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BW Businessworld

The Specialists’ USP

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For long, the story of private healthcare in India has been told through doctor-led nursing homes and clinics, trust-run tertiary care hospitals and corporate multi-specialty hospital (MSH) chains. Now, a small band of specialist healthcare providers — founded not just by doctors but also entrepreneurs, and in one rare case a private equity (PE) fund — is itching to take its place in the sun. They are muscling their way into specialty care, challenging MSHs such as Apollo, Fortis and even smaller ones to agree to new models of cohabitation.

What sets them apart is their focus. Whether it is high-end disciplines such as oncology or  neighbourhood specialties such as ophthalmology and day-care surgery, they are growing by sticking to their knitting. And while there have always been stand-alone specialty clinics or hospitals run by doctors, these providers want to grow like corporate set-ups into multiple locations, offering the same precision of quality care.

Consider HealthCare Global (HCG), now India's largest network of 16 cancer hospitals. At Bangalore's HCG Hospital, radiation onclogist P.S. Sridhar is staring at a digital image of the insides of a patient's lung. At the click of the mouse, colour-coded lines highlight a cancerous growth close to the bronchus. With the help of advanced imaging technology, Sridhar can map the tumour, and plot exactly how it will be irradiated with minimal damage to healthy tissue. The patient, says Sridhar, has seen a recurrence of lung cancer, already tried conventional radiotherapy — a process where calibrated small doses of radiation are given to relatively large amounts of tissue over 30 days to shrink a tumour — and can't go through it again. Nor can the tumour be surgically removed.

A few months ago, Sridhar may not have been able to help him. But now the oncologist has an option — the $5-million CyberKnife, a robotic radiosurgery machine that delivers large radiation doses but is so precise that it is almost like surgery (hence the term radiosurgery). The actual process of radiotherapy can shrink from about a month to a week depending on the tumour and its location. There are just two CyberKnife machines in the country — the other is with Apollo Hospitals.

Dr MANISH BANSAL, joint managing director, RG Stone Hospital ; FOCUS: UROLOGY AND LAPAROSCOPY ; Turnover: Rs 40 crore (FY09), Rs 50 crore (FY10E); Number of locations: 16 ; PE investor: ICICI Venture ; IPO plans: 2011 ; Target by 2011: Rs 100 crore and 30-50 locationsThe CyberKnife is just one of the things that Ajai Kumar, a radiation and medical oncologist and chairman, HCG, refers to when he says he "wants to redefine cancer care in the country". Kumar first set up Bangalore Institute of Oncology, a cancer hospital, in the late 1980s when he was still running a practice in Chicago. He only formed HCG earlier in this decade.

Like Kumar's outfit, there are many who have existed for a number of years and gathered momentum only recently. Take RG Stone Urology and Laparoscopy Hospital founded by Bhim Sen Bansal, a New Delhi-based general physician. Between 1978 and 2007, RG Stone was present in just five locations in the country. In a space of two years, it is in over thrice as many, including Mohali, Lucknow, Faridabad, Bangalore and Goa. By 2011, it aims to grow to 30-50 centres. "Major surgeries involve trauma, morbidity, mortality and cost," says Manish Bansal, joint managing director. "Our vision is to help patients avoid such surgery as far as possible." Bansal claims his company has introduced HOLEP — an advanced laser treatment for enlarged prostate offered as a safer alternative to surgery — to India.

These entrepreneurs have been spurred by rising affordability and healthcare awareness. "At one time, healthcare was not seen as a great area to invest in because the propensity to seek healthcare — a combination of affordability and inclination — was very low," says Muralidharan Nair, partner, health sciences practice at Ernst & Young (EY). "That is changing."

The timing seems right in other ways too. The past two years have seen a sharp rise in PE investment in health sector (see ‘Health and Wealth' on page 38). ICICI Venture put about Rs 50 crore into RG Stone in 2007. IDFC PE, Evolvence and Azim Premji's fund PremjiInvest have invested over Rs 100 crore in HCG. And GTI Group has founded Nova Medical Centers, a company that sets up day-care surgery clinics across the country with a planned investment of around Rs 200 crore in the next three years. "The activity you see is because the healthcare market, especially in metros, has matured," says Abhishek Singh, principal consultant, healthcare at Technopak. "The access to resources is the catalyst."

 There is a precedent. The turn of the century saw hospitals focused on cardiology and cardiac surgery such as Mumbai's Asian Heart Institute, Care Hospitals in Hyderabad and Narayana Hrudayalaya in Bangalore. However, with some exceptions, they have diversified into other specialties or stayed in one or two locations. Cardiac hospitals require large capital outlays, and real estate cost, especially in metros, skews the economics. Also patients can have a number of other complications requiring support of a tertiary care hospital. For that matter, "any disease is not a singular problem", says Shivinder Singh, managing director (MD) of Fortis Healthcare, which acquired Delhi's Escorts Heart Institute in 2005. "It needs support from other specialties."

