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As was the case with many tier-II hospitals in Karnataka, Hubli-based Vivekananda Hospital was keen on outsourcing its laboratory processes to a diagnostic services provider. For the hospital, Asian Health Meter (AHM)'s rural-focused model was a good fit.
In April this year, it signed a long-term agreement in this regard with the Tara Mohapatra-promoted Asian Health Alliance (AHA).
AHM is the diagnostic services brand of the Bangalore-headquartered AHA.
Last year, when non-profit global venture fund Acumen was scouting for a partner to bridge the gap between affordable and quality diagnostic services in rural areas, it zeroed on AHA because of the alliance's focus on quality and reliable diagnostics for communities in which 80 per cent of households earned less than Rs 15,000 a month.
Investment opportunities in such an emerging chain are limited, as unorganised labs perpetuate low-quality pathologist/ technician-run clinics that often offer only a few tests and inaccurate reports. AHA's services are priced 30-40 per cent lower than those offered by large players. A blood sugar test, for instance, costs Rs 40 at AHM, against the Rs 70-80 charged by large companies in this segment.
Asked how AHM has been able to bring down costs, Mohapatra says his facilities aren't National Accreditation Board for Testing and Calibration Laboratories (NABL)-benchmarked but follow the highest standards. "NABL standards prescribe protocols under a high workload of samples. It makes sense for those who feed 30 samples an hour into a machine, compared with 30 samples a day in our case," he adds.
AHM began operations in north Karnataka in 2009, opening its first cluster under the hub-and-spoke model. The Davengere hub is supplemented with 'spoke' sample collection processing centres for basic tests, typically in neighbouring talukas.
AHM's first association in Davengere was with City Centre Hospital, followed by Jayapriya Hospital in Hubli. "Before this, both hospitals had been looking to outsource the laboratory work to a professional organisation. They found AHM's quality and low-cost model a perfect fit," said a Davengere-based doctor.
In June this year, AHM signed a memorandum of understanding with Pune-based realty firm Suyog Group for setting up a diagnostic laboratory cluster to cater to customers around Pune.
AHA has two hubs and seven 'spoke' centres in Davengere, Gulbarga and Hubli. It plans to establish two new hubs and nine spokes by 2015-end. By 2016, its plans to operate 30 centres and conduct about three million tests by 2020.
Tara Mohapatra, also the founder and promoter of Asian Heart Institute in Mumbai, says through four years of operations, covering Davengere, Hubli and Gulbarga hubs in north Karnataka, his resolve to reduce the cost of services has grown stronger. He adds each cluster (a hub, supported by five-six centres) has the potential to clock annual revenue of at least Rs 3 crore; currently, these clusters record half that figure. AHM carried out about 150 diagnostic samples a day; it aims to raise this to 300 in the next financial year and expects break-even in 2015-16, on expectations of volume growth.
"Our long-term goal is to standardise practices under a low-cost model and minimise referral incentives for doctors," says Mohapatra.
Karuna Jain, senior associate at Acumen India, says, "Their goal is to offer high service standards in small towns." She adds unethical doctor referral incentives, encouraged by unorganised small-chain diagnostic centres, are prevalent. These lead to wrong/delayed diagnostics, which not only inflates treatment costs but might also result in death/spread of a disease.
She is confident AHM will usher in a new model for quality diagnostics in villages.
Funding and financials
So far, Mohapatra has invested Rs 2 crore into the company. Keeping AHM's grass-root focus in mind, Acumen has committed to invest $750,000. "We have invested half the committed money, starting November 2013," Jain said.
The investment will enable the company to expand its radiology and pathology services in north Karnataka.
For 2013-14, the company's revenue from the diagnostics business stood at Rs 3 crore.
It expects revenue to remain the same this financial year, too, as some centres haven't been able to record targeted volumes. However, for 2015-16, the revenue is expected to stand at Rs 5 crore, as new centres start functioning.
Challenges
As many clusters haven't been fully developed, scalability is a concern. As the profitability of a cluster hinges on the volume of samples executed, it is critical for AHM to increase the sample load. And, scaling up the load depends on developing preventive diagnostics through constant education and awareness programmes.
What offers promise is the rise in demand for quality diagnostics, as young doctors move to smaller towns. The company is working hard on building a qualified team of technical and operation staff. It is also nurturing local talent to improve staff retention.
FACT BOX
- Asian Health Alliance provides diagnostic services for rural population earning a monthly household income of less than Rs 15,000
- Promoted by Tara Mohapatra. He is also a founder-cum-promoter of 200-bed Asian Heart Institute, Mumbai.
- Mohapatra has so far invested Rs 2 crore
- Devised a low-cost business model.
- Services are priced 40% less than high-end diagnostics
- Turnover last financial year was Rs 3 crore
- Targeted sales the same this financial year
- Received $350,000 funding from Acumen in 2013 from the committed $750,000
EXPERT TAKE
Universal health care coverage will significantly drive demand for diagnostic services by making care affordable for a large section of Indians, especially in rural and semi-urban areas. This bodes well for players such as Asian Health Meter (AHM), which are committed to providing reliable and cost-effective diagnostic services in non-metro regions. In catering to this latent demand, AHM will benefit from the first-mover advantage. Currently, however, the sector is largely unorganised, with the majority of patients in tier-III and tier-IV locations and rural areas at the mercy of unregulated labs and imaging centres that have dubious equipment and testing quality. Stringent implementation of the Clinical Establishments Act (which makes registration and maintenance of certain basic standards mandatory) will provide an edge to organised diagnostic service providers that focus on standardised testing. AHM has to intensify its marketing model to rope in new hospitals and private doctors and achieve a higher sample workload, besides encouraging preventive diagnostics.
Vikram Anand, principal and head (health care practice), IMS Health Information and Consulting Services
