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| State of the art: Care Hospital's
Dr Ramaswamy Ravikumar (seated) and his team, with Da Vinci
robot |
Public Health, Private
Opportunity
With the government expenditure on healthcare declining,
it is private sector investment that will drive the sector's transformation.
By E. Kumar Sharma
When Hidayatullah, a 23-year-old
shopkeeper from Karimnagar in Andhra Pradesh, visited a doctor
following shortness of breath and palpitations, creating medical
history possibly wasn't on his mind. Yet, that's exactly what
he ended up doing, when doctors at Hyderabad-based Care Hospital
decided to perform India's first robotic surgery for mitral valve
replacement on him. With just a five centimetre-long incision
on his chest and eight days of recuperation, Hidayatullah was
back at work.
Bleeding-edge technology is just one sign of the transformation
underway in the Indian healthcare industry. With the economy growing
and Indians becoming more affluent, healthcare providers are beginning
to step up their own investments. The market potential, to put
it mildly, is mind-boggling. There are just 1.1 beds for every
1,000 Indians, compared to 4.3 in other Asian countries such as
China, Korea and Thailand. As India's population ages and more
people get afflicted with lifestyle-related diseases (such as
heart and nervous problems, and diabetes), the demand for quality
healthcare will explode.
The government alone won't be able to cope with the demand;
private sector investment will be needed. In fact, it will be
needed more than ever. For two reasons: One, the government's
investment in the sector is declining relative to the growth in
GDP. Currently, it stands at 0.9 per cent of the GDP. Two, the
quality of public healthcare is abysmal, which drives the rich
and the poor alike to private care. According to a World Bank
study, nearly 8 out of every 10 poor patients prefer private clinics,
although the average cost of private treatment is higher at Rs
193.50 compared to Rs 121.50 of the public system.
MAKING
ROOM
The major healthcare chains are
on an expansion spree. |
| APOLLO HOSPITALS: Has 41 hospitals
offering 7,228 beds. By 2010, it expects to have 12,000 beds
FORTIS HEALTHCARE: Has 12 hospitals with 1,900
beds and has plans of going up to 40 hospitals and 8,000
beds by 2010
WOCKHARDT HOSPITALS: It plans to double the number
of hospitals to 14 by 2008 and take the cumulative bed capacity
to 3,000 from 1,500 at the moment
CARE HOSPITAL: Has eight hospitals with 1,000 beds
and plans to add 5,000 beds in the next five years (1,000
each year or six to seven hospitals each year), taking the
total number of hospitals to close to 40 in five years
MAX HEALTHCARE: Has seven hospitals with 800 beds
and by 2010, will have 11 hospitals and 1,500 beds
|
Not surprisingly, then, the private sector is expected to drive
the healthcare revolution in the country. A recent FICCI-Ernst
& Young report on the sector projects that of the 1 million
hospital beds expected to be added by 2012 (under a best-case
scenario), 896,000 will come from the private sector. The investment
required: $69.7 billion, or Rs 3,06,680 crore. By that time, private
sector healthcare revenues are expected to touch $35.9 billion
(Rs 1,57,960 crore) from $15.51 billion (Rs 68,244 crore) at present.
Says Prathap C. Reddy, Chairman of Chennai-headquartered Apollo
Hospitals, which was the first to set up a corporate hospital
in the country back in 1983: "Earlier, we were centralised
in Chennai. Now, we are going to places where people need us.
We have only nine hospitals in super metros, and the rest are
in smaller cities and towns."
 |
 |
| Apollo Hospital's Dr Reddy is looking to tie
up with VCs to operate and manage a major hospital chain in
the UK |
Fortis Healthcare, where Shivinder Mohan Singh
is the CEO, plans to increase its number of hospitals from
12 to 40 by 2010 |
The Pieces Come Together
It has been almost a quarter century since corporate hospital
chains first appeared in India, but their growth had been limited,
simply because the boom in the domestic economy and the global
investor's interest in India are recent. Now, however, all the
pieces needed to create a robust healthcare industry seem to be
coming together. Start with consumers. According to the FICCI-E&Y
study, a middle-level manager with a family of four spent an average
of Rs 1,935 on healthcare in the late 80s. At last count (2001-02),
such a family spent between Rs 7,650 and Rs 11,475 on medical
care.