Inherent Strengths
There are reasons, however, why things could just click for these protagonists. One, many of them are in specialties such as ophthalmology, day-care surgery and dialysis care involving lower capital expenditure. For instance, a cardiac hospital or a multi-specialty tertiary care hospital costs an average of Rs 60-70 lakh per bed, excluding the real estate cost, says Singh of Technopak. That works out to Rs 60-70 crore for a 100-bed hospital. Cash break-even typically takes about three years.

But the set-up cost for these specialties per centre would be within of Rs 10 crore. An important factor is that in-patient stay is rarely required since a number of these are day procedures. This minimises the need for support infrastructure. As a result, cash break-even can be achieved faster, usually under a year. Real estate "is not a relevant component for specialty", says V.T. Bharadwaj, vice-president of Sequoia Capital, which invested in Vasan Eye Care, a chain of eyecare clinics, last year. "You just need a good location, rent it, and start growing."

Of course, neither of this is true for a specialty such as oncology where technology is expensive, and patients undergoing surgery require a lengthy stay at the hospital. But here too costs can be managed using the hub-and-spoke model being tried by HCG. More on that later.

Dr A.M. ARUN, chairman, Vasan Eye Care; FOCUS: OPHTHALMOLOGY;Turnover: Rs 100 crore (FY09), Rs 225 crore (FY10E); Number of locations: 31; PE investor: Sequoia Capital; IPO plans: 2011; Target by 2011: Rs 500 crore and 100 locationsThe other advantage is the opportunity to partner with MSHs. One, for a number of these specialties, the cost per procedure is in the tens of thousands rather than the lakhs spent on cardiology, or joint replacement. It is not feasible for MSHs with their high overheads to offer them. But what they can do is farm them out to be run more efficiently by these niche providers inside the hospital premises. For instance, RG Stone runs the urology and laparoscopy centre in some Fortis hospitals. Two, a specialty such as cancer requires high level of expertise and investment that not all hospitals can afford. Here too it can partner. HCG, for instance, runs the cancer department in Delhi's Shanti Mukund hospital.

Being focused on one specialty also helps in offering a wider range of treatment. This helps in customer acquisition. "When you offer one thing you can give the best," says Bansal.

Trichy's Vasan Eye Care illustrates some of these advantages. The chain is already in 31 centres in Andhra Pradesh, Karnataka and Tamil Nadu and Kerala. Its target is to reach 100 hospitals by 2011 and Vasan's Chairman A.M. Arun is confident he can do it. "These are primarily ambulatory services, easily scalable and less capital intensive," he says.

A Vasan eye hospital costs between Rs 5 crore and Rs 10 crore to set up and breaks even within a year, claims Arun. The company has 200 full-time ophthalmologists on its rolls and a number of them are young and attracted by the prospect of working for a corporate chain. The company also acquires practices where doctors come on board with their customers to a completely new set-up equipped and managed by Vasan. Not only do they get to focus on the medical aspects without the administrative hassles, they also get a large community of peers to do training and research, says Sequoia's Bharadwaj. Vasan also has a wide offering — from routine procedures such as cataract removal and laser vision correction to advanced surgery like retinal tear repair. Arun claims that 80 per cent of its clinics are ‘self-contained', which means patients do not have to run around in case of complications.

Yet, success either for Vasan or any of the others is not a foregone conclusion. A lot depends on the specialty, the business model, and its execution. In general, "healthcare is a nascent area and there is no one model which is the recipe for success", says Rajeev Bakshi, joint MD, ICICI Venture. "There are a diversity of models that need to be incubated." Consider the examples.

Experiments Galore
In 2003, there were all of three centres in the HCG network. There were few cancer hospitals of repute and people travelled to them from across the country for treatment at high cost. HCG hit upon the idea of taking care to people even in small towns without incurring the cost of setting up a full-fledged cancer hospital in each location.

HCG enters into joint ventures (JVs) with oncologists and onco-surgeons all over the country, including smaller cities. These doctors already have a practice and want to expand their offering. But they lack the resources and know-how. Cancer care is a combination of chemotherapy (using drugs), radiotherapy and surgery. But these doctors would either not be invested in all three, or not be up to speed on the latest.

Dr MAHESH REDDY, partner and director, Nova Medical Centers; FOCUS: DAY-CARE SURGERY; Turnover: NA*; Number of locations: 2 ; PE investor: GTI Group (co-founder); IPO plans: None yet; Target by 2012: Rs 450-500 crore and 30 locations *Not completed a full year of operationHCG invests in their centres and co-brands them. It may start a radiotherapy unit for the first time by installing a linear accelerator (LinAc) machine. Or it may install a PET scanner, an advanced diagnostic imaging machine that identifies and maps tumours. These become its spokes. When patients in these units require advanced treatment such as the CyberKnife, they are brought to HCG in Bangalore.

