Center for Health Market Innovations (CHMI)

This blog is a result on a discussion on viability of low cost healthcare technologies with a colleague working in the health technology space. I was narrating an incident from my previous job (working on e-governance) where I happened to come across a proposal on telemedicine to be used for eye care service delivery. Its cost structure made me ponder on its viability in a rural setting. What’s the objective of low cost technologies (equipments and devices)?

• To increase accessibility and affordability of such technologies to base of the pyramid population or to those who cannot afford it.
• To help reduce the burden of a disease.

My question here is why low cost technologies?

Economic logic
We are talking about low cost technologies because it is often seen that the technologies in question, equipment and devices, used currently are costly per investigation or per procedure. This makes the health care inaccessible and unaffordable to the majority. My contention here is, why not use the current technologies and create mechanisms that enable reduction in the prices that the beneficiaries have to pay, per investigation or per procedure.

Per investigation or per procedure charge by the practitioner is a function of capital cost, recurring cost, time to collect payments, number of patient screened or operated, plus something more. What will happen if the charge per investigation or per procedure is reduced?

• Increase in payback period
• Increase in customer volume

The increase in customer volume may neutralize the increase in payback period in charges.

The big question is how can these charges be reduced?

• Voluntarily, the practitioners or owners of diagnostic centres reduce their charges.
• Players consolidate and create a bigger facility or a centre by pooling in resources.
• Government steps in and regulates the charges, which may happen eventually if private players do not reduce charges.

Voluntary reduction of prices will not happen unless and until the link between lowering of prices and increase of traffic is clearly seen. Consolidation requires players to come together and agree on the terms and conditions of consolidation, which again is not that easy. Any Regulation will be opposed and it will be difficult for the government to implement it.

Business logic
Let’s assume the following:

• Low cost equipment will be used in a rural setting
• Difference in cost of low cost equipment and high cost equipment is 3x. Meaning thereby that, if the price of a low cost equipment is Rs. 300,000 (0.3 million) then the price of the high cost equipment is Rs. 9, 00,000 (0.9 million).
• Low cost equipment caters to a population of 100,000 (rural place, focusing on base of the pyramid population) and the high cost equipment caters to a population of 500,000 (located in an urban space).
• Low cost equipment owner charges Rs. 100/ for a procedure or investigation and the owner of the high cost equipment owner charges Rs. 300 per procedure or investigation
• Cost of equipment is the only capital cost
• There is only one low and high cost technology service provider in their respective regions.

Going by the above mentioned assumptions, to recover their capital costs, the owner of low cost equipment owner will break even by doing 3000 procedures/investigation and the high cost equipment owner will break even by doing 3000 procedures/investigations. Even though the number of procedures and investigation to breakeven for both is 3000, but they may differ in the time taken in arriving at the figure of 3,000. The owner of the low cost equipment may take a longer time to recover capital cost, as the population covered by the unit is just 100,000. Number of beneficiaries to break even as a proportion of the total population for the low cost equipment, is 3 percent (3000/100,000) (3 percent of the population) and the similar figure for the owner of the high cost equipment is 0.6 percent (3000/500,000).

This argument will not hold true if the low cost technology owner sets up a shop in an urban space. A low cost technology shop in an urban space will only be able to answer the affordability part and not the accessibility part.

Actions
Probable solutions to creating an environment where services are both accessible and affordable:

• There is a consolidation in the market of high cost technology service providers and use of ICT. Resource pooling will bring down the capital as well as revenue expenditures. The lowered costs will help in bringing down the prices and effective use of ICT will help in increasing the coverage. For example, having a central hub which is connected to different locations through the use ICT.
• Government supporting development of high and low cost healthcare technologies and provide incentive for setting units in rural areas. For example, encouraging manufacturing of medical equipment and devices within the country. Currently most of the equipment and devices are imported.
• Government regulating the market in terms of pricing, locations and standards. For example government starts purchasing services from different players hence ensuring that prices are capped and gives these players an access to a larger market.

The questions that need answers are:

1. Is use of low cost technologies economically viable in rural setting?

2. Will low cost technologies, alone, be able to address the issues of accessibility and affordability?

3. What role should the government play in the healthcare technology space?

4. Should the government intervene in making health care technologies more affordable and accessible? If yes, then how?

5. Do we have enough clinicians and technicians to handle these technologies (low and high cost)?

6. What’s the impact of introduction of new technologies on the overall health care costs?

The solution probably doesn’t lie in a single approach being followed, but in multi-pronged approach, where development of low cost technology is encouraged and supported and simultaneously the current market (high cost healthcare technology) is managed in a way which addresses the issue of accessibility and affordability.