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In Small Town For Big Business
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"A cast for two weeks and follow-up physiotherapy for a few months will correct her problem. There is no need for surgery" is Dr Kodikal's prognosis. The family heaves a sigh of relief. Next year, if at all Lekhashree and her parents need to consult Kodikal (or doctors like him), they don't have to travel all this way. Nova is planning a centre at Coimbatore, less than two hours drive from Erode. Nova represents a new breed of emerging healthcare firms leveraging the booming prosperity of India's 250-plus small towns and nearby villages. People in these places no longer need to travel to faraway cities to access quality healthcare. It is at their doorsteps, and at lower costs.
Model: 150-250 bed specialty hospitals
Hospitals: Already present in Tier-2 towns, five hospitals coming up in Tier-3
Plan: 25 more hospitals
SHIVINDER SINGH, MANAGING DIRECTOR "The target is 25 such hospitals in a period of 2-3 years"
Nova has set up six centres in Bangalore, Delhi and Mumbai in the past four years, and plans to start 10 new ones: in Chennai, Hyderabad, Pune, Ahmedabad, Kolkata, Jaipur, Kanpur, Coimbatore, Mangalore and Kochi within the next two years, says Dr Mahesh Reddy, founder and executive director.
Each of these day-care surgical hospitals, which offer not-so-complex surgeries, will cost about Rs 8-10 crore. In big cities, they cost several crores more. "Surgery at Nova costs only one-fifteenth that of hospitals in the UK, while it offers the same quality and standards of care," says Dr Nasser Ahmed, specialist registrar in emergency medicine at London's Kings College Hospital, who brought his 60-year-old mother, Naseem Unnisa, for knee replacement surgery at the Nova Centre in Bangalore.
Tax incentives, lower cost of land, buildings and staff, a faster return on investment and a patient population that can pay attract healthcare companies to semi-urban and rural India. They are innovating with new healthcare delivery formats and low-cost models that overcome geographic and economic barriers. "The demand and supply gap in healthcare in India is huge, and quality healthcare in smaller towns will be the main feature of the business in future," says Prathap C. Reddy, chairman of Apollo hospitals. Reddy pioneered the concept of corporate hospitals in India in 1984.
Is the model profitable? Healthcare, especially beyond basic primary care, is not cheap. Neither is equipment, medical expertise or technology. The key lies in being able to develop the appropriate business model, designed to meet specific needs, and be able to provide services at an affordable price. Some think it is doable, and are putting their mind and money behind it.
Big Dads Branch Out...
India has 0.9 beds per 1,000 people, compared to a global average of 3.3. It needs 100,000 additional hospital beds each year, at an investment of about Rs 45,000-50,000 crore per year for the next 10 years, notes a CII-McKinsey study. Apollo, now a chain with 54 hospitals, is building most of its new projects in semi-urban and rural areas. They have a low-cost hospital brand (Apollo Reach) and each project has 150-250 beds and multiple specialties. "Our Reach projects are in Karaikudi, Erode, Kochi, Chittoor, Karimnagar, Lucknow, Ranchi and Siliguri," says Sangita Reddy, executive director, Apollo Hospitals Group. Apollo plans to set up 50 such hospitals in the long run.
There is little doubt that the propositions are bankable. Tier-3 cities are transforming into Tier-2 cities and small towns are becoming Tier-3 cities with enough of an affluent population, says Vishal Bali, CEO of Fortis Global Healthcare. "Small towns and villages with wealth from agriculture and allied industries are part of the growth story."
Fortis, with 56 hospitals and over 8,200 beds, will add seven new facilities with 2,200 more beds soon — in Ludhiana, Kangra, Ahmedabad and Gwalior, and two hospitals at Gurgaon and at Peenya in Bangalore. In the third quarter of fiscal 2010-11, Fortis added 250 beds at Moradabad in Uttar Pradesh and at Raigarh in Chhattisgarh. The target is 25 such hospitals over the next two to three years, says Shivinder Singh, managing director of Fortis Healthcare.
Max Healthcare, which runs eight super specialty hospitals in Delhi with about 1,000 beds, is also eyeing small towns. The chain, which is constructing two super specialty hospitals at Shalimar Bagh in Delhi and at Dehradun, is setting up two 300-bed multi-specialty hospitals at Bhatinda and Mohali in Punjab, each with an investment of over Rs 120 crore.
"These two facilities are being set up in public-private partnership; we will share revenues with the state government and will offer services at much lower costs," says Pervez Ahmed, managing director and CEO of Max Healthcare.