Experts say oncology lends itself to such a model. For one, not all patients need surgery. And radiotherapy and chemotherapy are same-day procedures. They can be administered by para-medical professionals under the guidance of a specialist. "You can do business simply by focusing on these two," says Vivek Desai, MD of consultancy Hosmac. There is no threat to life from these procedures, hence it is not important to be in or near a tertiary care hospital. Besides, he points out, costs too are kept within a limit (an HCG spoke costs between Rs 8 crore and Rs 10 crore, says Kumar). Importantly, the units also act as "feeders" for the main centre, points out Singh of Technopak. HCG's investors are convinced it will work. "The model is scalable, effective in a short gestation period and brings together like-minded oncological fraternity," says Satish Mandhana, MD, IDFC PE. HCG treats 20,000 patients each year.

Like HCG, many other providers are figuring out the best model to grow profitably. The reasons for experimenting differ from one to another though broadly, costs, footfalls and administrative hassles are common threads.

Then, there are those who partner with doctors rather than hospitals. In Bangalore, Nova Medical Centers recently set up its first unit focused only on day-care surgery including shoulder stabilisation, cyst removal and facelifts. The centre promises faster turnarounds than an MSH, thus reducing cost for patient, says Mahesh Reddy, who is partner and director as also a minority stakeholder in Nova. Reddy, an orthopedic surgeon, oversees all things medical, while Suresh Soni, a partner in GTI, is CEO.

Nova is like a holding company that enters into equity partnerships with specialists to set up stand-alone Nova centres where they will practice. A doctor practicing in one may have no stake in the others, and is also free to consult elsewhere. Bangalore has two centres, and one in Mumbai will be announced soon. The aim is to have 30 centres in the next three years. "We want to make it a local specialty centre where you can get your master check-up, investigations, and your day-care surgery done," says Reddy. He observes that a number of procedures can be done as day-care today, but aren't because hospitals are not set up to deliver. "We are going to set the trend," he says.

At RG Stone, the focus is on not just growing through stand-alone centres but in partnership with MSHs. One, hospitals already have a catchment area of patients. Two, they take care of support functions such as front office, billing, labs, routine diagnostics and beds. This leaves RG Stone free to focus on the medicine — urologists, their operating theatres and equipment. Besides, a shop-in-shop, so to speak, costs half as much to set up as a stand-alone centre. The hospital, for its part, gets to keep the bed, and lab fees in addition to getting a share in revenue even as it expands its offerings at no cost.

Others like medical equipment maker Trivitron run by G.S.K. Velu, are forging JVs with a single corporate hospital. Alliance Medicorp, a JV between Trivitron and Apollo Hospitals, provides renal dialysis to patients awaiting kidney transplant. The target audience are people who are not critically ill but can lead a normal life provided they come in for dialysis a few times a week. A case in point is diabetics, whose sugar levels have impacted the kidneys. "Such patients would rather not go into a hospital and be clubbed with those fighting for life," says a Trivitron manager at the Apollo Sugar & Dialysis Clinic, the JV's first in Chennai where patients can undergo dialysis in a soothing and private ambience.

Globally, it is dialysis equipment manufacturers such as Fresenius that are leaders in dialysis care, says Velu. Dialysis is hugely expensive — each sitting at Alliance's Chennai centre costs Rs 2,000. Since dialysers and consumables are a large part of the total cost, equipment makers are well-placed to get economies of scale and pass on the savings to the customers, says Velu. Besides, they are also well-networked with nephrologists who refer patients.

Apollo has been running dialysis care in its hospitals and is experienced in their management. Also, the centre has access to an Apollo nephrologist. For Apollo, the JV provides a neutral face to expand beyond its hospitals. Alliance intends to also partner non-Apollo doctors to start stand-alone dialysis clinics under a different sub-brand called Lifebridge. In addition, it is bidding to set up and manage dialysis clinics for the Andhra Pradesh government, says Velu.

Rocky Road
Getting the model right is just the beginning. Then it has to be executed. "When you focus on one thing you better be the best," says Hosmac's Desai. There are many challenges. One is maintaining uniformity across the chain. Take HCG. Its partner spokes are at different levels of expertise in different parts of the cancer treatment paradigm. They all have to be brought to the same level so that a patient undergoing radiotherapy in an HCG spoke has a similar outcome as he would have at the hub (assuming the equipment is the same). HCG tackles it by using common training modules for doctors and paramedical staff such as nurses and social workers. There are video conferences every week to discuss patients and standards of care. Trainers are trained in the hub, and then despatched to spokes. This is still a work in progress.

