One of the earliest chain of diagnostic and preventive care laboratories, Thyrocare, has a presence in and around 2,000 locations in India and overseas. This listed company focuses on providing services at consistently more affordable rates. A Velumani, founder and CMD, discusses sectoral growth, disruption pricing and other matters in a chat with Pankaj Joshi.
How important is volume for a diagnostic centre?
Volume changes all the equations. Let us for instance take thyroid testing. If I were to do only 10 test cases a day, I would price it at Rs 90. When the number goes to 100 tests, I can price at Rs 70. If it were 1,000, the rate would be Rs 50, and that would drop further to Rs 30 for 10,000 tests per day. I can afford to price tests at Rs 20 if I were to be sure of 1,00,000 tests a day.
This is the magic of volumes, because you can see my revenue going up from Rs 900 to Rs 7,000 to Rs 50,000 to Rs 3 lakh and to Rs 20 lakh. In fact, some of the tests in the medical spectrum are still more economical on volumes. When you double the work quantum, there would be a price cut of 10 per cent and at 10x volumes, the cost would be 25 per cent of the original figure.
There if you again do 10x from that base and again bring down the cost similarly, you can see there is a reasonable case for the rate at that volume being 10 per cent of the original rate, or perhaps lesser. In any activity which has high capital outlay, a good amount of standing costs and very little variable cost per case, such disruption is eminently possible.
What then is the barrier in making diagnostic testing a mass-market product?
There are 500 tests on a laboratory menu and the common man, who pays for them, needs a doctor for guidance on which ones to undertake. Not all the tests are over the counter (OTC) – only a few are, like thyroid, blood sugar, diabetes detection and Vitamin D.
Daily test volume in India would be 1.5 crore and 50 per cent would be the OTC variety. In case of daily test volume, blood sugar would be 15 lakh and thyroid would be around 7.5 lakh, wherein we have a share of 3 lakh. Compare this with telecom which is a common man’s consumable product, free of technical considerations and a pull market essentially. This is because people like to talk and now use data too. That is what brings cost down from Rupee 1 per second to now less than a paise per second.
When you compare this with telecom, you understand that telecom is a regulated market, which has entry barriers of licences and capital outlay. There are a handful of players, the regulator is active and much inclined to watch interests of consumers. All this makes players competitive and under regulatory control. In diagnostics, the entry barriers are negligible, there is no regulatory body and self-regulation is about as successful as it is in any other sector.
What is your view on price as an element in itself and in the context of healthcare?
Price can be viewed in the context of inflation, which is a constant factor. Then the business which does not increase its prices is actually doing a CSR activity to that extent. We have not increased our cost in 23 years – and still are making profit on volumes.
A business can make money either from customers or vendors, not both. Vendors is the route which gives you great and sustained profits, but vendors don’t heed you till you have volumes. Then of course they have little choice but to give good rates.
If India has remained the cheapest in healthcare, that is only because of the volumes. It is our population which makes us the diabetes capital of the world, not the incidence of cases per million people. Incidentally, I have found a positive correlation between fuel consumption in an economy and diabetes cases, as also between the cars on the road and heart attack cases.
For healthcare to grow more, our government must not be active in providing services. Its job is to ask for tenders, fix prices which reflect market size, and then monitor cost and quality of the service offering. In health insurance sector again, only 4 per cent are insured and if this is 40 per cent, the premium rates would crash.
Ideally, in our sector there must be entry barriers. Fewer and large-scale players, which would maintain quality and enable cost control, should be allowed. Today our sector has 2 per cent of facilities of standard quality, whereas in pharma 90 per cent is standardised.
With entry barriers, players are assured volumes and cost control becomes easier. Today, if there are 20 vital tests and a player is assured of bulk volumes like say a crore cases a year, these could be done probably at a package deal of Rs 300. In this Rs 300 crore revenue, the gross profit would be Rs 100 crore and even after manpower and other costs, there would be a clean profit of Rs 60 crore or 20 per cent.
Given India’s large population, a crore cases for one player does not make for a monopolistic situation and yet enables the player to give affordable price. A crore cases can happen quickly when you have camps in societies for instance.
We have 3,000 collection centres and a presence in each state. We can link test results with Aadhaar card, put it up on cloud for access and accelerate initiatives like the Ayushman Bharat programme. Today Ayushman Bharat focuses less on diagnostics and wellness, which is why it is not a well-rounded scheme.
What is your view on succession at Thyrocare?
The journey so far has been very satisfactory. On the succession matter, in a listed company, you know what is required. A professional CEO is an option and if I can identify one myself in my work tenure, it would be better. My children also are capable to take the business forward.
However it is seen that the next generation beyond the original founder, be it children or CEOs, have a struggle to match up to the original vision. Healthcare in India is bound to grow and that will fairly assure a level of progress for the company. Beyond that, adaptability to changing environments will be the key.