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Indian Healthcare – Successful Business ModelsDr. Rakesh Kapur
The Context - Indian Healthcare Industry Understanding Business Models in Healthcare Comparative Case Study
Contents
Indian Healthcare Market
14%
6%
35%
17%
1%
11%
1%3%1%
3% 1% 6%
14%
6%
36%15%
5%
9%
2%
3%1%
3% 1% 5%
Healthcare pie (2006)US$ 34.2 Billion
Healthcare pie (2012)US$ 78.6 Billion
Growth : 15% CAGRPrivate Hospital Revenues
2006 – US$ 15.5 Billion2012 – US$ 35.9 Billion
► Understanding the healthcare market with 3P Model► Prevalence:
► High prevalence, likely to be higher than reported► Change in disease profile likely to drive the prevalence
higher► Significant disparity between states & socio-economic
classes in prevalence► Propensity:
► 3% of population slips below poverty line every year due to healthcare costs
► Average cost of single hospitalization equal to > 6 months of average household income
► Only 10-12% of Indian population is insured though growing at more than 35%
► Provider:► Although India has 20% of global disease burden, we have
6% of beds, 8% of doctors, 8% of nurses & 1% of paramedics ► Of the 13 Lakh private providers, 37% are unregistered
providing little quality assurance
Market Characteristics
Prevalence
Propensity
Prov
ider
3P Model of healthcare market
Indian Healthcare Market Characteristics
Consumer Viewpoint
► Understanding consumers from the 3A model► Accessibility:
► Inadequate infrastructure► High prevalence, increasing further► Regional disparity in India► Shortage of manpower
► Assurance:► Unregulated and fragmented market► Lack of data or information systems
► Affordability:► Inability to afford quality healthcare► Inadequate insurance penetration► Emergence of new diseases
Consumer viewpoint
Acce
ssib
ility Assurance
Affordability
3A Model of consumer needs
Why are private providers not filling the gap ?
1
2
3
4
5
6
INR 5.45
INR 5.92
INR 3.32
INR 6.87
INR 9.10
INR 3.65
Revenue per Bed / year (INR Mn)
1
2
3
4
5
6
22%
24%
17%
22%
30%
21%
EBITDA (%)
► There is considerable variation In RPB / year and EBITDA for hospitals within tier-1 cities
► It is possible to achieve operating margins of 28%-30%, however, choice of business model will be an imperative for success
UNDERSTANDINGBUSINESS MODELS
Understanding Business Models in Healthcare
Functional Mix Specialty Mix Level of Care Services Mix Growth Model
• Preventive• Therapeutic• Rehabilitative• Education• Research• AYUSH / CAM
• Single Specialty• Single Disease• Multi-specialty• Select Specialty
• Primary• Secondary• Tertiary• Quaternary
• Pathology Laboratory • Radiological set-up• Dialysis Units• Radiotherapy Units• Laproscopy Units
• Greenfield• Acquisition• Lease• Joint Venture• Congregation
Business Elements
Target Consumer - Positioning
Business economicsCapex per bed
Revenue per bed EBIDTA
Geographic Mix
Hospital’s “Business Model”
Bed; 17.2%
OT Rent; 17.1%
Pharmacy; 16.5%
Con-sum-ables, 19.4%
Consul-tants Fee;
15.4%
Radiology; 4.2%
Pathology; 5.1%
OPD; 4.6%
OT rent constitutes 17% of revenues but
indirectly it is responsible for 50%
of hospitals revenues
Pharmacy & Consumables generate 36% of hospitals
revenues
OPD, though generates 5% of revenues, is responsible for
50% of IPD admissions
HOSPITAL: SOURCES OF REVENUE
HOSPITAL: COST STRUCTURE
EBITDA; 17.8%
Labour & Salaries; 22.8%
Marketing & PR; 1.5%
Maintenance; 7.2%Pharmacy; 13.1%
Consumables; 10.5%
Utilities; 6.1%
Administrative expenses; 5.8%
Consultants share; 15.1%
(Operating Margin)
* All figures are a percentage of gross revenues
Specialty Mix – Key to a profitable business model
0% 30% 40%20%10%
Specialty Margin
ARPP (IPD)
0
50 K
100 K
150 K
200 K
Cardiology
30%
~30%
Orthopedics
16%
OBG
Neurosciences
20%
Internal Medicine
12%
Pediatrics
General Surgery
22%
23%
ALOS (Average Length of Stay) of these specialties is an important determinant of profitability, therefore their operational management is key to driving efficiencies
Note: • Bubble size - % revenue of that specialty• % inside the bubble – specialty’s EBITDA as seen in tertiary care facilities in metro cities in India
Service Mix
Pharmacy OT Doctors Radiology Pathology Consumables Room Misc0%
10%
20%
30%
40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
12.8%
6.4%
19.1%