G.S.K. VELU, director, Alliance Medicorp ; FOCUS: RENAL DIALYSIS ; Turnover: Rs 5 crore (FY10E); Number of locations: 1 ; Target by 2012: Rs 100 crore and 100 locationsSecond, like any booming industry, there is shortage of professionals — medical and paramedical. "Today you see a doctor practising in one corporate hospital, tomorrow he has moved and taken his practice someplace else," says one expert. Even equity participation is not a guarantee they will stay. For instance, a good number of the founding team of doctors that started Asian Heart Institute in Mumbai are now out of it over differences with management. They have formed the Western Heart Clinic, which is a group of heart specialists that ties up with large hospitals such as Fortis to offer its services.

Then there is the lack of qualified professionals in niche disciplines. Take dialysis care for instance. In the West, a clinic can be managed by physicians and paramedics trained in renal care but in India in the absence of such trained manpower, the presence of a nephrologist is considered essential. The problem is that there are just 700-800 in the country. Velu says talks are on between Apollo and the Indira Gandhi University to offer a training programme that can churn out renal-care experts.

The third is demand generation. "While there will always be a demand-supply gap the question is can you activate demand," says Nair of EY.  "Local branding is a very important reason for success" as reputation plays a big role in attracting patients. Each new centre will need investments in brand-building and advertising. Companies will also have to identify potential patients through free or discounted screening camps with no real guarantee that these will translate into future revenues.

Demand will also be linked to affordability, especially for minor procedures that are elective in nature. For instance, RG Stone's Bansal says uptake has been slower than expected in tier-II areas such as Mohali. He cites two reasons for this — one is awareness, the second, he says, is that patients go "bargain hunting".

For those who are partnering with hospitals, a lot will depend on how they manage expectations and also on the priorities of the hospital.

And yes, as they tackle this, they will have to be both viable and competitive since the healthcare market is still largely driven by out-of-pocket expenditure whether it is for critical illnesses or for day-care surgeries where there is no hospitalisation. Only recently have insurers even started covering these in small measure. "Price will remain important and they will have to look for the best way to capture the opportunity in a cost-effective manner," says Nair.

 THE CONTRARIAN

 As you step into the outpatient department of Dr Mohan's Diabetes Specialities Centre (DMDSC) in Chennai, you know why they call India the diabetes capital of the world. Among the first centres in the country to focus on the treatment of diabetes and more importantly its complications such as diabetic retinopathy — a condition where excess sugar damages the capillaries in the retina — DMDSC has treated about 200,000 diabetics since the early 1990s. Now with awareness on the rise, it is well-placed to expand. "I get a number of calls from (private equity) investors saying we have identified your model," says V. Mohan, chairman, DMDSC.

There is potential in the field. For instance, recently the Apollo group announced the setting up of a chain of diabetes clinics. But surprisingly, this doctor is in no hurry. He cites a number of reasons. One, of course, is his fear that he will lose control on quality. Even today, the five centres that DMDSC has in Chennai, Vellore, and Hyderabad — totting up revenues of Rs 38 crore — are headed by Mohan's students or close affiliates. But more importantly, Mohan has other passions — for research and charity run through separate organisations. For instance, Madras Diabetes Research Foundation, started by Mohan and his ophthalmologist wife Rema, currently works on diabetes prevalence, genetic and lifestyle factors implicated in diabetes and outcomes research. "Investors will force you to expand because in a few years they want to quit and go someplace else," says Mohan. "Then setting up branches and not research will have to become my priority." That is something he is loathe to compromise on.

But in spite of the challenges, these and others are venturing forth. For instance, New Delhi's International Oncology is setting up cancer-care centres inside Fortis hospitals and wants to expand into stand-alone ones. "The paradigm of cancer care has changed given the high degree of technology, the expertise requirement, and the competence need," says Pradeep Jaisingh, founder MD and CEO. People no longer go only to multi-specialty hospitals for treatment, he says and wants to have 15 centres by 2011, if not more, and is seeking private equity investment.

Dialysis care is seen as another huge opportunity. Treatment is sought by less than 2 per cent of those who need it. Technopak's Singh says he has been approached by investors to identify a good venture in this space. Like in the case of Nova, PE investors might incubate such an idea. There is also entrepreneurial activity around women and child care, gastroenterology and dentistry. A number of these players also have international ambitions — HCG wants to go to Bangladesh, RG Stone to Africa, and Vasan to the Gulf, Thailand and the Philippines. No doubt, they may need to raise more funds.

Investors are watching closely. For many, these are only their first or second investments in healthcare. "The initial ventures have to succeed in order for more money to flow into future projects," says Hosmac's Desai. No doubt, so are patients.

gauri(dot)kamath(at)abp(dot)in