Hospital infrastructure is an area of interest for policymakers, the consuming public and investors alike. Access to hospitals is critical for a healthy nation, especially given that there are only 0.9 hospital beds per 1,000 people in India. Lack of infrastructure and poor availability of hospital beds indicate both the opportunity and challenges of creating hospital infrastructure…reports Asian Lite News
Access to so-called “private hospitals” is crucial for proper healthcare for a particular section of the population — the upper middle class and the neo-rich. The last two decades have seen significant growth in private healthcare providers in India, especially in tier-1 and tier-2 cities.
Going forward, private capital needs to identify sustainable business models that allow creation of more hospital infrastructure. With rising middle class incomes, demand for such infrastructure is expected to increase. But one must keep in mind that the consumer is price conscious, and health insurance penetration is low, and most healthcare payments are privately funded.
Another issue with further building hospital infrastructure from a private capital perspective is how to create a profitable and scalable business, given the changes in the pricing of products? The pricing of products refers to the price caps that have been brought in by the government for medicines and medical devices, etc. While these caps are expected to ensure the delivery of affordable healthcare to general consumers, they have also posed challenging questions for current and future hospital investors and operators.
At a fundamental level, a hospital generates revenues by providing healthcare services and selling medical products. The price caps imply that hospital businesses (especially privately owned) must increasingly focus on producing a greater share of revenues from service provision, operational efficiencies and creating economies of scale through whatever means, such as technology usage.
The creation of SinoCare platform by KKR in China recently presents an attractive template to aggregate hospital businesses on a platform to create sustainable businesses. While healthcare investors have utilised platform structures to aggregate hospitals in India, the current need for greater hospital access means the next generation of “hospital platforms” will need to marry operational efficiency with extreme specialisation to boost growth.
Such platforms can be utilised to aggregate hospitals that solve particular needs as a solution provider. In other words, is it possible to use the “dental clinic” model to use platforms to create chains that address specific needs but at a relatively low cost?
Low-cost hospitals with an extreme focus on a specific solution delivery is a model that should be further explored in India to start addressing particular healthcare gaps. In their book “The Innovator’s Prescription”, Clayton Christensen, Jerome Grossman & Jason Hwang give examples of hospitals such as Shouldice Hospital that focuses only on external abdominal wall hernias or the Coxa Hospital in Finland that focuses on hip and knee replacement surgery.
Essentially, this is delivery of healthcare through specialisation. Private capital needs to consider similar strategies that allow for economies of scale through a focussed approach while addressing the most compelling requirements. In some ways, the model that has been adopted to create healthcare diagnostics platforms that cater to specific needs now needs to be further built on in the healthcare solution provision space.
Creation of infrastructure needs to focus as much on the creation of specialised operational excellence as it does on the right financing mechanism. The issues faced by some large hospital businesses of high amounts of debt is one that needs attention right from the go. A careful analysis is required on the sensitivities of the project returns to the various factors. A prudent and less risky capital structure can often create more long-term value for investors, especially with a view on scaling the hospital platform.
Technology, financing and insurance must work together to deliver value within the healthcare ecosystem. While private capital has a significant role to play in the creation of hospital infrastructure, the returns can accrue to the overall ecosystem only if the health insurance market also develops in unison. Furthermore, policy frameworks must also provide for stable investment horizons.
Investing in the healthcare businesses by its very nature is long-dated. While a fair and regulated pricing regime is necessary, it is also vital for the government to ensure an environment where investors and operators can generate reasonable economic returns. Private capital has and will continue to have a significant role to play in the provision of healthcare services. Effective policymaking combined with innovative business models is the way forward.