Industry Voice

Healthcare for All- A Distant Dream or a Reality?

According to the Planning Commission, in private healthcare outpatient services are 20-54 per cent costlier and inpatient services 100-740 per cent costlier than public healthcare

"India's bed availability per thousand population is 1.5 as compared to 4.3 in middle income countries like China, Brazil and South Africa" - Susnato Sen Practice Head- Infrastructure Tata Strategic Management Group Mumbai

The healthcare delivery systems in India effectively cater to only 10 per cent of the population and mainly to the affluent section of the society. Is it possible for this highly capital-intensive industry to serve the rest of the population without any subsidies and Government support? Yes, in fact it makes a good business proposition.

Healthcare Scenario in India

India has shown steady improvement in basic health indicators such as life expectancy at birth, infant mortality etc. However, a very large part of the population continues to be deprived of basic and quality healthcare facilities. Some of the key indicators of the current scenario are as follows:

Accessibility to Healthcare Facilities

India's bed availability per thousand population is 1.5 as compared to 4.3 in middle income countries like China, Brazil and South Africa and 7.4 in high income countries of the US, Western Europe and Japan. The divide is more staggering between urban and rural India where bed per thousand population is 1.8 in urban area as compared to < 1 in rural areas. Considering a population of over one billion in India, this translates into a huge unmet demand.

The Government healthcare sector is inadequate to meet this demand. As per a Planning Commission estimate, the private sector constitutes over 80 per cent of the total healthcare service providers.

Affordability of Healthcare Facilities

But how affordable is the private healthcare? According to the Planning Commission, outpatient services are 20-54 per cent costlier and inpatient services 100-740 per cent costlier than public healthcare. This pushes up the cost of healthcare.

As per NCAER survey in 2005-06, there were about 204 million households in India with 91 per cent of these in mass and middle income group (Refer Fig 1).

Figure 1: incme Piramid

Also in general, there is very low penetration of health insurance (3-5 per cent) across the population, only catering to the affluent class. Thus most of the healthcare expenses are paid out of pocket. It is indeed paradoxical that health insurance is available to those who can afford expensive healthcare treatment and facilities and is largely beyond the means of those who are needy.

Thus the mass category which has a limited ability to pay is left with very little option other than going to government hospitals or private facilities that often lack quality and proper healthcare infrastructure. So, the limited healthcare facilities available are also skewed more in favour of the affluent category of the population.

Increasing Need of Healthcare Facilities

Another trend is a shift from communicable diseases such as tuberculosis, leprosy to non-communicable/lifestyle diseases such as cardio-vascular diseases and diabetes. While many of the communicable diseases have been controlled to an extent and are expected to be eradicated in the coming decade, lifestyle diseases are expected to grow (Refer Fig 2 on page 28). This shift is resulting in not only higher cost of treatment but also lengthier period of treatment.

Contrary to popular perception, these diseases are not only prevalent among the rich and the affluent but also among the middle and lower income segments. Often such expensive treatment is undertaken through high interest rate borrowings from private money lenders and by selling assets such as land or borrowing from family and friends, thus creating tremendous financial burden.

Hence, there is a need to address this huge demand from the mass category present in both rural and urban areas through cost effective innovative business models.

Innovative Business Models in Mass Healthcare

The needs of the customer are broadly segmented under three clusters- Rural, Tier II/III cities and Metro/Tier I cities and possible business models to address these needs are discussed below:

• Rural Area: It remains deprived of even the basic healthcare facilities. Accessibility is the primary need. Thus the value proposition that a private player can provide is access to qualified medical personnel at the doorstep (e.g. Care Shop Ghana and Healthstore Kenya) or to a qualified doctor via telemedicine (e.g. SehatFirst in Pakistan). Contrary to common perception, these facilities can be a viable business proposition (Refer Case Study 1).
• Tier II /III cities: The primary need for people in these cities is the access to affordable and quality secondary healthcare facilities. The value proposition that a private player can provide is quality services at a lower cost - a model pioneered by Aravind Eye Care System (Refer Case Study 2). Many new hospital chains are now emulating this business model in specialised treatment facilities. At the same time, hospitals such as Columbia Asia are offering affordable general hospital facilities with specified standardised treatments /procedures. The fact that they are expanding at a rapid pace indicates the viability of such business models.
• Metro / Tier I Cities: These cities typically have large number of hospitals in all the three segments-primary, secondary and tertiary. But here the biggest concern is the affordability. A good case for affordable healthcare delivery is the Narayan Hrudayalaya, Bangaluru (Refer Case Study 3). They ensure high quality affordable treatment through high utilisation of resources at their disposal.

