Is a low-cost health-care model possible? To put it differently, can a hospital charge low, affordable fee and still make money? This is the new debate that has gripped the industry in India. Most private hospital chains, at least the ones in news, cater to the top-end of the market. Can they afford to move down the value chain? Tata Motors has made a low-cost car, GE has come out with inexpensive medical equipment and experiments are afoot in low-cost housing. Why not low-cost health care?
Anand Burman wants to set up a chain of such hospitals in Tier II and III towns, where ordinary folks can come for treatment. If it succeeds, it will blaze a new trail. The demand for good-quality health care will only rise in the days to come. So, it is the right business to be in. But the cost of real estate has deterred people like Burman from taking a top-down approach.
A large hospital can cost as much as Rs 1 crore per bed — more or less the same as a five-star hotel. This is somewhat similar to the United States where the norm is $200,000 for a bed. High real estate prices have made the business economics of hospitals go totally haywire. Most hospital chains have opened shop in high-street addresses because of the prosperous catchment area. On the flip side, it can take up to six years for investors to recover their money. These days, hospitals can be found lobbying the government hard for a tax holiday.
The other capital cost is equipment. Almost 70 per cent of the high-end medical equipment in the country are imported. It comes not from low-cost producers like China and Taiwan but from the United States and Europe. Doctors often say they feel more comfortable with imported machines. This is a challenge that Indian makers of medial equipment need to overcome. It may take long because mindsets don’t change overnight. Hospitals, of course, have petitioned the government to cut the import duty of 8-12 per cent to zero. After all, the equipment are used to treat the masses, they have argued.
To be fair, there are hospitals which are delivering low-cost health care. ChrysCapital Managing Director Sanjiv Kaul thinks it is an easily-doable proposition. A bed in the intensive care unit can be done for as little as Rs 25 lakh, according to him. ChrysCapital, in fact, had come close to investing in one such chain of hospitals. The deal fell through in the final lap after differences arose between the private equity firm and the promoter over the valuation of the company.
The Centre for Emerging Market Solutions at the Indian School of Business in Hyderabad wants to develop a low-cost model for health care. The Centre began to study the sector when it realised that though 80 per cent of patients go to private hospitals for treatment, the bulk of the aid goes to government hospitals. Some two-and-a-half years ago, it started monitoring the various business models in use. To its surprise, it found in use several best practices that cut the cost of delivery. For instance, some hospitals were found to use their machines round the clock — out-patients during the day and in-patients at night. In the West, these machines are generally used nine to five. It also came to light that several hospitals used paramedics for low-end services. This brought down the cost. The Centre is now doing an in-depth study. At the end, a model might emerge that can be transported to all emerging markets.
Bhavdeep Singh, the CEO of Fortis Healthcare, is hopeful that health care will slowly spread to the masses, much like mobile telephony. The sheer growth of chains like his, Singh says, has improved the penetration of high-quality health care. In the nine years that the company has been around, it has held on to most of its price tags, Singh claims. In some cases, like cardiac care, the prices today are lower than what they were five years ago. This has brought health care closer to the masses. The company has identified 150 touch points with consumers where efficiencies can be brought in. In spite of high real estate prices, it has capped investments at less than Rs 50 lakh per bed. After large cities, Fortis has in its crosshairs smaller towns like Kangra in Himachal Pradesh and Jodhpur in Rajasthan.
There is another reason for hope. Uttar Pradesh, some years ago, had debated a revolutionary idea: Why not get into partnership with the private sector for health care? The state runs primary health centres in remote villages and full-fledged hospitals in towns and cities. It would help, the Lucknow think tank suggested, if private medical colleges were attached to these hospitals. It would be beneficial to all. The hospitals would get new investments. The medical colleges would get hospitals, which is vital for medical education. But then the government changed in the state and nothing more was ever heard of the proposal. But it is important that such a chain of thought has been set in motion. Sooner or later, somebody is likely to latch on to the idea. That will change the health care landscape in India.
