FSG’s newest office, located in Mumbai, houses our inclusive markets team, which works to develop and scale inclusive business models to create new opportunities and better lives for the global poor. The inclusive markets approach has been successfully applied to low-income housing and decentralized water plants in India, and can be applied to a range of other sectors and geographies. This post talks about replicating the model of a successful Mexican pharmaceutical chain in India. Learn more about our inclusive markets approach.
I was on the way to Begusarai, a small industrial town in Bihar, for a short field visit to understand the local pharmaceutical market. A tiny clinic on the road caught my attention, and I stopped over to have a look. The clinic was a small tin shack, with a board above the door. The board said – “M.B.B.S, General Surgeon and Physician.” My guide, a local NGO worker, noticed my surprise at the presence of a doctor in this remote village. He informed me that this particular doctor did not have a medical degree, and the board served merely as a marketing tool. However, local villagers were more than happy to consult him for any health related issues. Some had even gone in for an appendix operation with him.
The aim of my visit to Begusarai was to explore the potential of a pharmacy chain in urban Uttar Pradesh and Bihar. Farmacias Similares (FS), a pharmacy chain with over 5,000 outlets, had managed to drastically reduce the cost of medicines to the average customer in Mexico by supplying low-cost medicines to the market. Could the FS model be replicated in India?
The main challenge my research identified was that the Indian healthcare ecosystem is such that it is difficult to lower costs to the end customer, regardless of where they are purchasing their medicine. This is driven by 3 factors.
First, doctors are incentivized to prescribe higher cost medicines, even when cheaper alternatives are available. These incentives can be both monetary and non-monetary. Doctors get kickbacks from pharmaceutical companies, ranging from small gifts to paid vacations and new cars, for prescribing ‘branded’ medicines, which are usually more expensive than other alternatives. Doctors also use higher price as a proxy for quality, as public information on quality of medicines is not available.
Second, customers are often daily wage workers who cannot afford to miss work, so they demand immediate relief. Doctors meet this demand by overprescribing medicines and steroids, at significant public health risk. Customers also prefer more ‘visual’ treatments, such as injectables which are often given in addition to regular medicines. Such over-prescription again leads to higher costs for the customer.
Lastly, customers typically do not allow pharmacists to substitute doctor prescriptions for cheaper, generic formulas.
Taking all these factors into account, a standalone pharmacy chain model would be unlikely to significantly reduce costs for the Indian customer as doctors will continue to prescribe higher cost medicines. The doctor is the key lever to change medicine dispensing patterns. Any solution to reduce costs would need to incorporate the doctor as part of the model.
More broadly, the research reinforced the challenges of replicating successful models in a new geography. For me, it underlined the importance of speaking to stakeholders (such as doctors and customers) when seeking to understand local market conditions and adapting models for the most impact.