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Fortis Healthcare on an Expansion Spree

The Rs 548 crore Fortis Healthcare Group is aggressively spreading out in all directions. Sonal Vij maps out the growth and expansion plans of the fastest growing Group

It is no news that the Indian healthcare industry is going strong even in the wake of global meltdown. While every other industry is losing its sheen, healthcare is expected to reach newer heights in the coming years. According to the recent Indian Brand Equity Foundation (IBEF) report, the Indian healthcare market is currently estimated at $ 34.2 billion and private healthcare is estimated to be the largest component of the healthcare sector by 2012 which is expected to double to $ 38 billion by 2012. In the race to grab the largest piece of the healthcare pie, one of the leading corporate Groups with a strong chance is Fortis Healthcare.

This Rs-548-crore group wishes to further strengthen its base in its homeground-North India and plans to expand all over India. Using an intelligent mix of greenfield projects, joint ventures, acquisitions and management contracts, at present, the group owns 22 hospitals (including eight satellite/ heart command centres). With a cumulative bed capacity of 2,600, the Group hospitals include multi-speciality hospitals as well as super-speciality centres providing tertiary and quaternary healthcare to patients in areas such as cardiac care, orthopaedics, neurosciences, oncology, renal care, gastroenterology and mother and child care. Fortis is not only the fastest growing but already the second largest healthcare delivery player in barely seven years.

Tested Waters in North India

The Group has been relying on a mix of locating the right demand and intense engagement and utilisation of right manpower to expand its base in North India. In view of the high incidence rate of heart disease in Punjab, the Group's first hospital in Mohali started as a cardiac centre-Fortis Heart Institute— a 200-bed hospital. However, making a mark wasn't easy for a new entrant to the healthcare market. "It had a lot of teething problems. People still preferred Delhi as a destination for cardiac care. Also, the availability of doctors was an issue. The performance of the first three years was not good," admits Monica Sood, Head, Healthcare Practices, Feedback Ventures.

The Group decided to convert it into Fortis Heart Institute and Multi-speciality Hospital in 2002. Dr TS Mahant, a well-known cardiac surgeon from Batra Hospital and Medical Research Centre, New Delhi, joined the Hospital and was able to increase patient volumes. That's how the hospital project took off. Fortis learnt the lessons fast from Mohali and marched forward embarking upon a rapid expansion spree. The next major project was a multi-speciality hospital in Noida. "It was the success of the Noida facility which helped them to go aggressive. It gave them enough time to understand the business. After its success they started expanding," points out an analyst.

"The biggest acquisition was that of Escorts Heart Institute and Research Centre in 2005. This has been the largest merger and acquisition in this sector to date, immediately catapulting Fortis to a different league in this space," shares Shivinder Mohan Singh, MD and CEO, Fortis Healthcare. This acquisition helped the Group to capture a large share in cardiac healthcare.

"From a strategic perspective, we are clear that whatever geography we enter, we will have a very intense engagement with the population of that area. We are not happy with just one hospital in a city. We believe that hospitals need to be conveniently located so that they are accessible to population in all areas. Our strategy will be to have multiple hospitals in cities like Delhi," says Daljit Singh, President, Strategy and Organisational Development, Fortis Healthcare.

Hub and Spoke model

300-bed Fortis Hospital in Mohali

The group has been following the hub and spoke model. This model has allowed the group to serve the comprehensive medical needs of patients in their local communities at its multi-speciality facilities. The hubs focus on super-speciality 'centres of excellence.' Patients in need of such medical intervention are referred to these hubs from the multi-speciality facilities in the region. This model has allowed the Group to efficiently deploy resources across its network as its super-speciality expert clinicians provide expertise and support to its multi-speciality hospitals. It also serves to increase the quality of care throughout the network.

Unlike most healthcare providers, Fortis has opted for a staff model for doctors in its key specialities. This means that the doctors are full-time employees of Fortis and not empanelled with different hospitals. This gives both doctors and patients a distinct advantage. The doctors do not have to run from hospital to hospital and are encouraged to enhance their knowledge through research or attending conferences while the patients have the benefit of access to doctors as needed. As full-time employees, the team has a strong commitment, leading to better patient care and quality.

