Clinical Laboratory & Diagnostics in India & MENA

You may have noted that the name of the blog has changed and now includes the Middle East & Africa. Well, I have now shifted my base of operations from Delhi to Dubai and this explains the long hiatus between blog entries. I have now settled down in my new position and can resume my dialogue with you.

There are a lot of interesting events happening in Dubai on the healthcare front. Dubai Health Care City (DHCC) is but one example of these changes. It is attracting Healthcare, Pharma & Life Science Companies from all over the world and aims to make Dubai the hub of medical services in the region. In August 2007, the Licensing & Specifications Department of the Department of Health & Medical Services (DOHMS) of the Government of Dubai published the Medical Laboratories Standards. This is a fairly comprehensive document and has similarities with the ISO 15189:2003 Standard.

Posted by Sunil Tadepalli at 11:12 PM | Permalink | Comments (1) | TrackBacks (0)

Investopedia.com says, "Goodwill is seen as an intangible asset on the balance sheet because it is not a physical asset such as buildings and equipment. Goodwill typically reflects the value of intangible assets such as a strong brand name, good customer relations, good employee relations and any patents or proprietary technology.".

Goodwill, being an intangible asset, is very difficult to value. Purchased goodwill is normally the balancing figure between the purchase price of an acquired entity and the total fair value of the acquired assets, both tangible and intangible, and liabilities (say, in the case of liquidation). Frequently, however, the goodwill represents over half of the total purchase price.

Since lab services are increasingly commoditised, the value of goodwill can sway considerably depending on the acquirer/ seller. There are various methods to compute a business valuation, most of them taking goodwill into account indirectly. Net asset value, discounted cash flow (of future earning estimate), price-earnings multiple, etc are popular options of business valuation.

A general rule of thumb in the service industry is EBITDA (Earnings Before Interest Tax Depreciation & Amortisation) multiplied by a commonly used factor (depending on the growth potential, country, etc.) For example, in US labs, the factor is 7 to 8. A lab with an EBITDA of $10 Million per year would sell for around $70 Million. Now if the resale value of all the tangible goods (building, equipment, fixtures, etc) was $45 Million, the difference ($25 Million) accounts for 'goodwill'.

Note: In India, since the market hasn't quite matured in terms of M&A (Mergers and Acquisition) activity, the price-earnings multiple is not standardised. The factor is usually based on historic transactions. Until sufficient data gets collected, the 'discounted cash flow' method is used. Though more complicated, it is a viable option. 

Posted by Shravan Subramanyam at 10:50 PM | Permalink | Comments (0) | TrackBacks (0)

The Indian Clinical Laboratory industry is largely a story of the individual pathologist’s practice multiplied manifold.  You have worked hard as an entrepreneur and have built up a fairly good practice and reputation. Your lab is well located and the real estate value of the laboratory office has increased out-of-sight. You would like to retire and put your feet up but the next generation may not be interested in the family business. Now you may be thinking it is a good time to cash out and get acquired by one of the big players on the prowl especially since many of your peers have already taken the step.

Fortunately for you this is still a seller’s market. However, there are a few simple steps that you can take to increase your valuation and get the best price for the business that you have built up so painstakingly.

This is not a comprehensive list, but from my experience with talking to other labs in your situation these are some basic steps that you should not ignore.

·         Get your financial house in order: Do not mix up personal and business accounts, but keep them separate and at arm’s length. You should ideally have the last 3 years Profit & Loss (P&L) and Balance Sheet prepared by a competent chartered accountant and all details should be verifiable. The acquiring labs will certainly have professional accountants doing a due diligence on your financials. This will form the basis of the valuation.

·         Demonstrate growth in the business: Your potential suitors would like to see a lab that is steadily adding test volumes and revenues especially over the last 3 years. Sales data should be broken down by segment and source. If you have steady business from corporate accounts that will be welcome.

·         Get accredited: Your quality may be great, but it is better if this is certified by an accrediting agency. This is also a good way of changing some processes and introducing systems into the lab. Generally the lab should not de dependant on a single individual (you) to take all the decisions – but it should be process driven.

·         Decide how you would like to participate in the future: You may very well be the lab’s single most valuable asset. Getting acquired does not mean that you do not work there anymore. The parent organization may be more than happy to leave you in charge. Some of the major acquisitions in India have left the owner / pathologist in charge of the center even after the change in ownership.

