Modicare: Impact on India’s Pharma and

Medtech Markets
A brief by The Economist Intelligence Unit
MODICARE
IMPACT ON INDIA’S PHARMA AND MEDTECH MARKETS

Modicare: Impact on India’s Pharma and

Medtech Markets

A ccording to India’s prime minister, Narendra Modi’s speech to mark the country’s Independence
Day on August 15, the government will begin rolling out the National Health Protection Scheme
(NHPS) – also dubbed Modicare and known in Hindi as Ayushman Bharat, on September 25. The state-
provided healthcare insurance will provide coverage of up to Rs500,000 (US$7,423) annually for poor
families, for almost all secondary hospitalisations and many tertiary hospitalisations at both public
and private hospitals. 500m people from poor families – nearly 40% of India’s population stand to
benefit from the scheme. If successful, the scheme will have a major impact on lowering out-of-pocket
healthcare expenditures, and increase access to healthcare for India’s poor.

Will Modicare take off?

The government will face two key challenges implementing the policy. The first will be its cost. Earlier
official estimates suggested that the scheme would cost about Rs167bn (US$2.5bn) in its first two years,
with the central government providing 63% of the funds. On this estimate, costs would be manageable,
provided the government overcomes the bureaucratic inefficiency and corruption that afflicts
healthcare spending in the country. But some independent estimates have place the cost much higher.
The second challenge will be implementing such a complex programme cohesively and evenly
across the country to be of significant impact. The challenge will come from implementation on two
levels – across the different states and the country's hospital system. In recent years, India has been
giving more fiscal autonomy to its 29 states, which already have the subject of health under their
legislative control. Only 15 states are participating in Rashtriya Swasthya Bima Yojana (RSBY), a health
scheme that the NHPS will subsume, with the other states implementing their own health insurance
schemes. Similarly, states will get the say in whether they join NHPS.
The government is likely to struggle to incentivise hospitals – especially private ones, to engage
with the NHPS. The Economist Intelligence Unit (EIU) Healthcare estimates that almost 70% of
India’s hospitals are privately owned and managed, and exist alongside underfunded public facilities
– therefore making them critical for delivering care under the scheme. The participation of private
hospitals in the scheme will be conditional upon whether the government revises its earlier proposed
reimbursement rates for some 1,350 medical procedures covered under the scheme to satisfactory
levels. Earlier in May, around 2,000 private hospitals reportedly rejected participation in the scheme
citing reimbursement rates of as low as 15% of the actual costs of medical procedures. For Modicare
to take off, India will need a supply a boost in the supply of affordable private healthcare, especially in
lower-tier cities and rural areas.

1 © The Economist Intelligence Unit Limited 2018

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IMPACT ON INDIA’S PHARMA AND MEDTECH MARKETS

Finding a sustainable model for private hospitals under

Modicare.
Getting the more expensive, for-profit hospitals concentrated in major Indian cities to serve affluent
and middle class patients – the dominant private hospital type, to expand to lower tier cities will
require more persuasion. India might have to rely on non-profit private hospitals like Nahar Hospital
to deliver the scheme. The multi-specialty hospital is funded by the charitable arm of a Mumbai-based
industrial conglomerate, Nahar Group, and sets itself to provide affordable healthcare to underserved
patients in Bhinmal and southern Rajasthan region. EIU Healthcare estimates such non-profit hospitals
contribute to roughly 20% of India’s total bed capacity in private healthcare.

2 © The Economist Intelligence Unit Limited 2018

What
MODICAREModicare or the National Health Protection
IMPACT ON INDIA’S PHARMA AND MEDTECH MARKETS
Scheme (NHPS) will cover

Rs500,000 ~500m
(US$7,423) Individuals from poor
families in India
Annual coverage

Almost all Many tertiary Expenses at Expenses at

secondary hospitalisations public hospitals private hospitals
hospitalisations

What challenges will the government face in

implementing NHPS?

Cost Buy-in at state level Hospital empanelment

Where can pharma and medtech companies

find opportunities?
Drug or device
propositions
that emphasise
value and
Lower-tier cities and Private hospital quality over
rural areas in India channels cost
3 © The Economist Intelligence Unit Limited 2018
MODICARE
IMPACT ON INDIA’S PHARMA AND MEDTECH MARKETS

Expansion of market coverage for pharma companies

If Modicare takes off, pharma companies will be able to find more opportunities at private hospitals in
India’s lower tier cities and rural areas. Companies will need to scale up their activities and sales force to
make entry into these underpenetrated areas through hospital channels.
Despite the issue of drug prices at private hospitals having come under attention recently, the
government has no plans so far to mandate prescription of generic drugs under the scheme, which
account for three-quarters of the Indian market by volume, to lower costs of the scheme.

Medtech companies will need to emphasise the need for

quality care under Modicare
Similarly, medtech companies will have more opportunities in lower tier cities and rural areas if
Modicare takes off. To expand, it will be critical for medtech companies to manage their prices and
value messages well.
High costs of medtech related expenditure at private hospitals are even more apparent than drugs.
Based on patient bills at private hospitals the National Pharmaceutical Pricing Authority (NPPA)
looked into, the share of the bill attributed to services and goods related to medical devices including
consumables, is about 50% more than drug costs. The expenditure on consumables alone was more
than twice the expenditure on essential medicines.
There are concerns that the low reimbursement rates for specific procedures might drive some
hospitals to prioritise costs over quality when making purchasing decisions on medical devices.
Medtech companies will increasingly need to emphasise the need for quality healthcare, when it comes
to improving the affordability and accessibility of healthcare under the scheme.

4 © The Economist Intelligence Unit Limited 2018

MODICARE
IMPACT ON INDIA’S PHARMA AND MEDTECH MARKETS

About the authors

Ivy Teh
Global Managing Director, EIU Healthcare
Managing Director, Clearstate
ivy.teh@clearstate.com

Melissa Lim
Manager, Thought Leadership
melissa.lim@clearstate.com

If you would like to discuss this report, please contact the authors.

5 © The Economist Intelligence Unit Limited 2018

About EIU Healthcare

Part of The Economist Group, EIU Healthcare delivers world-renowned analytical and strategic
advisory services, providing businesses and institutions with unparallelled custom insights and
strategies, evidence-based solutions and robust health data analytics on all areas of the global
healthcare industry. Our specialised practices comprising Health Policy & Clinical Evidence, MedTech &
Life Sciences and Pharmaceuticals, in addition to our Data Solutions offering, ensures we provide our
clients with focused expertise to support their business and commercial decisions.

Find out more at www.eiu.com/healthcare

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