Maitri Porecha
By buying medical equipment through a single online platform and eliminating middlemen, hospitals can cut costs by 10-12 per cent, according to Medikabazaar, an aggregator of medical equipment.. In an interview with BusinessLine, the company’s founder and CEO Vivek Tiwari explains how online aggregation can help in cutting costs, why procuring directly from generic manufacturers rather than big brands can halve prices and what the future holds for for online B2B sales in medical devices market. Excerpts:
What value does Medikabazaar bring to the table?
We are the largest aggregators of medical equipment in India at the moment. A typical 100-bed hospital today works with 800-900 vendors, but when they come to Medikabazaar, they come to a consolidated platform. Of every ₹100 that they spend, ₹35-40 are only meant for medical supplies, which is the second-largest component after their salaries. We make sure they save 10-12 per cent on that cost. Majority of our customers come online and we do 15,000 transactions every month in the B2B space. Today, we are catering actively to 22,000 medical centres.
The hospitals may be procuring at cheaper rates, but they slap huge margins before they bill the patients. The National Pharmaceutical Pricing Authority has analysed that on certain consumables and drugs, hospitals were charging up to 1,737 per cent margins...
We cannot determine the MRP, we are not the government. We can only help to a certain extent by enabling hospitals to get their procurement costs down. At hospital level, they have to decide how much of the benefit they want to pass on to patients. Many small hospitals are struggling with the end-price and are running on very low capacity. A surgery package could vary from ₹10,000-1,00,000 and requires consumables like sutures, electro-surgical pencils and so on. If you take the total component costs, including drugs, it can be between 40-45 per cent, depending on how best the hospital has been able to negotiate prices on an individual basis. We help reduce costs substantially from 40-45 per cent to up to 30 per cent. We started four years ago and currently are aggregating business of $50 million a year. With higher demand aggregation, we will get a much better price and can influence the MRP later with manufacturers.
While Ayushman Bharat is looking at input cost based pricing for designing its packages, the NITI Aayog is looking at market based costing for drug pricing. What do you think works best?
Ayushman Bharat does work on calculating basic input costs of consumables, basic remuneration to doctors and staff, keeping a margin to remain sustainable and design packages. But normally, manufacturers do not share input costs of products because for them it is proprietary. I am not in a position to comment about the NITI Aayog’s model, but we do have our own internal research team to get into some kind of input costing by understanding real financial economics that go in pricing the product. Then, we can push the pricing even further than what manufacturers offer us. For example, electro-surgical pencils sold by multi-national pharma companies for ₹300-400 are manufactured in China. We procure the same product from China at ₹150, there by cutting costs.
As aggregator your model will have a flipside too, wholesalers and distributors will be miffed....
Going forward, there will be a big digital divide in India. There will be a set of online customers and then there will be traditional customers who don’t want to come online. I have customers from remote villages — doctors, who are looking at new models, not because they want to reduce costs, but because they are not getting supplies. There is an availability problem. Reaching 6.5 lakh villages in India is not easy. A distributor cannot reach every nook and corner of the country.
How is the financial health of your company, given your attempt to give 10-12 per cent cost reduction?
We are looking at a sustainable margin of 15 per cent. Me and my partner put in half a million dollars, we raised another half a million dollars through angel investors, another million through venture capitalist rounds, and then another five million in Series A. We have a $3.5-4 million business which is sustainable. If you talk about breaking even, for first two years, we have not had enough cash flow, but we are expanding now. While 2019-20 looks to be little stressed for us in terms of profitability, 2021 is aspirationall and profitable.