4.1%
9.4%
17.1%
23.7%
7.4%9.3%
11.6%
23.3%
3.0%4.7%
19.0%19.8%
9.3%
19%
35%
10%
40%
35%
25%
5%
Orthopedics Neuro-surgery EBITDA
Significant variance in service mix impacts profitability through;’• Capital Expenditure• Revenue realization• Cost of delivery
Overview of Growth Models
Greenfield Acquisition Lease / Joint Venture Agglomerates
►Max►Manipal►Sterling►Columbia - Asia
► Fortis►Wockhardt ►Reliance ADAG
► Apollo Hospitals► Wockhardt Hospitals► Parkway Group► Narayan Hrudayalaya
► I-Ven Medicare (ICICI)► Asian Health Alliance► DM Healthcare
► Long gestation period,
delayed returns► High initial capital
requirement ► Land availability, especially in
metros is a challenge
► Fast ramp-up► High initial capital
requirement► Revenues accumulate from
day 1 ► Acquiring skilled manpower
along with asset limits
teething issues► Constrained by availability
► Low initial capital
requirements► Assured revenue base from
day 1► Profit / revenue sharing limits
risk► Focus on core competencies /
specialties
► Strategic stake (minor /
majority) in small to medium
hospitals across the country► Generates economies of scale
through bulk purchasing,
preferred services etc► Managing multiple partners
requires a capable
management team
► Capex: High
► Revenues: High
► EBITDA: Delayed, High
► Pay-back Period: 5-7 Years
► Capex: High
► Revenues: High
► EBITDA: High
► Pay-back Period: 5-7 Years
► Capex: Low
► Revenues: Low
► EBITDA: Medium
► Pay-back Period: 2-3 Years
► Capex: High
► Revenues: Medium
► EBITDA: High
► Pay-back Period: 3-5 Years
Target Consumer - Positioning
Lean Differentiators Differentiator
Cost LeadersValu
e
Cost / Pricing Level
Niche: Super-specialty
Niche: Nursing Homes
Indian healthcare delivery market has seen adoption of various business models in response to the local needs and changing customer behavior
A strong brand
Low cost provider
Revenue optimization
Stress on continuous improvement / innovation
Lean Differentiator
Seamless service delivery
1
2
3
4
5
Evaluating Business Models
9.009.009.00Integrated medical institutes9.009.008.00Academic medical institute9.009.007.00Medical Colleges7.009.007.00Indian Medicities 2.004.007.00Medical Mall: (Products & Services)5.009.006.00Super specialty hospital (Single/Multi)3.008.006.00Critical care set-ups4.008.005.00Nursing homes, Gr. Specialty hospital3.007.005.00Integrated Rehab Institute4.007.005.00Specialty hospitals (Single & Multi)5.008.004.00Diagnostic centres/ network clinics2.007.004.00Day care set-up2.006.004.00Multi-specialty Rehab Institute2.008.003.00Life-style & disease management centers2.007.003.00Wellness & rejunuvation centers5.005.003.00CAM Academic Institutes5.005.002.00CAM Hospitals
4.002.002.00Preventive checks & OPD; Vaccination centres
2.007.001.00Integrated Clinics4.004.001.00CAM Clinics1.004.001.00Specialty Clinics1.004.001.00Poly clinics6.004.001.00Partnering Public-funded programs1.002.001.00Clinic/network clinics
Operational Complexity
ProfitabilityInvestmentBUSINESS-MODEL
Higher investment and complexity of business, leads to better
profitability, if managed well
Scale: 1 to 3 4 to 6 7 to 9
LOW MEDIUM HIGH
Healthcare providerCentre
Insurance company
BPL Population APL Population
Viability gap1 funding in form of an annuity for setting up facilities in select non Tier 1
areas
Insurance premium2
State
75%
25%
100%Funds operating
and capital expenditure
Provides treatment
Reimburses private provider based on agreed upon tariffs
Indi
cate
s sh
are
of fu
ndin
g be
twee
n Ce
ntre
and
Sta
te
Cess/ Surcharge/ Health tax
Electronic health cards distributed by government
Out of pocket premium – 70%
Out of pocket premium – 0%PUBLIC
SECTORPRIVATE SECTOR CONSUMER
Stakeholders involved
Monitoring Agency
Ensures governance and quality of care
Financial
monitoring Quality monitoring
National Healthcare Model
COMPARATIVE CASE STUDY
Comparative Case Study – 2 Healthcare Chains
FY 06 FY 07 FY 08 FY 09 FY 10
0
2
4
6
8
10
12
14
16
18
0
500
1000
1500
2000
2500
3000
3500
2
6
10
14
16
670
1204
1427
2137
3170Hospitals Beds
FY04 FY05 FY06 FY07 FY08 FY09 FY10
0
5
10
15
20
25
30
35
0
1000
2000
3000
4000
5000
6000
4 5
7
11
17
23
31
219287
570
10351654
3331
4793Hospitals Beds
Example – Chain 1
Example – Chain 2
Chain 1 – Feeding on the brand (Empty Calories !)
