Publisher: FAPCCI Review
Dated: March 29, 2017
Pages: 21 - 23
Author: Sanjay Nannaparaju
What has been quite successful practice in hotel and hospitality industry is being replicated by the healthcare industry of India, as well, to further quality growth and geographical expansion at a resounding pace. Taj Group's "asset-light approach" as adopted by healthcare majors like Apollo Hospitals and Fortis and even the emerging like MaxCure Hospitals (Hyderabad) and Cygnus Hospitals (Pune) aims to use the existing infrastructure as provided by smaller hospitals in cities and towns across India, thereby saving on huge investments required to setting up new hospitals from the start. This even means to cross breakeven at a short period and availing expert local resources prudently.
ASSET-LIGHT MODEL
The takeover of small and sick hospitals and running them on professional lines is referred as "asset-light model." With no land and building costs, the equipment of the hospital is upgraded and operations made sustainable and later profitable. For example, an efficiently managed hospital taken on long-term lease can generate returns of 18 - 20 percent on capital. Within one to two years, healthcare start-ups could expand many-fold by signing the "operations and management" contract.
Without owning a piece of land or constructing a new building, the healthcare chain gains foothold in new regions. This means to enlarge the customer base and further its brand value. The "asset-light" route has been quite popular with major and emerging healthcare institutions in India. Business consolidation and enhanced service quality are both greatly achieved by the asset-light route, as Fortis and Apollo are leading the fray with vast geographical expansion to reach.
What is increasingly described as "professionally managing" small and non-viable hospitals, the approach to run on contract/lease based agreements is proving to show results. In this arrangement, healthcare organizations grow and reach out to new markets by taking over small and non-performing hospitals on lease/contract basis. The owner is paid a part of the revenue or lease rental. The healthcare organization owns the beds, medical equipment and people. The building solely belongs to the owner.
CORPORTE HOSPITAL CHAINS
MaxCure Hospitals Hyderabad' innovative business model has made it to grow at a rapid pace in the last few months (not years) with focus on underperforming hospitals. The business strategy is definitely "operational lease" agreement by which the signing hospital provides for CAPEX (capital expenditure) and MaxCure takes care of OPEX (operational expenditure). A fixed lease amount is paid to the signing hospital and the healthcare provider arranges for state-of-art equipment and specialty consultants, with strict adherence to highest quality standards maintained across the chain of hospitals of the group.
Coming close to MaxCure Hospitals' success with "asset-light" and "operational lease" agreement is Cygnus Hospitals, owned and managed by Dr Dinesh's Cygnus Medicare Pvt Ltd. Starting from 2011 - 12, Cygnus started signing lease agreements with small hospitals. Now Cygnus includes a chain of 11 hospitals present in Haryana, Punjab and Delhi. With focus on cardiology, joint replacements, neurosciences, critical care, laparoscopy and trauma, Cygnus has a turnover of 105 crore (2015 - 16), whereas MaxCure that started off as a heart institute has now turned into a multi specialty group with a chain of 9 hospitals in the two Telugu states. The turnover of MaxCure stands at nearly 165 crore (2015 - 16) with huge plans of business growth as furthered by Mr Harikrishna, its young and dynamic CEO.
In addition to the lease-agreement/asset light business model, the tremendous success of Cygnus and MaxCure has been mainly due to adoption of successful operational practices with equal role played by the Directors who are predominantly practicing doctors and professional managers who bring decades of proven expertise in administration, marketing and branding.
HEALTHCARE CHALLENGES
In India, healthcare confronts major challenges. According to an expert if there are 700 districts in India, there is dire need for cardio, neuro and intensive care interventions. For sure, the lease agreement /asset light business approach is sure to bring quality care to all districts and towns, totally. Even though India has witnessed rapid economic growth, with GDP of 7 percent, there remain challenges of poverty, health, illiteracy and access to basic needs. India's infant mortality rate is three times higher than China, and seven times greater than U.S. If 2 million Indians require heart surgeries, the question is of why only 5 percent of them have access to it?
According to one estimate, 63 million diabetics and 2.3 million cancer affected are yet to be diagnosed. It is no exaggeration if we say that 70 percent of the 12 million blind can receive sight by a simple surgery. As per 2013 estimates, we have 7, 50,000 doctors, and 1.1 million nurses which is one-fourth of U.S. and less than half that of China. With hospital beds in short supply, even today 60 percent of health expenses are paid from one's own pockets with little percolation to insurance access.
NECESSITY LEADS TO INNOVATION
With the public healthcare system already strained by lack of specialists, infrastructure and reach, the healthcare chains are taking the lead to fill the gaps for quality and affordable health facilities. Low costs affect large volumes of patients allowing the healthcare chains to remain profitable and utilize the equipment optimally. With healthcare costs 95 percent lower than U.S. the emerging healthcare chains in India are providing quality healthcare as per NABH standards. As India's medical tourism boom stands at $ 1 billion the quality standards assured by NABH accreditations makes the healthcare chains of India to play a more robust and proactive role towards meeting the health needs of not only local but global patients as well.
Finally, any healthcare business has to serve three ends, offer quality service, provide affordable care and adopt innovative practices to remain competitive. India's healthcare chains have long outraced their counterparts in U.S. by adoption of complete new and innovative medical and surgical practices.
