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budget 2017

Pre-Budget Recommendations Industry Request Summary

Mr.-Anjan-Bose,-Secretary-General,-NATHEALTH

BACKGROUND

The Indian healthcare system (public and private) has developed over the last several decades. Flagship public health programs (e.g. National Health Mission, RSBY) have helped in improving several key health indicators (such as maternal mortality rate (MMR), infant mortality rate (IMR), total fertility rate (TFR), institutional deliveries, polio eradication). Similarly, private healthcare has brought best in class healthcare services to the country by creating state of the art infrastructure, quality clinical processes and efficient administrative systems.

However, given the vast population in India, much is still left to be done towards achieving our goal of universal healthcare coverage.  A quick glance at some facts will illustrate the fact that we have a huge existing demand supply gap in almost all areas of health care and this gap is only going to further increase unless properly addressed.

SALIENT FACTS

  • India has 1.3 beds per 1,000 populations whereas the WHO guideline is 3.5 beds per 1,000 population
  • India has ~0.65 doctors per 1,000 population; this is much lower than the WHO benchmark of 2.5 physicians per 1,000 population – Again 80% of this workforce is in urban areas serving ~30% of the population. Similar numbers exist for other healthcare workers like nurses, paramedics etc.)
  • India has made improvements in achieving Millennium Development Goals (MDGs) but falls short of targets of IMR, MMR, TFR. India still has 212 maternal deaths per one lakh live births and 46 infant deaths per 1000 live births due to improper healthcare and malnutrition
  • In addition to communicable diseases, the burden of non-communicable diseases is rising tremendously. India is already the diabetes capital of the world with over 60 million diabetics; cardiac diseases are the highest causes of death and are now growing at a higher rate for the working population (between 25 and 69), and cancer is becoming a leading disease with close to ~1.2 lakhs new cancer patients with a survival rate of only ~20%-30%
  • In terms of financing, less than 25% of the Indian population has access to any form of health insurance and a vast majority of this population is underinsured since most of the schemes provide in-patient benefits with very limited sum insured coverage which is inadequate to cover complex and chronic diseases

The private sector has been instrumental in providing healthcare services, with 80% of all out-patients, 60% of all inpatient care being handled by the private sector. It is estimated that the private sector currently has 68% of total hospital beds and has contributed over 80% of new bed additions in the last 10 years. Though the Government has huge plans of increasing spending on Healthcare, the role of private players cannot be underestimated going forward.

Healthcare services should also be viewed from the perspectives of Access/Availability, Affordability and Quality.

  • Access/availability issues are driven from acute shortage of facilities, beds, healthcare personnel, and lack of funds to invest in these
  • Affordability is driven by low income levels, extremely low health insurance coverage and relatively high cost of healthcare delivery(high cost of both setting up of new facilities and as well as high cost of running healthcare facilities)
  • Quality is impacted by the lack of availability of adequate infrastructure, human resources, and technology. Large gaps exist in skill levels, supply of qualified healthcare practitioners (doctors, nurses, and paramedical staff), adherence to standard treatment protocols, patient centric administrative processes and provision of medically requisite diagnostics and treatment advice.

The root cause of these issues is the relatively high cost (financial, capital, operational, technology etc.) of providing healthcare services, which results in long payback periods, thus limiting investment appetite of players in the healthcare value chain. This is exacerbated by limited insurance coverage, and thus inability for the healthcare buyer to pay for services.

Based on above, NATHEALTH has classified its recommendations to the Ministry of Finance for consideration as part of the Union Budget to be presented in 2014, into the following categories:

  • Lower the cost of setting up healthcare facilities
  • Lower the cost of running healthcare facilities and increasing their efficiency
  • Healthcare financing – augmenting ability to pay for healthcare (including insurance)
  • Encouraging quality and innovation
  • Other strategic recommendations

These proposals represent inputs and recommendations from a comprehensive range of players in the entire healthcare value chain.

RECOMMENDATIONS

LOWER THE COST OF SETTING UP FACILITIES

  1. Urgently finalize details of guidelines, scope and provisions under granted infrastructure status to the healthcare sector

It is commendable that the Government of India agreed to the long pending demand of granting infrastructure status to the healthcare industry. Healthcare was added to the harmonized list in March, 2012. This was announced by the Ministry of Finance in March 2012 and via several circulars Subsequently. However, the detailed modalities of how the healthcare industry can benefit from this addition still need to be worked out. We seek these additional details urgently so that the healthcare industry can actually benefit from being accorded infrastructure status. Finalizing these details would help in

  • Ability to raise lower cost funds: RBI’s recognition of infrastructure status would enable fund raising through infrastructure bonds and via other agencies at lower rates
  • Access to government and infrastructure oriented funding (from agencies such as IIFCL, IL&FS, Rural Infrastructure Development Fund)

NATHEALTH will be happy to work with the Government in supporting the task of detailing these guidelines.