The third part of the model includes a common Fortis Operating System to ensure standardisation of all non-clinical processes which impact patient experience during their stay at any of the Group hospitals. "A common positive patient experience across our hospitals has helped build a strong brand. We have 200 patient interfacing processes and systems standardised across our facilities," Shivinder Singh explains.

The fourth part of the model is a deep strategy which is primarily building multiple hospitals in each region that the Group enters. The Group mainly has been targeting the metropolitan cities. Any metro in India has a population equivalent to populations in several cities combined in many countries. Obviously, just one hospital cannot meet their needs. Also, there are natural geographical regions in a metro.

Typically healthcare is a neighbourhood amenity and patients do not like to travel unless they have to. The more complex the procedure, the more likely they will travel greater distances for it, and for this reason the Group has built super-speciality hospitals. "In our model in a metro we put up hubs in each of the natural regions and surround them with spokes. So we have large hospitals which act as hubs and mid-sized ones which are our spokes that take care of 90 per cent of clinical needs and use hubs for critical support," Shivinder Singh says.

Tier II cities and Challenges

The tax holiday given by the Government for hospitals in tier II cities has not attracted this Group. According to Singh, there is potential in tier II cities but somewhat limited. "It's good that the Government is thinking about it. But this tax holiday means nothing. We are aiming at creating high-end tertiary care centres. By definition, this means we have expertise in the management of serious medical care. This requires significant investments in infrastructure and diagnostics. We also need specialist doctors. The cost is very high. One cannot survive in tier II cities. They do not have a patient base or paying capacity," explains Daljit Singh.

He also points out the difficulty in appointing senior doctors and management in tier II cities. In his view, there isn't a good social structure. From an aspirational perspective, one wants to be in a location where there are good schools for children, shopping malls, opportunities for spouse to work and so on and that the infrastructure in tier II cities needs to improve.

He also pointed that Fortis Jaipur is doing well. The management contract to run the cardiac centre in Raipur has also been extended by the Chattisgarh Government. The Group will look for expansion in state capitals. However, there are no plans of expansion in tier III cities.

Femme Fatale

"We would like to set up 10 health cities with hospitals and campuses having colleges for dentistry, paramedics and nursing" - Shivinder Mohan Singh MD and CEO Fortis Healthcare

"We are clear that whatever geography we enter, we will have a very intense engagement with the population of that area" - Daljit Singh President Fortis Healthcare

Fortis has been one of the premier healthcare groups to recognise the need to have healthcare centres dedicated to women. Last year, it had a deal with Sunrise Medicare Group. Thus, Fortis La Femme was born. Located in South Delhi, this upmarket medical facility for women and children offers services in the areas of obstetrics, paediatrics, neonatology, cosmetic and gynaecological surgeries, and operates a high-end breast clinic and regular health check- ups.

Of IPO & Profits

The IPO floated by the group in 2007 was able to generate Rs 650 crore (Rs 153 crore pre IPO) which helped in paying off the debt incurred to acquire Escorts. The money raised also helped in funding a greenfield project in Shalimar Bagh (North-West Delhi). "By going public, the analysts and the public have understood the financials behind healthcare. We were oversubscribed and thus we showed our investors that we are here for the long haul. Now, because of the meltdown, people are saying that we are doing a good job. The industry seems to be recession proof," says Singh.

Fortis Healthcare reported a net profit of Rs 10.06 crore for the second quarter ended September, 2008 compared with a loss of Rs 15.23 crore in the corresponding quarter last year. Total income for the quarter stood at Rs 167 crore, against Rs 129 crore in the same quarter last year. EBIDTA for the quarter stood at Rs 30 crore, up 191 per cent over the corresponding quarter last year.

Expansion Projects in Pipeline

163-bed Fortis Escorts Hospital in Jaipur

The group has recognised the need for hospitals to be located conveniently. Expansion in North India has not stopped. Currently, a greenfield multi-speciality hospital in Shalimar Bagh is under construction. "It's a seven and a half acre plot. It will be a very large super speciality hospital. In phase one, we intend to open 250 beds. In its finished state it will have 550 beds. It will be operational by the middle of next year," claims Daljit Singh. Experts feel it is a strategic location. "There is a need for a good hospital in North-West Delhi. There isn't a major one in that part of the city," says Sood.

