Drug prices: Apollo Hospitals’ Suneeta Reddy wants Center to allow flexibility to charge high end customers more

Financial Express, Vikas Srivastava, September 21, 2017

Even as the government tries to bring prices of essential medical equipment such as stents and knee caps to make them affordable, Suneeta Reddy, managing director of Apollo Hospitals, in an interview with Vikas Srivastava said it is high time the government allows flexibility in pricing for high-end customers to prevent flight of forex and talent from India. Excerpts:

Medical tourism in India lags south-east Asia. How is Apollo looking at the opportunity?

At present, 15% of our total revenue comes from medical tourism. The margin is higher since foreign patients have capacity to pay. However, there is a strong case for India to build on this, since countries such as Thailand and the UK have outpriced themselves. We are 1/10th of the clinical outcomes, which is key, and we have GCI-accredited hospitals. So clearly, the value proposition is highest for India. The only market we have lost is Pakistan. But beyond that, we have potential to build it into the CIS, the West Asia and and Africa.

What kind of government support would be required to accelerate it?

The government will have to be an enabler. If you go to Thailand, there is a separate visa for medical tourists. It’s not a welcoming atmosphere when local police come and ask questions at local immigration. So what the government can do is to make it more welcoming. So where an average tourist spends $2,000, a health tourist will spend around $20,000. Hence, the value creation will be tremendous. Investments required to match the average global parameters in healthcare is around Rs 14 lakh crore — just for the number of beds per 10,000 people. From where can we expect that to come? There is a shortage of 7 lakh beds that would require an investment of $75 billion. Clearly, there is a huge gap. So far, we have got FDI and private equity money. But, the government needs to realise a lot of it is going into acquisitions. We need fresh greenfield creation of capacity. Other than Apollo, not many players are making greenfield investments. We are doing a sustainable value creation for investors and patients. The investments are likely to come from private sector, but for that, we need to create return on capital employed, keep patients happy and keep doctors happy.

We need to maintain uncompromising quality and create a sustainable business model. Yet, the government is going ahead and saying that we are making lots of money on stent and knee replacements. We do these at much lower opex compared with government hospitals. We want to move to the next level. We want to give you a 3D knee replacement, we are doing laproscopic heart surgeries through robotics and we want to offer you that. In order to do that, we need some amount of flexibility in pricing. Keeping stent prices lower for a certain portion of population is good, but let there be free choice so that quality moves up the ladder. We should not shut the door to research and business. We want to stop Indians from going abroad for medical purposes. Today, people are spending $35 billion on education abroad. For health, it would have easily been $50 billion. If we do not provide that now, straight away it will go. It will be flight of quality talent and forex as well.

Your return on capital employed has dropped in the last few years. Why? How soon do we see it increasing?

That is largely due to high capex. We have created 30% capacity, close to 3,000 beds in three years. Since we have created a larger balance sheet, it will take another 2-3 years for revenues and the cash flows to come in so that ROCE is back on track. It is expected to flow in next year.

Link :

http://www.financialexpress.com/industry/drug-prices-apollo-hospitals-suneeta-reddy-wants-center-to-allow-flexibility-to-charge-high-end-customers-more/863955/