...And Small Players Follow
Like big players, regional chains such as Care Hospitals of Hyderabad (11 hospitals), Manipal Hospitals (more than 15 hospitals), Vaatsalya of Bangalore (11 hospitals in two states) are also expanding to small towns. Vaatsalya claims to be India's first hospital network focused on Tier-2 and Tier-3 towns. It has 11 secondary-care hospitals in Hubli, Gadag, Bijapur, Mandya, Raichur, Hassan, Mysore, Gulbarga and Shimoga in Karnataka and at Vizianagaram, Narasannapeta and Ongole in Andhra Pradesh.
"We will add 30 hospitals in five states in three years, focusing on Andhra Pradesh, Maharashtra, Karnataka and Tamil Nadu, and then expand countrywide," says Aswin Naik, co-founder and director, Vaatsalya. Started six years ago by Naik and Veerendra Hiremath, the chain has attracted private equity investment from Aavishkaar, Oasis Fund, Seedfund and Singapore-based Aquarius Equity.
Model: Affordable eye care for rural patients
Hospitals: 10 centres in and around Delhi
Plan: 60 more centres in two years
RAJAT GOEL (left), COFOUNDER & CEO, AND AJAY SHARMA, COFOUNDER & CHIEF MEDICAL DIRECTOR "We wanted to focus only on small towns and nearby villages," says Goel (BW pic by Sanjay Sakaria)
Pune-based Sahyadri Hospitals — the largest hospital chain in Maharashtra, started by Dr Charudutt Apte, who ran a 16-bed neurology centre in Pune from 1994 — now has 10 hospitals: at Pune, Navi Mumbai, Nashik and Karad, with over 1,000 beds. Plans are afoot to add 500 beds this year at 3-5 more hospitals in Pune and the Marathwada region, says Devendra Dabak, chief marketing officer. "We also tie up with local hospitals to identify a talent pool and doctors."
In Gujarat, Sterling Hospitals has emerged as a major chain, with multi-specialty tertiary care hospitals in Ahmedabad, Vadodara, Rajkot and Bhavnagar, besides secondary-care setup in Mundra SEZ and Adipur. It also has a satellite centre in Mehsana. Private equity firm Actis invested $15.5 million in 2006 in Sterling, which is promoted by Sterling AddLife India.
Care Hospitals — specialists, like Apollo, in cardiac care — has a dozen hospitals, most of them based in towns such as Musheerabad, Vizag, Vijayawada, Nagpur, Raipur, Pune, Bhubaneswar and Surat. Started in 1997 by cardiac surgeon B. Soma Raju, half of Care's patients are middle class, and another 25 per cent come from lower-income groups.
Others have even bigger ambitions, and the business is attracting players not normally associated with healthcare. A new chain, Glocal Healthcare, plans 2,000 hospitals in rural areas, using a low-cost model, but with adequate infrastructure. Its team include former Sebi chairman M. Damodaran and Sabahat S. Azim, a former civil servant, along with other investors.
Glocal's first hospital was inaugurated at Sonamukhi in West Bengal on 16 June. Azim, CEO of Glocal, says the chain plans to set up eight hospitals this year, and will escalate dramatically to 100 next year. It will set up 500 such hospital in other states in the phase to follow.
Model: Publicprivate partnership
Hospitals: Eight super-specialty hospitals in Delhi
Plan: Large multispecialty hospitals at Bhatinda and Mohali in Punjab
Each hospital — with an investment of about Rs 3 crore — will have about 50 beds with operation theatres and multi-specialties covering at least 32 diseases. This accounts for 95 per cent of all ailments. Each hospital will employ 13 doctors and more than 60 paramedical staff. The hospitals are expected to break even within a year of operations. Glocal thinks volumes will lead to profits.
Pushes And Pulls
Tax incentives also attract healthcare providers to go beyond metros. In the 2008 budget, the Centre offered a five-year tax exemption to any new hospital opening in urban agglomerations, apart from the six metropolitan areas, to promote the development of hospital services in under-served urban and rural areas.
Apollo experimented with a hub-and-spoke model of secondary and primary care facilities in semi-urban and rural towns. Experts predict this model and public-private tie-ups will increase access to secondary care in the top 200-250 towns. "Full-fledged tertiary care facilities are available in Bhubaneswar, Kochi, Coimbatore or Ludhiana. A single facility can unlock the potential in that town or a Tier-3 city," says Bali.
Model: Affordable daycare surgical centres
Hospitals: Six centres in Bangalore, Delhi and Mumbai
Plan: 10 more in two years
MAHESH REDDY, FOUNDER "We plan a model in which prominent doctors travel to other centres" (BW pic by Subhabrata Das)
Patients from villages and small towns generally do not like to travel far to strange cities for treatment. Reasons: fear, the need for family support and financial constraints. Instead, they opt for the best secondary treatment available in the neighbourhood. Consequently, only three out of 10 patients use quality healthcare, says Bali. Trust, for most patients, is a very big factor.
