If anyone is in a position to assess the future of the private sector in Indian health care, it is Tan See Leng. He is not only a doctor but also managing director and CEO of the world’s second largest hospital group, IHH Healthcare Berhad. In August, announcing IHH’s second acquisition in India, he said, “The deal catapults the company towards becoming one of the leading hospital groups in India, a country which has the highest growth potential for quality private healthcare.”
The Malaysian healthcare giant, which has made a series of acquisitions and joint ventures in India’s rapidly growing private healthcare market in the last couple of years, was taking a bigger bet by investing in this $100-billion (Rs 6.67 lakh crore) market, where private sector defines the price and quality.
One of India’s largest sectors — in terms of both revenue and employment — the healthcare industry includes hospitals, medical devices and equipment, drugs (modern and traditional), telemedicine, medical tourism, and insurance. It employs some 3.6 million people, and is growing at an annual rate of 17 per cent.
A July 2015 study by global consultancy Deloitte pegs India’s total healthcare market at $195.7 billion (roughly Rs 13 lakh crore) by 2018. The share of private sector providers in this market is already around 81 per cent.
“With stagnating government spending — at around 1 per cent of the country’s GDP — for several years, India’s healthcare has become a predominantly private market in both ways,” says Sujay Shetty, leader, healthcare (life science, medical devices) practices at PwC India.
Market ShiftThe growth of private-sector players in the expanding healthcare delivery market has been rapid, due to weak public healthcare and lax regulation. The services sector, which was largely the preserve of government and charitable institutions, has seen a corporate rush in recent years. Private service providers who jumped into the fray predictably chose to cater to high-revenue specialty care demand in affluent locations.
Continued government apathy towards improving the reach and services of primary care left even the poor with no option besides costly private care. “Lack of political will, perhaps due to an industry-politician nexus, to implement better healthcare services in the public sector left the space open for the rapid growth of private sector, typically in select urban centres,” says Sujatha Rao, former health secretary of India. Meanwhile, she adds, healthcare in the vast swathe of rural India remained neglected.
Investment DestinationExpectedly, the country saw high-value investments pour in from both domestic and foreign players. Apart from the long-established large generic drugs industry, consisting of local and foreign companies, new investments came from global health-care majors, including hospital and technology companies.
The most recent was IHH’s acquisition of Hyderabad-based Continental Hospital and the Global Hospitals Group with a total investment of about $250 million earlier in 2015. Other big foreign deals in the last two years include US drug-maker Mylan’s $800-million deal to buy the women’s healthcare businesses of Famy Care, Temasek Holdings’ acquisition of Punj Lloyd’s entire 17.74 per cent stake in Global Hospitals, and a $48-million investment by UK-based development finance institution CDC in the Devi Shetty-promoted Narayana Hrudayalaya.
French drug-maker Sanofi’s investment in Apollo Hospitals’ diabetes clinics, and private equity company Carlyle’s investment last year in Metropolis Healthcare, a Mumbai-based diagnostic services company, also demonstrate the sustained interest of foreign players in Indian healthcare. Local majors Apollo, Fortis and Aster DM Healthcare have also invested heavily in the recent past.
Rapid ExpansionLooking at the market potential, many health-care providers are now rushing to add capacity. Fortis Healthcare is sharpening its focus on the domestic market by upping its bed capacity to around 10,000, while top rivals Apollo Hospitals and Manipal Health Enterprises are eyeing domestic and overseas opportunities.
In August, Apollo Hospitals extended its presence to the western region by opening a 500-bed multi-specialty tertiary-care hospital in Mumbai — its 65th in India. “Our target is to add 1,000 beds a year in five years,” said group vice-chairperson Preetha Reddy, in an August interview. Apollo Health and Lifestyle, a subsidiary of Apollo Hospitals, is also spreading its network with new “Cradle” birthing centres, with an investment of Rs 500 crore.
Karnataka-based Manipal Group is looking to expand in India and abroad, including Malaysia, South Africa and West Asia, by setting up hospitals and medical education institutions. “We want to spread our presence to the western and northern states of India as well as foreign markets,” said managing director and CEO, Rajan Padukone, in an earlier interview with this author.
The Indian market is in focus for non-resident Indian investors such as Dubai-based health-care group Aster DM Healthcare, which recently opened its largest healthcare complex, Aster Medicity, in Kerala, with a total investment of about $300 million, is planning to invest another Rs 2,000-3,000 crore. Promoted by NRI Azad Moopen, Aster also plans to list the company on Indian stock exchanges after a public issue of its shares.
An increasing number of initial public offers (IPOs) and fund-raising plans in the Indian healthcare space of late further attest to investors’ strong confidence in the country. Narayana Hrudayalaya, one of the country’s largest heart hospital chains, and Dr Lal Pathlabs, the country’s oldest diagnostics chain, have also raised money from the stock market recently.
“India offers huge potential for private health-care providers, as modern healthcare penetration is still too insignificant...and the government cannot be the sole provider to address existing and future demand,” says Muralidharan Nair, partner (health care) at consultancy Ernst & Young.
All major global players in drugs and pharmaceuticals, medical devices and technology, and insurance —including Pfizer, Novartis, GSK, MSD, Sanofi, Astra Zeneca, Johnson & Johnson, GE, Siemens, Philips, and Medtronics —along with hundreds of local counterparts, are actively engaged in this large market.
