Finance Minister Pranab Mukherjee presented his budget for 2011-12 today. The first reactions are that this is a neutral budget with Government's statement on reining in the fiscal deficit in a structured way to 3.5% of GDP by 2013-2014 , reforms in the financial sector and incentives for agro-processing and storages being the highlights
Budget 2011 has been largely disappointing for the healthcare sector. Their main expectation of infrastructure status for healthcare has not been granted by the Government though other sectors like cold chains and capital investments in fertilizer have. Here are the highs and lows of Budget 2011 for the healthcare sector
The Highs
Outlay for healthcare sector has been increased by 20% from Rs. 22,300 Crore in 2010-11 to Rs. 26,760 Crores
Coverage under Rashtriya Swasthya Bima Yojana (Government's health insurance scheme for below poverty line families) has been enhanced to include unorganized sector in hazardous mining and associated industries like hazardous mining and associated industries like slate and slate pencil, dolomite, mica and asbestos etc
Weighted deduction on payments made to National Laboratories, Universities and Institutes of Technology have been increased from 175% to 200% - weighted deduction for in-house R&D however continues to remain at 125%. This is a marginal plus for the pharma and medical devices sector
Reduction in customs duty and counter-vailing duty on raw materials for syringes and needles to 5% and 4% respectively : this is an incentive for domestic manufacturers
Reduction in import duty on lacto used in homeopathic medicines from 25% to 10% - this will bring down the cost of homeopathic medicines but given the small share of alternate systems of medicine it is expected to have a marginal impact in total
Simplification of procedures through outright concession to factory-built ambulances in place of the existing refund-based concession from excise duty
Reducing the corporate tax from 7.5% to 5% : positive impact on all corporates including those in healthcare
The Lows
Enhancing the scope of service tax to payments made by individuals also - this will increase the cost of healthcare for all notwithstanding the 50% abatement
Including diagnostic services within the ambit of service tax - modern healthcare is heavily dependent on diagnostics and cost of healthcare is expected to rise as a result of this move. This is also a disincentive for preventive healthcare services which leverage diagnostics in a big way
Increase of minimum excise duty from 4% to 5% : pharma companies who had their products in the 4% rate will be affected and may raise the cost of medicines
Increase of MAT from 18% to 18.5% of book profits which affects all organizations especially those in the healthcare sector which do not have profit after tax
Inclusion of units operating in SEZs under the scope of MAT may affect pharma and medical devices units set up in SEZs
Other initiatives
Proposal on Comprehensive Policy on PPPs for use by Central and State Governments - many state governments have initiated PPP projects in healthcare but have met with limited success. A comprehensive PPP policy is the need of the hour and was one of the major points highlighted by PwC in its Expectations from the Budget. Successful examples from countries like South Africa which have successfully implemented PPPs especially in the healthcare sector can be leveraged in developing this policy
National Innovation Council has been set up under Sam Pitroda. The process of setting up State Innovation Councils in each State and Sectoral Innovation Councils aligned to Central Ministries is
underway - this can spur innovation in healthcare, pharma, biotech and medical devices industries
Monday, February 28, 2011
Friday, April 2, 2010
Healthcare : Privilege, Right or Responsibility
The US Healthcare Reform Bill has finally been signed into law. This marks a major milestone in the journey towards universal coverage in the United States which remains the only developed country not to have a universal health coverage for its citizens. This is also the first major healthcare reform in the United States in the last four decades. The Democratic Leadership in the Congress and President Obama have called this a historic step transferring healthcare from the status of a privilege which only people with sufficient means could aspire for to the status of a right with penalties for non-conformance. How this reform pans out in the years ahead remains to be seen
Back home in India, Assam has become the first state in India to enact a Right to Health Bill. The Public Health Bill 2010 mandates that public and private hospitals to provide care for the first 24 hours for a patient on free of cost basis. The Bill also puts the onus on the State Health and Family Welfare Department to carry out tasks related to coordination with other departments concerned and providing people with minimum nutritionally adequate essential food, adequate supply of safe drinking water, sanitation through appropriate and effective sewage and drainage systems and access to basic housing facilities. This Right to Health Bill is the latest in a series of "Rights" Bills enacted by the UPA Government - the Right to Information Act, the National Rural Employment Guarantee Act (Right to Work), Right to Education as well as the "Right to Food" which is now being debated by the Empowered Group of Ministers.
