the products of MNCs and those of local manufacturers. These factors include an improvement in the quality of Indian manufacturing and the widespread acceptance of locally made products that offer good results at lower costs. The brand choices have reduced brand differentiation, which has helped local OEMs to compete with MNCs.
Though manufacturing remains limited to producing low technology products, a few domestic companies and MNCs with manufacturing facilities in India have successfully developed low cost products that are on par, in terms of quality, with existing products that require complex technical know-how to manufacture. These products have succeeded in developing a niche market in many regions globally. For example, Indian manufactured heart valves have found new export markets in Myanmar, Kenya and Thailand. This has helped medical devices exports register strong growth.
Improved supply chain management using artificial intelligence and machine learning: Supply chain management is often a highly under-rated part of an efficient distribution network. A report by an American healthcare supply chain management company concluded that improving this can enable health systems to reduce their supply expenses by an average of 17.7 per cent, equivalent to US$ 11 million annually, per hospital.
The growing realisation that sound supply chain management practices need to be put in place has led distributors to turn to sophisticated technologies like artificial intelligence (AI) and machine learning. These can leverage Big Data and help standardise processes. This, in turn, results in better predictability and optimisation of supplies and reduced wastage and expenses. AI based algorithms that use vast data for predictive analysis have proved to be particularly useful in supply chain applications. Similarly, a McKinsey study found that using AI to enhance supply chain management could cut forecasting errors by 20 per cent to 50 per cent.
As the distribution of medical devices and consumables moves towards optimisation of resources, AI based applications are set to become a norm in supply chain management practices.
Greater consolidation of businesses and the growing role of private equity players
A rapidly growing healthcare distribution business has caught the attention of private equity players who have turned towards investing in medical distribution businesses. This will result in the greater standardisation of practices and the inflow of more expertise to the sector. Apart from the entry of more private equity players, a greater consolidation of businesses also seems to be on the cards. Globally, pharmaceutical and devices distribution have consolidated to a large extent. However, in India, this remains largely fragmented. A series of acquisitions and mergers are already underway in the sector and the trend is likely to continue. As we move towards greater consolidation, this will also result in better supply chain management practices and improved use of the latest technology.
Sanjay Jha is currently a director at Collateral Medical (Colmed). Colmed is one of the leading medical device, instrument, consumable and disposable marketing and distribution companies in India. Jha is an experienced entrepreneur in the medical device industry, and has a keen interest in improving the quality and lowering the cost of healthcare.