All these models have an underlying focus on reducing cost through higher productivity of personnel, technology selection as per need, high asset turnover and innovation driven processes. Some other hybrid business models like HCG (16 cancer hospitals) and RG Stone Urology (~15 hospitals) are located in metro, tier I and tier II cities across India. All these chains, founded by doctors and entrepreneurs alike are now attracting substantial private equity investments.

Figure 2: Disease Burden 2005

Implications

Emerging Role of Private Sector Players

Figure 3: Role of Government

These emerging models have profound implications for the current structure of the private healthcare delivery industry. We expect the industry to evolve into the following structure eventually:

• Franchisee-based private healthcare chains will spring up in rural areas to cater to the primary healthcare requirements of the rural population. A typical centre would include a pharmacy, trained paramedical staff and access to a qualified physician via telemedicine platform. These centres would be for profit centres run by virtue of being cost effective per treatment basis and by catering to large unmet demand.
• Specialised-treatment based hospitals are expected to replace the existing general hospitals in tier I and II cities. The critical success factor for these hospitals would be to develop expertise in specific procedures/treatments by focussing on such procedures only. Despite focussed on specified procedures, these hospitals will also have medical professionals from other disciplines to handle complications. Their business model will be based on high volume-low price treatment and economies of scale which would drive down their unit costs and protect margins. Majority of patients would be expected to shift from existing tertiary care hospitals to such hospitals.
• Organised private players would replace current unorganised medical advisory clinics in cities/towns. These clinics would not only help to identify the ailment but also recommend the exact treatment / procedure while leaving the patient to chose the hospital (like the ones mentioned above) where he/she wants to get treated. These centres would have much superior capabilities to diagnose and recommend treatment than the current standalone physicians. Max healthcare neighbourhood plan has 50 clinics across Delhi, offering out-patient consultation and preventive health-checkups. These players would work in tandem with specialized hospitals to provide complete healthcare solutions efficiently.
• Existing tertiary care hospitals in metro and tier 1 cities would evolve into world-class facilities offering the best treatment possible. These hospitals would increasingly cater to patients from countries like the US. The critical success factors for such hospitals would be international accreditation, world class facility and cutting edge technology.

The key to success in this evolved scenario would be customer centric efficient delivery, economies of scale and focussed approach.

Role of the Government

While we expect the private sector to cover the pyramid as far as possible with these cost effective models for mass healthcare, it would be practically impossible for the private sector to cater to the lowest section of the pyramid. This is where the Government needs to play a pivotal role. Besides ramping up the network of its hospitals and primary health centres, it needs to cover this segment under medical insurance schemes as well. In this regard schemes like the Rashtriya Swasthya Bima Yojana are steps in the right direction. This scheme provides free medical insurance by private players to BPL families.

Evolution of Ancillary Industries

• With average cost of treatment coming down insurance premium costs may reduce, fuelling further demand from the large uncovered population.
• Diagnostics industry may also witness consolidation. More and more standalone players are already aligning themselves with the emerging corporate chains such as SRL Diagnostics (Religare group), and Well Spring labs, a unit of Nicholas Piramal. We expect this trend to gain momentum over a period of time
• Demand for medical equipments is being largely met by costly imports from Western countries presently. But with new demand being created, we expect India to evolve as a cost effective manufacturing hub catering to domestic demand as well as exports.

The healthcare delivery industry is poised to take off with new and innovative business models. The large unmet demand would create substantial business opportunities for the private sector across the value chain. Thus companies successful in aligning themselves with this transformation would stand to benefit immensely as this opportunity unfolds.

susnato.sen@tsmg.com
With inputs from Saurabh Jain and Dhruv Thakkar from Tata Strategic Management Group