Big-ticket move by Kejriwal?
The OTT reaction of Dr. A. Velumani, the illustrious and visionary founder of Thyrocare Technolgies, to the decision by Arvind Kejriwal to provide free diagnostic services to all and sundry indicates that there are serious implications to it from a corporate perspective.
“Wow. Unbelievable. Kuch Bhi ho saktha hai. Call it crazy. But Now other states have no choice,” Dr. Velumani exclaimed.
Wow. Unbelievable. Kuch Bhi ho saktha hai. Call it crazy. But Now other states have no choice. ?????? pic.twitter.com/vu9GoHOsFN
— Dr. A. Velumani. (@velumania) March 2, 2017
The reaction is significant because corporate head honchos normally keep a stiff upper lip and do not let actions betray their emotions.
Dr. Velumani later congratulated Kejriwal and Satyendar Jain by calling it a “daring initiative”.
@SatyendarJain Daring initiative. Congratulations for initiating it.
— Dr. A. Velumani. (@velumania) March 2, 2017
@ArvindKejriwal @JPNadda @narendramodi @SatyendarJain Congratulations for making it free. We do PETCT for 9999 in Delhi. Lowest in India.
— Dr. A. Velumani. (@velumania) March 2, 2017
“Revolutionary move” to provide free radiology tests for all patients
Arvind Kejriwal and Manish Sisodia termed their decision to provide free diagnostic services to people in Delhi as being “revolutionary”.
The scheme provides that radiology tests will be provided free for Delhi residents across all income groups at 21 private laboratories.
Residents are required to show a referral letter from 30 selected government hospitals to avail of the free service.
There are a host of services included such as MRIs, CT and PET scans, ultrasounds etc.
The list of 21 hospitals which are eligible to provide the free tests is not available yet.
Free surgeries in private hospitals coming soon
Kejriwal stated that the Government also intends to provide the facility of free surgeries at private NABH-accredited hospitals.
Satyendar Jain, the Health Minister, added that another scheme would be implemented under which surgeries can be performed free of cost in private hospitals in the city if the waiting period in government hospitals exceeds 30 days.
Free surgeries at pvt hospitals for all Delhi residents,if waiting is more than 30 days in Delhi govt hospitals.
https://t.co/u7F4JRnicf pic.twitter.com/bTzORbCLEG— Satyendar Jain (@SatyendarJain) March 1, 2017
AAP govt to provide 30 type of surgeries free of cost to it's residents in 41 pvt hospitals including heart bypass, cataract & kidney stone.
— ASHUTOSH MISHRA (@ashu3page) March 2, 2017
Mohalla clinics are a model for the World?
The Washington Post, the prestigious international newspaper, has praised “Mohalla Clinics” in its piece “What New Delhi’s free clinics can teach America about fixing its broken health care system”.
The piece, written by Vivek Wadhwa, explains the merits of the scheme and opines that “It may well be time for America to build mohalla clinics in its cities”.
U must read this. Washington Post on Delhi's mohalla clinics https://t.co/DDAxgdbUAD
— Arvind Kejriwal (@ArvindKejriwal) March 11, 2016
It is also notable that Kofi Annan, the former Secretary-General of the United Nations, has praised Mohalla clinics as being “impressive”.
Scam in Mohalla clinics?
However, according to the Vigilance department, there is a scam brewing in the Mohalla clinics. Some doctors are taking advantage of the fact that they are paid a flat fee per patient. The doctors allegedly are not bothered about the welfare of the patients but are anxious to “treat” as many as are possible in a day so that they get paid more.
“Doctors in the mohalla clinics are making false entries of patients, hence making up to Rs 4 lakh per month,” the Vigilance department has alleged.
In a separate allegation, it is claimed that the AAP Government is endangering people’s lives by employing untrained staff in the ‘mohalla clinics”.
Implications of the “free” availability of diagnostic tests on private parties like Thyrocare, Dr. Lal Path Labs?
Prima facie, the decision to provide free diagnostic services to patients, while in public interest, does not auger well for corporate entities seeking to make money out of such services.
Firstly, the volume of patients who would have thronged the private diagnostic centres will be reduced (assuming these clinics are not in the list of 21 providers);
Secondly, the 21 clinics which have been nominated by the Government will be entitled to receive a fixed fee for each test that they conduct. This may set a floor for the pricing for the test and curtail the freedom of the private players to impose heavy charges;
Thirdly, assuming a private player such as Thyrocare is a part of the Government’s scheme and has agreed to provide diagnostic services to the referred patients for a fixed fee, it may be unable to justify charging a higher fee for other patients.
One positive aspect that may emerge is that “unholy practice” by the diagnostic centres of paying “referral fee” or “commission” to the hospitals and doctors for referring their names to the patients may get discouraged.
High valuations
In addition to the challenges posed by Arvind Kejriwal’s move, the other challenge is that of the high valuations that the diagnostic companies are trading at.
Dr. Lal Pathlab, which has a market capitalisation of Rs. 7,700 crore, is trading at a TTM P/E of 48x.
The stock is virtually flat on a YoY basis and has lost 18% over the past three months.
Two big-ticket investors, namely, Wagner and Westbridge Crossover Fund (Jwalamukhi), have sold big chunks of their holdings in February 2017.