With every Right however comes Responsibility . As we applaud Assam for making Healthcare a Right, it is also the most opportune time to reflect on our responsibilities. Many of the diseases affecting the Indian population - diabetes, cardiac disease, stroke, cancer, HIV have a significant behavioural component to them. Unless behaviours are modified by the individuals, India will continue to bear the title of Diabetes Capital of the World, Heart Disease Capital of the World etc. Enhancing the scope of healthcare from care for the sick to a more holistic preventive and wellness based approach is the need of the hour
Back home in India, Assam has become the first state in India to enact a Right to Health Bill. The Public Health Bill 2010 mandates that public and private hospitals to provide care for the first 24 hours for a patient on free of cost basis. The Bill also puts the onus on the State Health and Family Welfare Department to carry out tasks related to coordination with other departments concerned and providing people with minimum nutritionally adequate essential food, adequate supply of safe drinking water, sanitation through appropriate and effective sewage and drainage systems and access to basic housing facilities. This Right to Health Bill is the latest in a series of "Rights" Bills enacted by the UPA Government - the Right to Information Act, the National Rural Employment Guarantee Act (Right to Work), Right to Education as well as the "Right to Food" which is now being debated by the Empowered Group of Ministers.
With every Right however comes Responsibility . As we applaud Assam for making Healthcare a Right, it is also the most opportune time to reflect on our responsibilities. Many of the diseases affecting the Indian population - diabetes, cardiac disease, stroke, cancer, HIV have a significant behavioural component to them. Unless behaviours are modified by the individuals, India will continue to bear the title of Diabetes Capital of the World, Heart Disease Capital of the World etc. Enhancing the scope of healthcare from care for the sick to a more holistic preventive and wellness based approach is the need of the hour
Friday, March 5, 2010
Healthcare Inflation – A forgotten issue
The Budget Session of Parliament has been dominated by discussions on the price rise especially of food items. The Government of India has announced that it would resort to food imports to reduce the impact of lower production of food grains due to the failed South West Monsoon in 2009. The RBI Governor has already increased the Cash Reserve Ratio by 75 basis points. He has also left open the possibility of an interest rate before the Annual Credit Policy in April 2010. Political parties have also been forceful in highlighting their concerns on price rise and the impact that rising food prices have on the common man.
While the debate on rising prices especially food prices rages on, there is hardly any discussion on the rising healthcare costs. Studies conducted by the National Commission on Macroeconomics in Health show that the healthcare costs rose by 14% year on year over a ten year period from 1996 to 2005. The projected increase for the period 2006 to 2008 is also in the region of 13% per annum.
Increase in healthcare costs is indeed inevitable considering the following
- Continued economic growth leading to increasing disposable incomes
- Increasing penetration of private health insurance
- Increased Government spending on healthcare
- Introduction of newer and more expensive medical technologies
- Increase in wages for healthcare professionals
A recent Mckinsey study conducted in all OECD countries shows that over a 30 year period, healthcare inflation has outpaced economic growth by 2 % . In India with a average economic growth of 7% over the past five years, the healthcare cost increase of 14% is indeed worrying. What is even more a cause for concern is a lack of debate on rising healthcare costs – will this issue ever be discussed in Parliament ? Only time will tell!
The only real way overall healthcare costs can be brought down is to invest in prevention rather than cure – provide the population with incentives to improve their overall health. The Finance Minister in the recent budget has included preventive health checks within the ambit of the service tax net – a retrograde step without doubt !
While the debate on rising prices especially food prices rages on, there is hardly any discussion on the rising healthcare costs. Studies conducted by the National Commission on Macroeconomics in Health show that the healthcare costs rose by 14% year on year over a ten year period from 1996 to 2005. The projected increase for the period 2006 to 2008 is also in the region of 13% per annum.