2005-06 2006-07 2007-080
5
10
15
20
25
30
30.326.8
23.8
-12%
Series1
-30
-20
-10
0
10
20
30
40
50
60
30.3 34.3
49.3
-9.5-16-5.7
Existing Hospitals Expansion 1 Expansion 2
-12%
Existing hospitals have been optimized to the fullest
Expansions have witnessed de-growth in performance
EBITDA of the group has declined… …Expansions have not yielded fruit
EBITDA Rs cr EBITDA Rs cr
Chain 1 – Some key learning's from its strategy & operating model
Business Model► Multi-specialty tertiary care offering the entire functional mix► Growth through JV / Lease► Mid-value, mid-price differentiator positioning
Doctor engagement
► Belief in Brand > Doctor► Fee for service without flexibility► Poor star retention with significant loss in revenue due to attrition► No cross- leveraging of clinical staff across locations
Brand ► Strong regional brand perceived to be expensive not portable in other geographies
Growth
► Selection of city based on “me-too” strategy► No detailed market assessment► No clear line of sight on doctors► Operating model in Tier 2 not aligned to location dynamics► Purchase centralized for less than 20% of value
Patient experience
► Lack of common measures or frequency of measurement across locations► Soft Skill Training is a localized function with no impact measurement► Lack of standardized processes for feedback collection, evaluation or action► Look & feel - a function of acquired infrastructure rather than brand identity
Chain 2 – Every new expansion has fed the brand
2003-04 2004-05 2005-06 2006-07 2007-08 (9 m)
0
10
20
30
40
50
60
11.7
21.728.2
39.2
54.1
4 1 1 2 7
Existing hospitals
Expansions
EBITDA of the group has steadily increased despite manifold expansions…
Most of the expansions have yielded positive EBITDA either in Year 1 or 2
Example: Expansions done in 06
Series1-2
0
2
4
6
8
10
12
14
16
Hospital 1 Hospital 2
2006-07 2007-08
EBITDA Rs cr EBITDA Rs cr
Chain 2 – Some key learnings
Positioning
► Super-specialty with focus on specific specialties and creation of Centres of Excellence
► High-value, high-price differentiator positioning, though was dynamically altered in difficult markets
Doctor engagement
► Created and nurtured star doctors – differential payment model► Strong referral network► Invest in building a second line who initially feed off the brand► Designated HOD’s who had equity stake and nurtured new centers
Brand
► Created strong brand in metros initially and then expanded to nearby geographies thereby leveraging brand awareness
► Actively invested in creating international networks► Leveraged International association to attract domestic patients
Patient Experience
► A common MIS with central reporting► Segregated clinical management from process management to minimize conflict► Started a post-discharge management program► Instituted SOP’s though with limited success► Lack of standardization of look & feel, constrained due its lease / JV growth model
Chain 2 – Some key learnings from their strategy & operating model
► Aim to be first mover in corporate healthcare in most Tier 2 locations► Extensive market assessment (demand and supply) before entry► Clear line of sight on doctors► Asset light model – high number of brownfields with lease rentals linked to revenue► Followed differential strategies as per maturity of facilities► Revenue enhancement through surgical & case mix optimization in its mature
facilities► Enhanced utilization in newer facilities through referral network, outreach
programs & raising marketing spend to > 10%► Purchase standardized & centralized for more than 50% of value► Most Tier 2 hospitals are EBITDA +ve within first 2 years of operations.