Unregulated DomainAlthough the industry and market in India have grown by leaps and bounds over the years, policy and regulations for this key social sector remain weak. Rural and primary health care continues to be ignored, while tertiary and speciality care are out of the reach of a huge chunk of the population, as the country has no laws to control the cost.
With 83 per cent of the population still paying health-care expenses out-of-pocket, as insurance penetration is still minuscule, the treatment of major diseases at private hospitals often wipes out the entire savings of families.
In India, health insurance penetration is just 17 per cent, including public and private schemes. Although there are several players in the public and private sectors, none has great market share.“Apart from product innovation, the affordability of health insurance is also the need of the hour in India,” says T. S. Vijayan, who heads the Insurance Regulatory and Development Authority.
CorruptionUnethical practices in the public and private sector by unfair deals between doctors, drug makers, diagnostic labs, device manufacturers and hospitals, continue to grow stronger in the absence of regulatory intervention.
India regulates drug pricing and quality reasonably well, but healthcare services and medical devices are a free-for-all. Since quality approval is not mandatory for hospitals, it’s often left to the organisation. Many top players have accreditation from the National Accreditation Board for Testing and Calibration Laboratories, an autonomous body under the Department of Science and Technology. But unethical practices, including over-charging and compromised quality, and deep-rooted corruption, are still rampant, to the detriment of patients. “Corruption is a menace in Indian health care, where bribes and kickbacks are the way stakeholders support each other to make profits,” says Kamran Abbasi, international editor of the British Medical Journal, which published an explosive report on corruption in Indian healthcare last year.
| ‘India Can Train Doctors’ |
Mark Britnell
Chairman and partner, Global Health Practice, KPMG
Q: How would you compare the healthcare system in India with that of the other markets?
A: Well, there is no perfect healthcare system. Having said that, there are fantastic examples of health and healthcare around the world. Take for instance, the US. It has excellent R&D, while the UK is known for its universal healthcare and values. As far as India is concerned, there are some great hospitals here. Further, it has an advantage in terms of application of smart IT systems. This is a combination which in turn works out as a great advantage.
Q: Going forward, how can India contribute to the world in terms of its health system?
A: Currently, there is a mammoth shortfall of doctors and nurses across the world. In fact, if you take the WHO figure, the shortfall stands at around 7 million. India certainly can take advantage of this and try to fill in the gap thereby becoming the world’s cradle for training doctors and nurses.
Q: In India, one of the biggest challenges is to make healthcare affordable to the masses. What are your views on it and how can that be achieved?
A: It cannot be done overnight . In the current situation where resources are scarce, the government and the private sector should come forward and work together. There should be a synergy in the way they operate. In that way, they will be able to make healthcare not only affordable but reachable too even in remote areas
Q: How do you think the single-specialty and muti-specialty hospitals co-exist in India?
A: Single specialtycentres are extremely popular in the West. In fact, 70 per cent of all planned procedures can be done in day care centres. But this is not to say that multi-specialty healthcare chains will cease to exist. Currently, the opportunity in the Indian healthcare system is such that it is prompting a lot of foreign investors to enter the country. I personally know a lot of them from countries such as Japan, Australia, Malaysia and the UK.
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Industry Road Map India needs robust policy intervention and innovative models. Public-private partnerships (PPP) have been mooted to make best use of underutilised government health-care infrastructure and thus increase access by the poor, but it has not worked out well due to ambiguities in state laws. “Unless government policies are properly defined and structured for public-private collaboration, it involves higher risks for the investor,” Aster’s Moopen told BW Businessworld an earlier interview.
Healthcare startups face many challenges too. “The cost of capital is high. That in turn is passed on to the consumer,” says Gaurav Malhotra, CEO at Bourn Hall Clinic. “You typically don’t enjoy benefits such as free land. And licences and approvals are major pain points,” he adds.
Health minister Jagat Prakash Nadda announced recently that his ministry would set up a working group to facilitate dialogue among stakeholders, particularly the private sector, for successful implementation of PPP programmes. But since many underutilised hospitals and clinics are under the state governments, a consensus between states and centre is needed for a better outcome.
Industry veterans say the country’s complex health-care system needs not only strong policy intervention and increased funding, but also multiple models involving all stakeholders.
Max India’s Rahul Khosla suggests collaboration between public and private health players in skilling medical professionals, widening insurance coverage, and strengthening medical infrastructure to help improve the system.
“There is a need for evolving quality standards to be followed by hospitals and doctors,” says Malvinder Mohan Singh, executive chairman, Fortis Healthcare.
Though the minister says that the government has spent Rs 1.32 lakh crore to strengthen health infrastructure, the country still has a long way to go, to achieve the goal of universal health care. Thus strong policy intervention to bring in equity, and a significant rise in government spend, are the needs of the hour.
unni@businessworld.in; @unni_ch
(This story was published in BW | Businessworld Issue Dated 28-12-2015)
BW Reporters
Unnikrishnan is currently Senior Associate Editor with BW Businessworld at its Mumbai Bureau. During his two decades long journalistic career, he has received several media awards and recognitions. His articles on healthcare, life sciences and intellectual property rights (IPR) have been republished by several international blogs and journals.