Increase in healthcare costs is indeed inevitable considering the following
- Continued economic growth leading to increasing disposable incomes
- Increasing penetration of private health insurance
- Increased Government spending on healthcare
- Introduction of newer and more expensive medical technologies
- Increase in wages for healthcare professionals
A recent Mckinsey study conducted in all OECD countries shows that over a 30 year period, healthcare inflation has outpaced economic growth by 2 % . In India with a average economic growth of 7% over the past five years, the healthcare cost increase of 14% is indeed worrying. What is even more a cause for concern is a lack of debate on rising healthcare costs – will this issue ever be discussed in Parliament ? Only time will tell!
The only real way overall healthcare costs can be brought down is to invest in prevention rather than cure – provide the population with incentives to improve their overall health. The Finance Minister in the recent budget has included preventive health checks within the ambit of the service tax net – a retrograde step without doubt !
Friday, February 26, 2010
Budget 2010 : Health Sector Perspectives
Mr. Pranab Mukherjee presented the budget for 2010-11 today. The budget has generally been welcomed by industry for being growth oriented. The stock market has also given the budget a thumbs-up with a modest 1.3% increase in line with the average increase in Budget days in the previous ten years. Increase in fuel prices which may have an inflationary impact and increase in Minimum Alternate Tax from 15% to 18% are the discordant notes in a otherwise positive budget.
So what are the implications of Budget 2010 for the Health Sector - here is a summary
Public Health
Increase in allocation for Ministry of Health and Family Welfare from Rs.19,535 Crores to Rs. 22,300 Crores marking an increase of 14% from previous budget is a welcome development. The increase has been in line with increase in outlays in previous budgets
Pharmaceuticals
Increase in the limit for weighted deduction for expenditure incurred on in-house R&D from 150% to 200% should incentivize increased R&D spending
Medical Equipment
Removal of multiple slabs for import duties on medical equipment is a welcome development. All medical equipment are now to be subject to a uniform 5% basic customs duty and 4% countervailing duty and complete exemption from special additional duty. Spares and accessories for manufacture of equipment will attract 5% duty with no countervailing duty and no special additional duty. Medical equipment industry will grow faster under this simplified duty structure. End user prices of some medical devices and equipment could also fall as a result of simplification of import duties
Existing duty exemptions for assistive and rehabilitative devices will be retained.
Import duty exemption on specified materials for orthopaedic implants will remove an anomaly and should reduce the end user price of the implants
Health Insurance
Expanded coverage for Rashtriya Swasthya Bima Yojana to include all families which are part of NREGA and performed at least 15 days work in FY 2010 is welcome as catastrophic medical expenses are a significant cause for poverty in India
Contributions to Central Government Health Scheme will be treated similar to other health insurance schemes for income tax purposes under Section 80D
The Disappointments
Private Healthcare Providers would however rue the fact that their repeated demands for infrastructure / priority sector status has not been granted by the Finance Minister. Requests for extensions of the time period for Tax Holidays for healthcare investments in Tier II and Tier III cities has also not been granted
In the balance a good budget for the healthcare sector !
So what are the implications of Budget 2010 for the Health Sector - here is a summary
Public Health
Increase in allocation for Ministry of Health and Family Welfare from Rs.19,535 Crores to Rs. 22,300 Crores marking an increase of 14% from previous budget is a welcome development. The increase has been in line with increase in outlays in previous budgets
Pharmaceuticals
Increase in the limit for weighted deduction for expenditure incurred on in-house R&D from 150% to 200% should incentivize increased R&D spending
Medical Equipment
Removal of multiple slabs for import duties on medical equipment is a welcome development. All medical equipment are now to be subject to a uniform 5% basic customs duty and 4% countervailing duty and complete exemption from special additional duty. Spares and accessories for manufacture of equipment will attract 5% duty with no countervailing duty and no special additional duty. Medical equipment industry will grow faster under this simplified duty structure. End user prices of some medical devices and equipment could also fall as a result of simplification of import duties
Existing duty exemptions for assistive and rehabilitative devices will be retained.