Thyrocare Technolgies, which has a market capitalisation of Rs. 3,600 crore, is trading at a TTM PE of 55.56x.
The stock has also been muted since its listing in May 2016 at Rs. 662 per share.
Conclusion
Diagnostic companies are presently commanding an exorbitant premium owing to the “scorching growth” in sales and profits that they are expected to witness in the foreseeable future.
However, assuming that Arvind Kejriwal’s game plan becomes popular and also spreads to other States, some of that growth may become muted. If so, the stocks may lose ground or stagnate given their high valuations.
Accordingly, we have to be on red alert and ponder carefully whether diagnostic stocks are a good investment or not at present!
Kejriwal has come here in politics to change the game. Politicians, since independence, had a good time all these years because of their money power and corruption. Ever since Kejriwal’s entry into politics, many biggies among the political and business fraternity have been threatened for fear of their “you scrath my back, I’l scratch yours” for mutual benefit will be a thing of the past. Which is why Kejriwal has been abused, false cases slapped against him, Modi government is on the effort to arrest each and every Delhi MLA, and even went to the extent of writing to the CEC one day before the Punjab elections, to de-recognise his AAP due to “improper” filing of income tax returns, as if all other parties, who have thugs and cheats and murderers income tax returns are spic and span. The fact is that Kejriwal will only rise from here – at the cost of other parties. and thats for sure, even if people with vested interest people dont like it.
Very good step by AK. This is good for Lacs of citizens but bad for handful of investors.
This is an excellent move by AAM Aadmi party. Do you know that actual cost of most of these radiology and other tests are only 15-20% of the listed price. The rest is profit and distributor commissions. If you dont believe me, become a franchisee of thyrocare and others and see. Even become a “DSA- Direct Sales Agent”, you will get as commission 40-50% of the charged prices. Thus for a set of tests … say 1500 rs paid by you, about 500 to 600 rs will go the DSA, about 400 to 500 to the franchisee and balance to thyrocare and others representing their profit and costs.
Much needed competition. Someone needed to take on the overcharging diagnostic centers. Hopefully this will spread and the poor need not get their pockets ripped by the private diagnostic centers.
Good Step, but the bureaucracy will ensure loopholes and will surely make a way for decent killing from the government coffins. The free dignostics for poor is good initiative, but it needs cap on the incentive/remuneration paid to the medical expert involved in this and variables shall be avoided at any cost!!!!!
Kejriwal is one regressive person. How is this different from PDS ration shops started by Nehru to provide cheap grains to people? What happened? When people talk of free stuff, they never talk about quality of service. Govt. schools are free. Do the people commenting on this thread send their kids to govt. schools? Do they go to free govt. hospitals? Free means poor quality. You will see that soon.
Awesome reply. The fact is people get fascinated very easily without considering the consequences of an action. Who will bear the burden of this huge healthcare cost BTW?
Private sector’s medical treatment like surgeries have been very bad. Forget about Government Hospitals. I have heard n number of complaints of carelessness of doctors in very big Corporate Hospitals, whose stocks are quoted in the exchanges. The only thing private sector can offer is the 5 star ambience, thats all. If you know any doctor personally or through some contact, more chance medical treatment will be good. Government or Private Sector.
Solution to poor services and high costs is competition. See what’s happening in telecom. Bharti and Vodafone beat BSNL with better service though higher prices. Now Jio will beat them on price too. Kejriwal’s solution to this issue would be to give free (read – funded by taxpayer) Wi-Fi to everyone. Btw did you submit your comment using that free Wi-Fi?
First give me my 15 lakh, as promised before Kejriwal gave his promise. Not even one dollar of stolen black money stashed abroad (which is multiple times black money of India) has come back. We were promised the corrupt of the UPA will be arrested and their money recovered. Not even a peon of that government was arrested. People of the country have realised this and will take appropriate action in 2019.
What nonsense? I was criticizing populism versus capitalism and you have no argument so you start in a random direction blaming Modi?
Why are you so pessimistic about the initiative. It is a fact that Diagnostic centres are making a killing disproportionate to the actual cost of tests. If some fat moneywala wants to spend money to take tests , let them do. This is a good beginning and we should appreciate the initiative and support despite some initial hiccups and wanton pull down by vested interests. Kudos Kejri ji.
Good luck!! But, before you go for this “free” test, find a way to ensure that syringe used for taking blood sample is new and not recycled one.
There is nothing free in this world.This will bite back to public and will prove as big scam.
It will be interesting to see if people giving positive comments here have guts to actually use these free facilities. Politicians themselves do not use any free government facilities like schools and hospitals but go to expensive private facilities or go abroad. This itself indicates kind of quality you can expect from such “free’ initiatives. I think it will be golden opportunity to load up on diagnostic stocks if their valuations contract due to such gimmicks.
The challenge with these kind of statements from politicians is huge. When these politicians make claims like free tests a huge industry suffers. One can imagine the level of effort and funding required to provide health checkup services. Simple tests like TSH or T4 costs labs around Rs 100 .. Imagine how much base cost is involved in expanded tests like Light Chain or Allergy test.
It will be better if politicians do not spoil the MOP(market Operating Price) of the market.