Growth
Annexures
Healthcare Business Models (Annexure – A 1)
I. Preventive & Diagnostic focused models
BUSINESS MODEL/ DELIVERY FORMATS
EXAMPLE
HEALTHCARE FUNCTIONS TYPES OF RESOURCES
PreventiveDiagnostic
Therapeutic
Rehabilitative
Education
Research
Clinical
Care
Lab/Radiology
Allied
Non-clinical
Support
Conventional
Allopath
CAM
Med.
Intervention
Surg.
Partnering Public-funded programs
AIDS Campaign, Polio Vaccination
Disease Prevention Centres
Preventive checks & OPD; Vaccination centres
Wellness & rejuvenation clinics
Ananda, Gold-spring
Life-style & disease management clinic
Medi-spa
Diagnostic centres/ network clinics
Dr. Lal's , SRL Ranbaxy, Stand alone set-ups
Healthcare Business Models (Annexure – A2)
II. Therapeutic focused models
Global Healthcare MedicityMedicities
EHIRC, GangaRamSuper specialty hospital (Single/Multi)
Fatima Hospital, Holy FamilySpecialty hospitals (Single & Multi)
South point nursing hospitalNursing homes, Gr. Specialty hospital
Trauma Care CentresCritical care centres
Laparoscopy Units, Dialysis
units (NEPHRON, USA), Endoscopy centres.
Day care centres
Manipal Care & Cure ClinicsIntegrated Clinics
Cray Diabetes Management Clinic, Kaya SkinSpecialty Clinics
Apollo Clinics, Max-ClinicsPoly clinics
Single Consultant ChambersClinic
Surg.
Intervention
Med.
CAM
Allopath
Conventiona
l
Support
Non-clinical
Allied
Lab/Radiology
Care
Clinical
Research
Education
Rehabilitative
TherapeuticDiagnostic
Preventive
TYPES OF RESOURCESHEALTHCARE FUNCTIONS
EXAMPLEBUSINESS MODEL/ DELIVERY FORMATS
Healthcare Business Models (Annexure – A3)
III. Multiple, Rehab, CAM & Retail focused models
_Medical Mall: (Products & Services)
Vaidhyarathnam Moss, Holy Angels College of Alternative MedicinesCAM Academic Institutes
Caritas Ayurvedic HospitalCAM Hospitals
Dr. Batra Clinic, Ayurvedic clinics, Reilki Centres, AOL CentresCAM Clinics
Mayo Clinic, Rochester, Minn.Integrated Rehab Insti.
Rehabilitation Institute of ChicagoMulti-specialty Rehab Insti.
KGMCMedical Colleges
AIIMS, PGIAcademic medical institute
Medical City Dallas hospital (Over 95 specialties, attract patients across 75
diff. countries)
Integrated medical institutes
Surg.
Intervention
Med.
CAM
Allopath
Conventional
Support
Non-clinical
Allied
Lab/Radiology
Care
Clinical
Research
Education
Rehabilitative
Therapeutic
Diagnostic
Preventive
TYPES OF RESOURCESHEALTHCARE FUNCTIONS
EXAMPLEBUSINESS MODEL/ DELIVERY FORMATS
Emerging Opportunities (Annexure – B)
Medical InfrastructureAn estimated US$ 69.7 Billion is likely to be invested in medical infrastructure by 2012
Health Services OutsourcingCurrently a US$3.7 Billion industry, it is likely to double in the next 6 years and provide employment to more than 300,000 personnel
Health InsuranceWith premium collected of more than US$ 700 Million in 2006, yet only 2.4% of Indian population is insured. Premiums are likely to touch $ 3.8 Billion by 2012 with an insured base of around 10%
Training & EducationWith predicted shortage of 450,000 doctors and 1.2 Million nurses by 2012, medical & paramedical training could be a $2.2 Billion industry by 2012.
Medical DevicesCurrently a $ 2.1 Billion industry, it is likely to grow into a $ 4.9 Billion industry. With significant government backing, domestic contribution could increase to as much as 50%
Pathology LabsWith revenues of more than $850 Million in 2006, fuelled by technological advancements in data transfer, it could grow into a $ 2.6 Billion industry by 2012
Telemedicine73% of Indian population residing in rural areas provide a significant opportunity, since 80% of healthcare facilities are concentrated in urban India
Clinical TrialsClinical trials offer a huge scope for maximizing revenues for established players with a potential to grow at 25% annually into $ 900 Million by 2012