The tussle for Care Hospitals

The TPG-Care Hospitals and Blackstone deal could result in yet another mega-merger, but spurned suitor Max Healthcare could play spoilt sport

The long-awaited Cabinet approval of the National Medical Devices Policy got the thumbs up from industry leaders across the spectrum, for various reasons.

Global medical device makers sense an opportunity to increase their access to the Indian market, and we could see increased investments from these players, who may have been in wait-and-watch mode after the first flush of fund infusions a couple of years back.

On the other hand, local medical device/ medical technology makers hope the Policy will serve their strategy of making India the base for medical devices manufacturing and exports. The Policy has the vision to increase the share of the Indian medical devices industries to 10-12 per cent globally over the next 25 years, from the current 1.5 per cent.

It is hoped that the Policy will lay the basis for this strategy, with its emphasis on skilling. While India’s share of the global medical device market may be a miniscule 1.5 per cent, Indians are already eight per cent of the global medtech R&D workforce. Industry experts are seeing these stats as a clear indication of an existing skill set affinity that can be further honed.

Will the Policy balance the ambitions of the many factions within the medtech sector, as well as increase access to affordable medical devices and technology within the country?

On paper, it ticks all the right boxes: regulatory simplification, infrastructure development, R&D, innovation facilitation, investment attraction, human resource development, and brand positioning.

While both sides are still perusing the fine print of the Policy, a lot will depend on the implementation and interpretation. As is the case with any policy directive.

For instance, take the recent revision in the Central Government Health Scheme (CGHS) package rates by the Union Ministry of Health and Family Welfare. Analysing the impact on hospital revenues, Mythri Macherla, Assistant Vice President & Sector Head – Corporate Ratings, ICRA expects that with these upward revisions in rates, hospitals would witness an increase in realisations from CGHS patients, who typically account for ~3-6 per cent of total footfalls for most large hospital chains.

Given that the revision is long overdue, it still falls short of tackling key pain points. The ICRA statement notes that the receivable period for such government schemes remains higher as compared to other payor categories such as cash/international patients and insurance companies. One hopes that policymakers go all out to make the National Medical Devices Policy a game-changer for the sector.

The interest generated by the approval of the National Medical Devices Policy is indicative of the long-term interest in India’s healthcare sector. In his Q4 forecast, a report from Sriraam Rathi, analyst – Healthcare and Pharmaceuticals, BNP Paribas India thinks hospitals are in a ‘sweet spot’, well positioned to deliver double-digit revenue growth on improving occupancy, a steady rise in ARPOB and bed additions. EBITDA margin has improved in the post-COVID era due to higher ARPOB and rationalised costs, which it expects to continue.

Thus, the continued consolidation in India’s hospital sector is not a surprise, as investors double down to acquire more market share.

Pegged as the largest deal so far by a PE fund in the hospital sector, early April saw Temasek, directly and through subsidiary Sheares Health, up its stakes to 59 per cent in Manipal Hospitals. In perhaps a sign of the times, the promoter family ceded control while retaining 30 per cent.

Keeping the faith in India’s healthcare sector, PE/VC investors are tipped to be driving more such deals this year. However, there is a flip side to these market moves. While everyone loves a mega-merger, spurned suitors could play spoilt sport.

More recently, in end April, Max Healthcare took TPG to court for allegedly breaching a term sheet agreement. Simply put, while Max Healthcare was courting Care Hospitals, Care Hospitals’ PE investor TPG, allegedly continued to look around for a better suitor and concluded that Blackstone’s offer was better.

With the Bombay High Court appointing a retired judge as arbitrator of the dispute at the first hearing on May 3, there is always the possibility that the concerned parties negotiate a solution to avoid yet another protracted legal battle.

While investors are lining up for a slice or sliver of India’s corporate hospital pie, what will it take for some of this faith to rub off on India’s public hospital segment? Public Private Partnerships in this sector haven’t served the purpose so far.

And zooming out, how and when, will these mega mergers and smaller buyouts translate into more affordable patient care across the spectrum of India’s vast demographic and geographic profile? With apologies to Bob Dylan, the answer to that is still blowin’ in the wind.


fundinghealthcare investmentsNational Medical Devices PolicyPPPs in healthcare
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