Hyderabad, a popular medical tourism destination globally has shown equivalent outcomes in international standards for medical complications of knee, coronary and prostate surgery.
The five year survival rate of breast cancer patients and peritoneal dialysis patients of Hyderabad's healthcare centers is on par with those in U.S. The differential cost of labor has also made India hospital chains greatly competitive, as the salaries of medical specialists (cardiologists, nephrologists, ophthalmologists and oncologists) nurses, medical staff and administrators are lower than their counterparts in U.S. Also by adopting two innovative practices as the hub-and-spoke configuration of assets and introducing new surgical practices, the healthcare chains have sustained their competitiveness.
HUB-AND-SPOKE APPROACH
In the hub-and-spoke approach, super specialty facilities are made available at district Head Quarters and spoke facilities are created at far-flung towns and villages. Patients are profiled as per the stage of disease and referred to hub facilities for treatment. Specialty hospitals in metros and major cities have access to high-end equipment as PET-CT scanners, cyclotrons and linear accelerators. The hub-and-spoke approach helps in achieving more footfalls at hubs, greater/optimal use of equipment and availability of specialists. On average, a CT scan evaluates 3 - 5 patients a day in U.S. it goes to 20 scans a day in India. Higher volumes mean greater economies of scale to purchase medicines, supplies and medical equipment.
India's healthcare chains have developed treatment protocols. As per the risk involved cases of complex surgeries are accorded treatment on basis of age, weight, medical history and life-style. Extra precautions are taken for high-risk patients. Advances to treatment protocols have reduced the mortality rate in patients undergoing cardiac specialty treatments at the hub. Apollo is now the leader in organ transplants and LV Prasad Eye Institute, a leader in corneal transplants.
GROWTH OF SPECIALIZATION
The growth of specialization at hub locations of healthcare chains has also led to promotion of innovation. The hub location in India has pioneered beating-heart method of surgery, where operation is made possible without shutting down the patient's heart. This does away with the need for heart-lung machines, fewer surgery complications, faster recovery, and shorter hospital stays. By going in through the wrist, instead of groin, angioplasties are made faster with early recovery. Single corneas are sliced for use at more than one eye transplant.
The focus of hospital chains in India has always been on continuing education and equipping nurses and support staff with needful skills. On one side are highly specialized doctors for complex surgeries, on other side are low cost healthcare workers. Nurses are trained to assist oncologists and intensivists. By increasing the number of trained paramedical staff, the work during pre and post operative period is speeded.
Also, the paramedical staff work at spoke to undertake tests, check vitals, preparing patients for surgery and providing follow-up care, with surgeons performing only the actual procedure. Family members of the patient are also provided training following heart surgery. This reduces care costs, personalizes care and reduces post surgical complications. Hospital chains' costs are reduced by careful maintenance and repair of equipment and instruments. For example, steel clamps, needle holders, forceps and scissors used during heart surgeries are reused with strict adherence to sterilization procedures.
Even doctor's recommendation has come under the scanner, with fixed salaries paid and fee-for-service availed on case to case basis. A word about stents needs mention due to their regular use and high costs involved. A leading hospital chain established a subsidiary to manufacture low-cost stents that cost as low as $ 240 to $ 360 a piece, which is 10 times lower than those imported. Creating awareness in doctors viz. sending P&L data of previous day helps doctors take a close look at medicines, supplies or tests and motivates them to adopt cost savings through process improvements.
HEALTHCARE INDUSTRY in INDIA & U.S.
In India, the focus of healthcare chains is on the hub for specialties and spoke for primary care and diagnosis. However in U.S. the healthcare chains have focused more on hubs with little or no focus on the spoke. Innovation is found in terms of new medications, procedures, devices and medical equipment. Contrary, in the healthcare delivery there is little progress. The doctors there tend to make autonomous decisions and view each patient as different.
CONCLUSION
With no-profit and quality healthcare service as the established objectives, the public healthcare institutions in India move ahead to provide primary, secondary and tertiary care across different regions. Health care chains which are predominantly in private sector have positioned themselves in the secondary, tertiary and quaternary care with concentration seen in metros, tier 1 & 2 cities. By adopting innovative methods like hub-and-spoke, lease agreement and asset-light model, private healthcare chains could develop as sustainable businesses. However, the challenges confronted by public and private healthcare appear to be huge and compounding.
According to CRISIL Research the healthcare delivery market will reach 6.8 trillion INR by 2019-20, and the cost of in-patient treatment is expected to increase at nearly 8 percent CAGR. The private healthcare sector is to grow from $ 100 billion in 2015 to $ 280 billion by 2020. The market break-up by revenues includes hospitals (71%), diagnostics (3%), pharmaceuticals (13%), Medical equipment & supplies (9%) and medical insurance (9%).
In this scenario the corporate healthcare chains are sure to achieve more than 80 percent share of the market. With the need to invest 4 trillion rupees in healthcare development, and India's global disease burden reaching almost 20 percent, the need to focus on more number of beds, specialized doctors and nursing staff and advanced equipment can be met holistically by corporate hospital chains only.
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