HEALTHCARE BPOS
Medical outsourcing is an emerging
market. |
| It's not just
medical tourists who are coming India's way, but tests and
consulting work too. A thyroid profile in the US costs $50
(Rs 2,200), but could be analysed by Indian companies for
as little as $6 (Rs 264). Outsourced pathology, under which
this and other hormonal tests come, promises to be another
area of opportunity for the knowledge process outsourcing
(KPO) services provider in healthcare. Teleradiology, which
involves reading CT scans and MRIs of patients, is another
emerging opportunity. "There's a critical shortage of
trained radiologists during the graveyard shift (in the US)
and it is estimated that around 20 per cent of vacancies remain
unfilled," says Dr Arjun Kalyanpur, a Yale-trained doctor,
who started Teleradiology Solutions with his doctor wife Sunita
Maheshwari in 2002 and now has a dozen radiologists working
with him in Bangalore. Adds Sangita Reddy, Executive Director
(Operations), Apollo Hospitals Group: "Medical outsourcing
occupies a high priority at Apollo." The group already
has Apollo Health Street, a healthcare KPO, that offers services,
including medical coding, billing, claims creation, payment
posting and account receivables follow up. "We manage
high domain and complex processes like medical coding, which
are clearly KPO in nature," says Reddy, who's the Managing
Director of Apollo Health Street. Certification is an issue
in areas like pathology and radiology, since US regulations
do not allow non-US certified agencies to read reports of
American patients. Just the same, medical outsourcing opportunity
for India is expected to double to Rs 33,000 crore by 2012.
At least, that's the hope. |
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PRIVATE EQUITY AND HEALTHCARE
Global investors are betting on
the Indian healthcare market. |
| George Soros' Quantum and Blue Ridge funds
bought around 7 per cent stake in Fortis Healthcare for
$33 million (Rs 145.2 crore) in 2006
IDFC Private Equity put in $20 million into Manipal
Health Systems in 2006
IDFC Private Equity also invested $10 million in
Bangalore-based HealthCare Global Enterprises in 2006
ICICI Venture's India Advantage Fund-I paid $8
million to acquire around 18 per cent stake in Metropolis
Health Services, India's leading corporate diagnostics chain,
in 2006
|
Until recently, corporate hospitals were also hamstrung by a
lack of finance. But now global investors, in the form of private
equity investors, are willing to put money behind them. George
Soros' Quantum and Blue Ridge funds, for example, have invested
in Fortis Healthcare, a chain set up by the promoters of Ranbaxy.
Manipal Health Systems received $20 million (Rs 88 crore) from
IDFC Private Equity Fund (see Private Equity and Healthcare),
and Warburg Pincus picked up 23 per cent stake in Max Healthcare.
"The entry of Warburg two years ago was a sign of confidence
in the Max Healthcare model," says Mukesh Shivdasani, Max's
Executive Director (Operations). The growth apart, what interests
PE investors in healthcare is the fact that it is an industry
with no down cycle-there are no years when people don't fall sick.
"Hospitals will grow as long as they earn the trust of their
patients," says Shivdasani.
 |
| Wockhardt Hospitals, where Vishal Bali is CEO,
plans to expand at a cost of Rs 400-500 crore over next four
years |
Medical equipment suppliers, too, are willing to offer sweeter
deals to lock in with the big players. According to an Ernst &
Young estimate, the medical equipment industry is worth Rs 9,790
crore in revenues and is growing at 15 per cent a year. By 2012,
it could touch Rs 22,000 crore in revenues. Most of the medical
devices (65 per cent) are still imported, but local manufacturing
could take off when the market expands. GE Medical Systems already
manufactures in India in partnership with Wipro and there is Siemens
that is currently celebrating its 50 years of presence in the
country. Siemens has an x-ray manufacturing facility in Goa, where
it may soon make ultrasound equipment as well. Says D. Ragavan,
Executive Vice President (Medical Solutions division), Siemens:
"Like in the electronics industry, there will be a trend
towards price erosion. What will also happen is that for a similar
price band, there will be equipment with more functions available.
