For the first time after its listing three years ago, Fortis Healthcare has registered profits from its hospital chain business.
The quarter ended June 30, 2008, saw Fortis make a net profit of Rs 94 lakh as against a net loss of Rs 23.5 crore in the corresponding period last year.
Fortis results, experts say, are not just about the performance of its hospitals, but an indication of the revenue generating potential of Indian healthcare segment.
"If you have the right kind of location, able to get the doctors in place, manage the referrels well and have a 70 - 80 per cent occupancy, break-even can happen within three to four years," said Murali Nair, partner, Ernst & Young’s health sciences practice.
The corporate-run hospitals are registering profit even as they compete with neighbourhood doctors, nursing homes and other medical facilities.
The National Commission on Macroeconomics and Health has observed that over 75 per cent of the human resources and advanced medical technology, 68 per cent of an estimated 15,097 hospitals and 37 per cent of 23,819 total beds in the country are in the private sector.
More From This Section
Healthcare companies Apollo, Wockhardt, Manipal, Max, Fortis among others are all making profits though they are in an investment phase. The patient flow is also going up, experts say.
"All hospital groups, including Fortis, that have entered non-metro cities are making money. Fortis' Jaipur hospital is known to have created a record of sorts by turning cash positive within 10 months of operation," an industry analyst added.
These hospitals are also posting profit by managing costs well, even after paying high property rates and fees to the doctors and other employees including medical professionals, by boosting efficiencies.
The key to raising efficiencies lies in higher asset turnover by managing higher occupancy and lowering the length of stay. By lowering the days of patients stay, hospitals not only offer quicker relief, but also making optimal use of the existing facilities said Shivinder M Singh, managing director, Fortis.
"Our continued focus on bringing down costs and improving efficiency at our hospitals has started to yield results,’’ Singh said.
Bigger hospitals also have pool procurement system for medicines, equipment etc. Making the services of key doctors available in other centres is also a measure to optimise the human resources
According to projections made by healthcare advisory firm Technopak, by 2011 at least 65 urban conglomerates will have the critical mass to establish viable centres of medical excellence.
The analysts are vouching on the business potential of healthcare sector.
"Growing population, rising income, growing urbanisation and increasing burden of chronic diseases are all contributing to the growth of Indian healthcare sector. The sector is at the point of inflection in transforming the delivery setting in terms of the formats, quality of care, affordability and geographical access. The present day patients are more demanding, expecting better services for their money and exercising choice in choosing a facility for reasons other than cost," Rana Mehta, vice-president, Healthcare, Technopak said.
The National Commission on Macroeconomics and Health has noted that the health system (in the public sector) continues to be unaccountable, disconnected to public health goals, inadequately equipped to address people's expectations and fails to provide financial risk protection to those unable to access care for want of ability to pay.
The only other publically listed healthcare major, Apollo Hospitals, has also been registering profits for years now.
The unlisted entities like Max Healthcare, Wockhardt Hospitals and Manipal Hospital, though not forthcoming about their profits, are also known to be betting on high growth in the coming days.
"We have big growth plans for Max Healthcare. Four new hospitals, three in Delhi and one elsewhere in the North, are coming up. We are growing in the superspecialty area and will be the biggest private player that provides comprehensive healthcare in a single hospital," Analjit Singh, chairman of Max India had told Business Standard in an interview recently.
It is not the location alone that has made Fortis turn profitable. It has also much to do with the management decisions, experts said.
"Traditionally hospital business was mostly doctor-driven. Today, they are being professionally managed and we find IIM graduates managing hospitals. The shift in the managerial practices have added significant efficiency in hospitals. This explains why the EBITA margins of some of the corporate hospitals and single hospitals differ much," Nair said.
The best indicator of the growth opportunities in healthcare segment is perhaps the growing interest of investment bankers in the sector. A recent analysis by Technopak says Indian healthcare sector attracted over $448 million (about Rs 2,000 crore) in year 2007.
"India already has an active fund provider base supported by the ICICI Venture, one of the largest private-equities, which allocated $250 million for a dedicated healthcare fund through I-Ven Medicare. Others include IDFC, HSBC, JP Morgan Private Equity Fund, American International Group (AIG), Evolvence India Life Sciences Fund, George Soros's fund Quantum and BlueRidge. Between 2008 and 2011, the sector is expected to see investments of around $5 billion (over Rs 20,000)," Mehta said.
The five-year tax holiday for hospitals in smaller towns announced during the Union Budget 2008 will also encourage private sector to establish hospitals in Tier II and III cities.
Technopak estimates that around $20 billion will be invested in such cities in healthcare facilities in the next five years.