Import duty exemption on specified materials for orthopaedic implants will remove an anomaly and should reduce the end user price of the implants
Health Insurance
Expanded coverage for Rashtriya Swasthya Bima Yojana to include all families which are part of NREGA and performed at least 15 days work in FY 2010 is welcome as catastrophic medical expenses are a significant cause for poverty in India
Contributions to Central Government Health Scheme will be treated similar to other health insurance schemes for income tax purposes under Section 80D
The Disappointments
Private Healthcare Providers would however rue the fact that their repeated demands for infrastructure / priority sector status has not been granted by the Finance Minister. Requests for extensions of the time period for Tax Holidays for healthcare investments in Tier II and Tier III cities has also not been granted
In the balance a good budget for the healthcare sector !
Tuesday, February 23, 2010
Budget 2010 : Great Expectations
Its Budget Time in India this week with the Railway Budget scheduled for presentation on February 24 and the Annual Budget on February 26 - it is also the time for great expectations from all sections of society and the healthcare ecosystem is no exception !
On the Public Health front, there is pressure on the Finance Minister to enhance the outlay for the National Rural Health Mission (NRHM). There is also talk of the need to expand the coverage under the NRHM to all states in India from the existing 18 states with poor health indicators. There is also talk of the need to expand the Health Mission to urban areas as well to create a National Universal Health Mission
The Private Healthcare Providers have been clamouring for an "industry" or "priority sector" status to healthcare. There are requests for increasing the duration of tax holiday for healthcare investments in Tier II and Tier III cities first introduced in Budget 2008 from the existing 5 years to 10 years to make healthcare projects more viable
The Pharma industry has been requesting for tax incentives towards expenditure incurred on R&D as well as inclusion of costs associated with activities like clinical trials, product filing, registration under the ambit of "R&D" activities. Simplifying transfer pricing and inclusion of more drugs under the category of life saving drugs have also been requests from the pharma industry
The Medical Equipment industry would like to see an impetus to indigenous manufacture and withdrawal of the perverse incentives which have prevented the growth of the domestic medical equipment manufacture.
There are also expectations that limits for medical expenditure allowed for tax purposes will be increased from the Rs. 15000 level that was fixed a decade ago.
Tempering all these expectations is the hard reality of a burgeoning fiscal deficit which at 6.8% of GDP is way above the target value of 3% for 2009-10 defined under the Fiscal Responsility and Budget Management Act.
Budget preparation is a tough balancing act even in the best of economic environments - more so under the current challenging times
How will Pranab-da respond ? We'll come to know on 26th February !
On the Public Health front, there is pressure on the Finance Minister to enhance the outlay for the National Rural Health Mission (NRHM). There is also talk of the need to expand the coverage under the NRHM to all states in India from the existing 18 states with poor health indicators. There is also talk of the need to expand the Health Mission to urban areas as well to create a National Universal Health Mission
The Private Healthcare Providers have been clamouring for an "industry" or "priority sector" status to healthcare. There are requests for increasing the duration of tax holiday for healthcare investments in Tier II and Tier III cities first introduced in Budget 2008 from the existing 5 years to 10 years to make healthcare projects more viable
The Pharma industry has been requesting for tax incentives towards expenditure incurred on R&D as well as inclusion of costs associated with activities like clinical trials, product filing, registration under the ambit of "R&D" activities. Simplifying transfer pricing and inclusion of more drugs under the category of life saving drugs have also been requests from the pharma industry
The Medical Equipment industry would like to see an impetus to indigenous manufacture and withdrawal of the perverse incentives which have prevented the growth of the domestic medical equipment manufacture.
There are also expectations that limits for medical expenditure allowed for tax purposes will be increased from the Rs. 15000 level that was fixed a decade ago.
Tempering all these expectations is the hard reality of a burgeoning fiscal deficit which at 6.8% of GDP is way above the target value of 3% for 2009-10 defined under the Fiscal Responsility and Budget Management Act.
Budget preparation is a tough balancing act even in the best of economic environments - more so under the current challenging times
How will Pranab-da respond ? We'll come to know on 26th February !
Tee-off
Healthcare is one of the fastest growing sectors in India today. Buoyed by a growing economy and enhanced disposable incomes , demand for healthcare services has been growing steadily over the past few years. New corporate hospitals have sprung up all over India offering the latest in diagnosis and therapy. Public investments in healthcare have also shown an increase after years of sub-optimal funding. These are exciting times for the Healthcare Industry in India - this blog is my take on the challenges and solutions for Indian Healthcare
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