   2.   Provide corporate income tax incentives on capital expenditure for facilities (greenfield hospitals) with 50 beds (this is currently allowed only for hospitals with 100 beds and above)

Extending benefits to smaller facilities will encourage set up of more much needed healthcare facilities in tier 2, 3, and 4 areas

3.  Increase the tax holiday for establishing healthcare facilities from the current period of five years to ten years in non-metros (this should apply to hospitals with a minimum of 50 beds ) for enhancing geographical access

Given the long payback period, extension of the tax holiday to ten years instead of five will improve the business case for investment. The lack of skilled healthcare resources in non-metros and tier 2/3/4 areas makes the payback period even longer

4.  The depreciation rate applicable on medical and pathological equipment and medical devices should be increased from 15 per cent to 30 per cent

Rapid technology advances are being made in medical equipment and devices and these become obsolete at a rate much higher than the current rates of depreciation. In order to recognize the impact of evolving technology, depreciation rates on medical and pathological equipment should be raised to 30%

5.  Set up a healthcare infrastructure fund and a medical innovation fund

Access to funding by creating a specific fund for healthcare infrastructure and innovation would facilitate access to capital for the industry. These funds would encourage entrepreneurship and newer business models which are the need of the hour for improving access, availability and quality, especially in tier2,3 and rural areas. Government should provide the seed capital for such a fund.

LOWER THE COST OF RUNNING FACILITIES

6. Healthcare to be exempted from GST

GST, once implemented, would put various sectors under the purview of service tax. Healthcare is currently exempt from service tax and this should continue after the GST regime at least for a period of ten years and only thereafter should a decision to levy service tax be considered, after assessing the status of healthcare coverage, costs and performance on key healthcare metrics. Levying service tax on healthcare services and facilities will be a retrograde step which will push back the agenda to provide universal healthcare. The current stage of development of the healthcare industry cannot afford levy of service tax.

7.  Rationalize anomalies in import duty structure between raw materials and finished goods to encourage indigenous manufacturing

Domestic production in India should be encouraged by removing or rationalizing custom and excise duties on raw material required for domestically manufactured medical devices. There are examples wherein raw materials for devices (like implantable pacemakers, ELISA Kits etc.) are at an import duty of more than 20% whereas the finished goods (pacemakers, HIV kits etc.) are at a lower import duty rate. Due to these anomalies, in certain cases, the cost of products manufactured in India is higher than imported products. These anomalies need to be corrected with import duties on raw materials being brought down to the level of finished goods

8. Excise Duty should be exempted on equipment manufactured or assembled in India, where in the imported raw material content is limited up to 50% of complete equipment cost

Excise duty benefits in areas where the domestic industry is supplying the bulk of raw materials will incentivize players to undertake indigenous manufacturing of medical equipment; this will result in lower costs and India specific innovations.

9. Revisit the classification of life-saving equipment and provide import duty relief to other lifesaving equipment, not manufactured in India (List detailed in annexure)

 There are several anomalies in the classification of lifesaving equipment. Since import duty on lifesaving equipment is lower, the anomalies in classification leads to variation in import duty for  similar set of products. Hence, in such cases, there is a need to revisit the classification in order to make the import duty on lifesaving equipment consistently low.

10.  Service Tax/VAT should not be applicable to equipment maintenance contracts

 Given the challenges of low penetration and high costs of medical equipment, the ongoing expenses on equipment maintenance deter several healthcare providers (esp. smaller facilities) from undertaking equipment maintenance contracts. This lack of maintenance can potentially lead to increased equipment breakdown, thereby impacting cost and quality of services by healthcare facilities. Relief from service tax/VAT would encourage maintenance contracting.

HEALTHCARE FINANCING (INCREASE PEOPLE’S ABILITY TO PAY)

11. Withdrawal of Service Tax on Health Insurance Premium

Given the huge under-penetration and under-insured nature of the Indian population, increasing insurance coverage is a key step in achieving universal health coverage (as defined by the Planning Commission’s High Level Expert Group report). Service tax on premiums acts as a deterrent to consumers. Healthcare is not taxed for services so the same should principle should be applied for healthcare financing as well.

 12. Increase the limit of exemption for Premiums under Health Insurance Cover

Premiums paid for health insurance for family are tax exempted under Section 80D for the maximum of INR 15,000/-. The Government should raise this limit to at least INR 25,000/- so that people are encouraged to buy sufficient health coverage for the family. This will provide an important incentive to increase coverage

ENCOURAGE QUALITY AND INNOVATION

13. Provide a longer term (10 year window) for 250% deduction of approved expenditure on R&D activities

In the budget 2012-13, the weighted deduction of 200% on expenditure on in-house R&D facility has been extended for five years. Considering the time for initial set up of R&D facilities and new product development cycle for medical devices, a longer term for exemption on R&D expenditure deduction will instill confidence in undertaking R&D activities for indigenous development of medical devices. The limit should be enhanced to 250%

OTHER STRATEGIC RECOMMENDATIONS

14. Creation of medical technology parks

 Specified medical technology parks are needed to boost local manufacturing, research and development in order to lower the cost of medical equipment and encourage domestic innovations.