While the opportunity is large, hospitals will have to adapt existing business models or create innovative ones to meet demand, while staying profitable. Lower overall costs are a big incentive, but patients in Tier-2 and Tier-3 cities are not able to pay as much as those in Tier-1 cities and metros. Here, specialty hospitals seem to have found ways of doing business profitably.
The New Business Model
Take Eye-Q, an eye-care specialty chain that set up 10 hospitals outside Delhi since 2007 in partnership with eye specialists. Set up at a cost of Rs 1-1.5 crore per facility, each of these centres gets 100-150 patients a day. Out of them, 40 per cent from villages. Eye-Q keeps its costs down by renting facilities and sharing revenues with the 2-3 permanent and 2-3 visiting specialist doctors working at each centre.
"From the very beginning, we wanted to focus only on small towns and to service surrounding villages," says Rajat Goel, co-founder and CEO. Eye-Q plans to set up 60 more hospitals in the next two years at an investment of about Rs 120 crore. It has already raised money from Song Advisors, a PE firm, and is planning another fund-raising round.
The superstar of eye care chains is Vasan Eye Care — a network of over 80 eye-care hospitals spread across Tamil Nadu, Karnataka, Andhra Pradesh, Kerala and Puducherry. Started in Trichy in 2001, Vasan Eye Care claims to be the largest eye-care network in the world. "We plan to add 50 eye-care hospitals in two years to have a pan-India presence," says A.M. Arun, chairman and managing director.
Each of these will entail investments of about Rs 2 crore per facility, but Vasan has more than Rs 500 crore annual revenues, and has been growing at over 100 per cent annually for the past three years, says Arun. This, in the face of competition with organised eye-care specialists such as Madurai's Aravind Eye Hospital and Chennai's Sankara Netralaya. Vasan is replicating its successful model in dental clinics (now 15) as well — Vasan Dental Care. It will soon start specialties in infertility treatment, cosmetology, optical stores and urology, says Arun.
Single specialty chains are flourishing for ailments such as kidney stones, infertility and even cancer care. Continental Group's Integrated Hospital Centres (IHC) near Hyderabad for dialysis, condom-maker Hindustan Latex's (now HLL Lifecare) mother-and-childcare hospital chain Life Spring, and drug-maker Unimark's cancer centres are some examples.
Model: Focus only on small town and rural areas
Hospitals: 11 secondary care hospitals in Andhra Pradesh and Karnataka
Plan: 30 more in five states in 3 years
Getting The Economics Right
Most facilities planned in Tier-2 and Tier-3 cities are 150-200-bed secondary-care centres, with an ‘asset-light' model. Instead of complex surgeries that increase average length of stay, semi-urban and rural hospitals focus on simple surgeries. They are treating maximum number of patients to increase capacity utilisation, which hikes average revenue per bed. At Nova, most patients undergoing surgeries are discharged the same day. Some of its centres conduct 12-20 surgeries a day. Like Nova, Apollo Hospitals, too, is planning day-care surgical centres, says its managing director Preetha Reddy.
An urban 200-bed hospital needs an investment of Rs 60-90 lakh per bed. Its return on capital employed (RoCE) is about 26 per cent and return per employee is about 20 per cent for the first five years of operations, say experts.
|VASAN EYE CARE|
Model: Eye-care specialty
Hospitals: About 80 hospitals across south India
Plan: 50 more in two years; aims pan-India presence
A.M. ARUN, CHAIRMAN & MD, "We will soon enter infertility treatment, cosmetology, optical stores, etc." (BW pic by Sanjay Sakaria)
Chains in Tier-2 and Tier-3 cities limit investment to Rs 50 lakh per bed. The break-even period is about 3-4 years, and RoCE is about 50 per cent and return per employee is about 40 per cent. Chains such as Fortis invest only on medical and other equipment, at about 37 per cent of the project cost in its light-asset model hospitals.
Teaming up with established local doctors and hospitals is another strategy. While the established chain brings its brand, systems and investment, local doctors provide patients they have been treating for many years. "Our studies show that a villager spends Rs 1,115 per year on healthcare," says Azim. "That is about Rs 15.5 crore per annum by a population of 140,000 in a block — which actually requires only half that cost." Will patients bite? Glocal will keep its rates as low as about Rs 4,200 for a normal delivery, for instance, whereas corporate hospitals charge anywhere between Rs 30,000 and Rs 50,000, or even higher.
