January 27, 2009

Regulatory hurdles in US, UK hamper diagnostics outsourcing

The outsourcing of diagnostics and lab-testing services to India has proved to be a non-starter as regulatory hurdles in the US and UK make it mandatory for the companies to establish labs in the country and even employ local doctors.

High-end tests such as genetics and molecular biology, which are labour-intensive, are sent to India as they can be serviced at nearly one-eighth the costs of developed markets. Several Indian diagnostic chains have vied for outsourced tests which account for 1-2% of the estimated $50-billion US diagnostic market. However, accreditation of labs, pathologists and technicians to international standards has ensured that only 3-4 big companies are able to address this opportunity.

“The need to have direct lab presence in the target country to service medical reimbursements and insurance claims is a roadblock,” CEO of Dr Lal Pathlabs, Dr OP Manchanda said. In addition, companies are expected to employ international doctors which pushes up costs further. Dr Lal Pathlabs, however, plans to address this market by entering into a revenue-sharing alliance with US-based Ssure Pathlabs.

Many diagnostic chains are now betting big on the markets of Middle-East, South Asian and South-East Asian markets. “US regulations and lobbying due to fear of job loss has put pressure on our entry, and the focus is now on emerging markets as the return on investment is high,” said Dr GSK Velu, managing director of Metropolis Health Services. He expects his company’s outsourcing revenues to go up from around 20% currently to almost 50 over next two years.
Apart from the US, even UK is a tough market to address because of certain regulations.

“Invisible trade barriers in the UK, where samples cannot easily be sent out of the European Union, is a limitation,” CEO of SRL Ranbaxy, Dr Sanjeev Chaudhry said. Meanwhile, experts such as Ajit Mahadevan, partner- Healthsciences Practice, Ernst & Young India say that despite challenges with outsourcing, regulations are important for the export markets. “The need for regulatory compliance and standardisation becomes important as faulty diagnosis can create a political uproar in regulated markets,” he said.

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