Medical technology parks should be created and should have incentives on concessional land, lower cost of raising funds, reduced duties and taxes and exemption on R&D expenditure

15. Free/concessional land for setting up private medical colleges

Given the huge demand supply shortage of doctors, industry needs strong incentives to set up medical colleges. Free and concessional land in setting up private medical colleges will incentivize more players to get into medical education

ANNEXURE 1

  1. All lifesaving medical devices, consumables used with devices in the specific lifesaving treatment procedure and their spare parts should be exempted from Customs Duty. Proposed list of lifesaving equipment:
  • Patient monitoring systems & image guidance systems
  • Pacemakers
  • Image Guided System
  • External Defibrillators
  • NT & ENT Surgery Products including electrical/pneumatic drills & the consumables
  • Deep Brain Stimulation Implanters, drug pumps, lead etc.
  • Heart Lung Machine & Oxygenators- During cardiopulmonary
  • Heart valves, Annuloplasty Rings and various Cardiac catheters
  • Respirators and Masks (industrial & healthcare)
  • Dialysis Machines equipment and Devices (Hemo and Peritoneal Dialysis)
  • Peripheral Vascular stents
  1. Expensive Healthcare diagnostics and treatment equipment – MRI, CT scan, Cath Lab and Linear Accelerator to be exempted from import duty
  2. Blood Glucose Monitoring  Strips  of heading 3822, Medical, Surgical or Laboratory Sterilisers of heading 8419  and  Sterile  surgical  catgut  and  similar sterile suture materials and sterile tissue adhesives for wound closure of heading 3006 should also be exempted from customs duties
  3. Custom Duty waiver for essentially required radiopharmaceuticals used in Diagnostics like Imaging and Scanning (PET-& SPECT) & Therapy some of which are not manufactured in India like Iodine 131, MIBG 131, Lutetium 177, Yttrium 90, Ge-68-Ga 68 generator, Cold Kits for Tc 99m, Rubidium 82
  4. Cardiovascular, cancer and neurological surgeries involves Iodophor impregnated drapes (HS 3005) for prevention of wound infection and Fibrin sealants (HS 300620) for achieving immediate sealing of blood vessels which are critical for life of the patients. These products currently are levied duties under headings 3005 and 3006 at basic of 10% and a total import duty of 21.78%. It is submitted that these may be included in the Life Saving category (List 4) and subjected to concessional 5% basic duty and Nil CVD
  5. Polyurethane film (Heading 3926) used for the manufacture of adhesive coated PU film, Medical grade PVC (Heading 3921 90 99) required for the manufacture of dialysis products, Dextrose Anhydrous USP, for use in manufacture of Intravenous fluids and Dressings be exempted from the levy of customs duties
  6. Medical Stretcher / Wheel Chairs / Medical Beds should be levied to concessional rate of basic customs duty of 5%.
  7. Power tools/ drills, surgical blades and burs used in various neurological, orthopedic, spinal, by-pass surgery & other skeletal surgeries, Endoscopy Camera, accessories & parts should be exempted from customs duty.
  8. Integrated Operation   Theatre   (Consisting   of   Routers,   Booms,   Pendants,   Lights,   Monitors,   Camera,   and Connectors etc.) should be charged to a reduced duty of 5% basic and Nil CVD.
  9. Peripherally Inserted Central Catheters & Epicutaneo Cava Catheters are not manufactured in India therefore the countervailing duty of 6% should be brought down to Zero
  10. Nil Basic Customs Duty be specified for Medical Equipment, Medical or Surgical Implants, Medical Devices falling under headings 9018, 9019, 9020, 9022 and 9027 : including parts, accessories, consumables, any other material required for assembly
  • HS code 9018: Electro-cardiographs; Linear ultrasound scanner; Magnetic resonance imaging apparatus; Scientigraphic apparatus; Electro encephalographs; Echo cardiograph; Ultra-violet or infra-red ray apparatus; Syringes, needles, catheters, cannulae and the like; Syringes, with or without needles; Needles for suture; Hollow needles for injection, aspiration, biopsy and transfusion; Hilerio venus fistula needles; Cardiac catheters; Dental drill engines, whether or not combined on a single base with other dental equipment; ophthalmic instruments and appliances; Blood pressures, stethescopes, knives, scissors and blades, forceps, clips, renal dialysis, blood transfusion apparatus, haemofiltration instruments, Anesthetic apparatus, EnT instruments, Acupuncture apparatus, endoscopes, baby incubators, heart lung machine, defibrillators, laproscopes
  • HS code 9019: Mechno-therapy appliances; massage apparatus; psychlogical aptitude-testing apparatus; ozone therapy,
  • HS code 9020: breathing appliances & gas masks, parts etc.
  • HS code 9022: Computer tomography; X-ray generators and apparatus, portable X-ray machines, portable tubes and valves, radiation generation units,
  • HS code 9027: Gas or smoke analysis apparatus, chromatographs, spectrometers, photometers, calorimeters

 

 

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