During the global meltdown, the group has seen an opportunity in medical tourism. "Huge recession in the US and developed countries will lead to cost cutting including their exorbitant healthcare costs. This will have a positive impact on the Indian healthcare industry. More international patients are likely to travel to India from these countries for their healthcare needs, which will provide further impetus to the domestic healthcare sector," opines Shivinder Singh.

Therefore the group has recognised the need for international accreditations. Fortis Hospital Mohali has already received JCI accreditation. In addition, four Fortis hospitals have received NABH accreditation. These include hospitals in Noida, Jaipur, Mohali and Escorts Heart Institute in New Delhi.

Fortis International Institute of Bio-Medical Sciences at Gurgaon, a seven-star multi super-speciality flagship hospital is also under construction. "We are setting up a mega scale hospital and research centre in Gurgaon with a 1,000 bed capacity. The hospital will have centres of excellence providing care at quaternary level in oncology, trauma, paediatrics, mother and child care and cosmetology along with a fully equipped multi-speciality hospital," shares Shivinder Singh.

With this mega project, the group is not only focussing on the population of Gurgaon and adjoining states like Rajasthan but is cleverly targeting foreign patients. The group claims that location is strategic since the Medicity will be situated close to the international airport. The patients can be picked up directly from the airport and brought to this seven star hospital without venturing into the city of Delhi.

For a group expanding at such a fast rate, shortage of manpower is a key challenge. To cater to medical education, the group plans to set up new health cities. "We would like to set up 10 health cities with tertiary care hospitals, with campuses having colleges for dentistry, paramedics, nursing, clinical research centres, and pathology laboratories. However for this to be practical there is a need to change Government policy," opines Shivinder Singh. Today for-profit companies are barred from entering the medical education space and he is hoping that this changes quickly given the huge shortages in medical talent across the board.

After establishing a strong presence in North India, the group is aggressively targeting a national presence. "Our purpose is to understand the business of healthcare delivery (in North India) before stepping down to the rest of the country," says Daljit Singh.

The group has expanded its footprint in South India by acquiring the 250-bed Malar Hospital, Chennai this year and are currently expanding and upgrading the facility. The group has also entered West India, acquiring the Hiranandani Hospital project in Vashi, Navi Mumbai, a tertiary level facility for an investment of Rs 32 crore. This is in the form of a Public-Private- Partnership (PPP) with Navi Mumbai Municipal Corporation. The location is strategic since Vashi needs a hospital that promises good quality healthcare. In super specialities, the hospital caters to cardiology, orthopaedics, trauma and neurology with a backup of multi-speciality.

The group plans to have 35-40 hospitals comprising 6,000 beds by 2012. The total investment for this is expected to be around Rs 2,700 crore of which funding requirements from Fortis shall be around Rs 1,500 crore (as the additional capacities shall be in the same mix of greenfields, joint ventures, O&M and acquisitions). According to Daljit Singh, the company as of now is comfortably placed with debt equity of 0.54:1. Hence there is headway to go on increasing debt to fund these investments. However, the company is confident that money will not be an impediment for growth. It will exercise all possible options of Preferential Capital / REIT / Issue of Capital to fund these expansions.

Challenges

Reliance on senior doctors is also a major challenge. "One of the problems they face is the reliance on star doctors. The business is driven by the doctor(s) rather than hospital branding. That's an issue all hospitals are facing today," shares Sood.

The biggest challenge, undoubtedly, is maintaining the brand value after the exit of Dr Naresh Trehan. However, the Group is confident of doing that. "Whilst we continue to focus on rapid growth, we need to simultaneously retain focus on improving our operating performance. Attracting, retaining and growing talented people are constant challenges in a sector bursting with opportunities. As our network expands, our ability to attract good talent also improves," concludes Daljit Singh.

So there's no stopping the enthusiastically expanding group!

sonal.vij@expressindia.com