"We are thinking of a model in which prominent doctors travel to other centres — for instance, to Salem or Coimbatore from Bangalore — once or twice a week, which will help increase the area of catchment and expand the chain," says Mahesh Reddy of Nova Medicals. Big chains — more than half of Apollo and Fortis hospitals, for instance — also manage hospitals through long-term contracts rather than investing in assets.
A few weeks ago, Mrs Raju, wife of a wealthy businessman in Nellore, Andhra Pradesh was advised by her local gynaecologist to go to
Hyderabad for an expert opinion — swelling was detected in both her kidneys. She was 20-weeks pregnant and was horrified at the thought of travelling all the way to Hyderabad, more than 500 km away. Help came in the form of a healthcare portal MediAngels, started three months ago.
Model: Apollo Reach hospitals with 150-200 beds
Hospitals: Already in Tier-2 cities; eight hospitals coming up
Plan: 50 Apollo Reach hospitals in the long run
Mediangels claims to be the world's first global e-hospital, and offers a panel of 300 specialists and super specialists from 22 countries across 85 specialties and sub-specialties. It provides expert opinion, based on basic medical records and opinion of doctors sent across as e-files. Patients can choose Indian specialists at a consultation fee ranging from Rs 250 to Rs 500, or international specialists for $10 to $100. If required, the ‘e-patient' sitting at home will be directed by the specialist sitting in Australia or the US to go for diagnostics tests at a nearby pathology lab.
MediAngels has tie-ups with 21,000 accredited pathology laboratories in India and abroad, claims its co-founder and director Debraj Shome, a well-known plastic surgeon. "This being a revolutionary new concept in healthcare, we did not expect any revenues in the first year of operations. But in three months, we got over 1,500 registrations," says Shome, who conceptualised MediAngels two and a half years ago with co-founder Arbinder Singal, a paediatric urologist.
Model: Minimum investments with maximum facilities in rural areas
Hospitals: One in Bankura, W. Bengal
Plan: 2,000 hospitals; 8 in pilot phase this year
"Amazingly, about 30 per cent of the registrations we received were from rural and semi-urban areas, from Latur in Maharashtra to remote villages in UP and Bihar," says Shome, who is now based in Mumbai. Bangalore-based HealthcareMagic, which offers healthcare tips to patients through a panel of doctors, is another example of e-healthcare with many followers from rural and semi-urban India.
Despite the successes, reducing the cost of investments on diagnostics equipment and managing manpower constraints remain major challenges in taking healthcare to rural and semi-urban India. Indigenously developed and customised medical equipment can bring down costs, says Bali. And some are trying. Siemens has a factory in Goa making low cost X-ray machines. First sold in India, it is now available in other developing countries, too. Large diagnostics firms such as Roche, GE Healthcare, Johnson & Johnson offer expensive equipment on a rental basis and on long-term installments.
|YOUR DOCTOR IS ONLINE|
LOGGING IN TO HEALTHCARE
CheenyKum.com helps you monitor blood sugar levels, supplies medication and lab tests, and advises patients via SMS on managing lifestyles. Emergency healthcare consultancy through mobile, m-Health, is the latest initiative from Apollo, run through its arm Healthnet Global. Aircel and Idea, plans to offer healthcare consultancy over mobile to over 300 million subscribers via this. "In the past three months, 200,000 calls were made to Apollo's Medical Response Centre, which employs about 40 doctors", says Charles Antony, CEO, Healthnet Global.
GE Healthcare, along with a group of radiologists, is implementing a pilot project in Andhra Pradesh to offer cheap scanning services in the medical colleges of Kurnool, Vizag and Warangal, in a public-private partnership. A 1,000-bed medical college hospital normally does 50-70 computed tomography (CT) scans, and half that number of MRI scans a day.
"This model helped us bring down costs for patients as well as meet demand, as earlier most of the patients had to go for costly private facilities for scanning," says Vivek Desai, founder and managing director of Hosmac India, a consultancy for hospital developers. Hosmac advised the Andhra Pradesh government on this project, and is developing a roadmap for seven states to experiment with public-private tie-ups to take healthcare to remote areas, especially in north-eastern states.
Model: Partnerships and own hospitals in Maharashtra
Hospitals: The largest chain in Maharashtra with 10 hospitals
Plan: 500 beds in 3-5 hospitals this year
Manpower, the other challenge, is also changing. "Many post graduate students coming to big cities now want to go back and stay in their native towns," says Bali. "They find it easier to establish themselves as the best doctors in their towns than working in a big hospital in metros, as juniors to established super specialists."
The healthcare sector can replicate the model of public sector companies that built townships with all facilities in remote areas decades ago. But for now, whether there are townships or not, quality healthcare is spreading — to our rich small towns — along with malls, jewellery stores, food courts and multiplexes.
(This story was published in Businessworld Issue Dated 08-08-2011)