·         Prepare your team for the change: Certainly getting acquired may change the way business is done around the place. There may even be some lay-offs. You want the change in ownership to be as painless for everyone as possible and the maximum onus for making this happen is on you. The aim should be ensure that the customer / patient is not inconvenienced in any way due to the change in ownership.

·         Get professional help: During negotiations, do get professional help. You may already know some reliable financial advisors or there are expert companies out there who can help you get the best out of the deal and tie up all the legal angles. While these advisors will charge you a small percentage for the deal, it may well be worth it in the long run.

Mergers & Acquisitions is likely to be an emotive issue – we have seen examples in the media recently of clashes between the doctor owners and the large corporations that are moving in on the healthcare scene.

I welcome your comments on this issue.

Posted by Sunil Tadepalli at 06:42 PM | Permalink | Comments (0) | TrackBacks (0)

Are Indian Labs doing all they can in terms of offering test results to patients? I would argue not. If you look at the typical lab report for a test, the format is exactly the same for all customers – the boilerplate approach. There is the test or a panel with results, units and a reference range. Some labs indicate if the result is abnormal, while others make an effort to give an ‘Interpretative Comment’. Unfortunately, in most cases, the interpretative comments is a generic one and has enough disclaimers to be almost useless to the referring physician and / or the patient.

The other major shortcoming is that, in most cases, every visit of the patient is treated as a new visit even though the patient may have visited the lab many times in the past. So the concept of a serial report, graphic or otherwise, is virtually unknown in India. It is left to the patient in most cases to collate the results and make sure that they carry with them all their historic reports when they visit the physician.

Compare this with the value added services offered by the world’s leading diagnostics company, Quest Diagnostics to physicians and patients & consumers particularly the Reminder Program. Physicians get access to the eMaxx® Physician Portal, a patient-centric electronic health record for practitioners. Patients get access to a wealth of additional information about their tests and their interpretation and they can sign up for an email reminder for their next testing episode.

This is a great example of value added services that a lab can provide to its users. The best part is that it is not at all difficult to have the IT infrastructure to support these web-based services. It just needs an increased awareness on the part of lab managements in India. The entry of Quest Diagnostics to India could provide the impetus to change some of our time honored methods.

Posted by Sunil Tadepalli at 06:29 PM | Permalink | Comments (6) | TrackBacks (0)

As an Indian who is committed to seeing our diagnostic industry featuring prominently on the global map of clinical diagnostics, it was indeed a wonderful opportunity to speak on behalf of our industry at a global conference on lab and pathology management, The Executive War College in Miami, on May 10 & 11. (Refer http://www.executivewarcollege.com/ for agenda and details).

The War College is called so as a reference to preparing laboratory managers for battle in the competitive, evolving diagnostic industry. The conference included 700 delegates from 15 countries, and tackled topics ranging from revenue cycle management to managing quality effectively, along with some industry sponsored sessions on automation, informatics and esoteric testing. Of particular note were speakers from GE and Siemens who elaborated on the coming convergence of imaging, informatics, and in vitro diagnostics (IVD), a trend which will have dramatic repercussions on clinicians, patients and diagnostic service providers around the world.

My talk on lab services in India (and its implications on the global testing market) was well received by curious professionals who took a genuine interest in understanding the dynamics of the subcontinent.

For more details on the War College and the parent body, the Dark Report (lab intelligence newsletter), refer http://www.darkdaily.com/.

Posted by Shravan Subramanyam at 07:29 PM | Permalink | Comments (0) | TrackBacks (0)

Having finally got around to the phenomenon of blogging, I now find it a very interesting and worthwhile way of communicating with my fellow lab professionals.

Over the past two years since I started up Labnetworx, it has been a privilege to work with a number of clients, partners and friends and sharing with all of them a great professional relationship.

This blog belongs to the clinical laboratory and diagnostics industry in India and I will be inviting interested professionals to post their thoughts and ideas on this blog or comment upon some of the issues presented here. I find that each one of my contacts is a veritable storehouse of knowledge and this is a great way of all of us benefiting from each other.

For a start I have introduced four categories for the blogs: (1) Information Technology as it applies to the Clinical Lab (2) Laboratory Technology (3) Medical Significance of Tests and (4) The Business of Labs. I will add more categories in the future.

So welcome to the blog and happy posting!

Posted by Sunil Tadepalli at 11:41 PM | Permalink | Comments (3) | TrackBacks (0)