In other words, one can only expect to see more value for money."
Not all of the expansion will happen within the big hospitals
or cities. In fact, Delhi-based consultancy Technopak says that
most of the new facilities will come up in Tier-II cities and
will be secondary care. (In healthcare, the big, super- and multi-speciality
hospitals are considered tertiary facilities, clinics as primary
and mid-way nursing homes/small 100-bed hospitals as secondary.)
The reason for that is, says Technopak, the abysmal population-to-hospital
bed ratio in such cities. Only critical surgeries or treatments
will be referred to the tertiary hospitals. It is also likely
that the secondary facilities will be hooked to the bigger hospitals
electronically (think telemedicine), thereby minimising the cost
of travel and waiting time for patients.
As the big players get bigger, the industry will want to consolidate.
The smaller, stand-alone hospitals may not be able to compete
with the larger players, who will not just have better negotiating
powers with equipment suppliers, but also greater brand equity
with the healthcare professionals and consumers. Says Habil Khorakiwala,
Chairman, Wockhardt Hospitals: "Wockhardt has already announced
that it will invest Rs 400-500 crore for its expansion plans in
the next three-four years, both through organic and inorganic
routes." Rather than buy, Apollo's Reddy plans to tie up
with venture capitalists and, on his part, provide manpower support
to operate and manage a major hospital chain in the UK.
NEW, NEW DRUG RETAILERS
Big corporates are getting into
pharmacy retail. |
 |
| Modern retail: Neighbourhood chemists,
beware |
The domestic drug retail industry
is highly complex and fragmented. There are an estimated
over 5 lakh retailers and about 1 lakh stockists/sub-stockists
and distributors. The domestic pharma retail market is today
valued at close to Rs 50,000 crore and could well double
in the next five years. Modern retail formats, however,
comprise a small part of this overall market. But that's
about to change. A variety of big corporations have plans
of setting up pharmacy chains. Fortis Healthworld, set up
by promoters of India's biggest pharmaceutical company Ranbaxy,
is talking of opening 1,000 drug stores at a cost of Rs
800 crore, and 200 of these are to be launched by 2008.
"The idea is to gauge the response to our new-age drug
retail outlets and then expand it to other cities,"
says Shivinder Mohan Singh, CEO & MD, Fortis Healthcare.
Fortis is not alone. Pharmacy retail is attracting some
of the biggest names from corporate India. Reliance-Anil
Dhirubhai Ambani Group and Kishore Biyani's Future Group,
for instance. In early August last year, Pantaloon Retail,
part of the Future Group, and Manipal Health Systems, signed
a deal to jointly operate pharmacies (selling medical products)
and provide medical services across the country under the
'Manipal Cure & Care' brand. The initial investment
is pegged at Rs 10 crore. "Health, beauty and wellness
capture close to 7 per cent of the consumer's total wallet
spend, and that's huge," says Kishore Biyani, Future's
Chairman. It's an assessment that will bring in more players.
|
Tip of the Iceberg
At present, less than 10 per cent of Indians have any sort of
health insurance. Result: quality healthcare is out of reach of
the vast majority. Insurers, understandably, are licking their
chops. According to Technopak, healthcare insurance premium collected
in 2005-06 jumped 35 per cent over the previous year. In addition,
the firm finds community health insurance schemes slowly penetrating
rural markets. There are more than 25 such schemes covering 8
million people all over India, and with the insurance regulator,
IRDA, stipulating that 5 per cent of business of an insurance
company must come from rural India, a slew of innovative schemes
is likely to hit the markets.
There are some in the industry who believe that India is headed
for the 'managed care model' of the US, wherein the care provider
(the hospital) also provides medical insurance. Not everyone agrees,
though. Executives at Apollo feel that it is not an appropriate
model for India because it is very restrictive and does not provide
a choice to the patient to get treated anywhere else. Instead,
Apollo has chosen to partner with Germany's DKV Health Insurance
Company to offer medical insurance to people at large.
As can be expected, different players will experiment with different
models as they seek to grow and cater to a larger universe of
consumers. That shouldn't matter-as long as healthcare gets better
and more universal.
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