What Ails Single Speciality Hospital Startups

Even as the popularity of out-of-the-hospital, single specialty healthcare centres across the country is increasingly gaining steam and throwing up significant opportunities for emerging businesses and private equity investors, there are certain challenges that startups operating in the sector are facing.

For healthcare startups, the cost of the capital is too high. Besides, the cost of the rentals or the land is high when compared to multi-specialty hospitals. "We don't tend to enjoy any benefit as a startup when it comes to procuring free land. When you establish a multi specialty hospital, you get often get the land for free from the government, said Gaurav Malhotra, CEO at Bourn Hall Clinic, an IVF clinic that provides fertility treatment to patients. Further, there are no tax benefits too that single specialty hospitals, or day care centres typically get to avail.

Single-speciality hospitals or day-care centres as they are typically known focus on specialty care services in any one area of healthcare - it can be eye care, dental care, fertility and oncology, to name a few. Almost all businesses in the single-speciality segment including Eye-Q Hospitals, Centre For Sight, MyDentist, Clove Dental and Bourn Hall Clinic are lining up significant expansion plans.

Centre for Sight, for instance, after raising two successful rounds of private equity capital, is now looking to launch and IPO and offer a part exit to its existing investor. Wellness and primary-care chain Healthspring that encompasses the hugely unattended pre-hospital space from home care to responding to emergency medical situations, is planning a pan-India expansion of its network from 24 to 200 centres in two years.

While much has been said and written about single specialty healthcare chains and their expansion plans with patients increasingly flocking them, there are certain pain points that hamper growth of the overall sector. When prices increase in setting up a clinic, they are typically passed on to the end users, in this case patients. "Even bank interest rates for healthcare startups are high. Since this is a social sector, benefits in interest rates would have certainly helped," added Malhotra.

Traditionally, healthcare has always been an exciting area for investors and within the sector, single specialty is gaining investor interest for the very nature of the business and the quick returns it promises. In fact, it is the ability to offer a custom solution for a specific requirement by single speciality chains coupled with specialized infrastructure that is driving the growth in the segment.

So far in the first 10 months of the current calendar year (January -October period), PE and VC firms invested $1,071 million, of which, $228 million went into primary healthcare or single speciality hospital, as per data from Grant Thornton. The total number of healthcare/pharma deals during the same period stood at 39. Interestingly, what's tickling investor interest is the rising number of mergers and acquisitions besides of course the growth prospect of the sector overall.
Besides, for investments in single specialty, the gestation period for any project is low compared to multispecialty where the capital requirement is huge. The cost of a single bed in the latter can go up to Rs 50-80 lakh. Plus, there are issues pertaining to low-capital efficiency that make even the best hospitals to break-even operationally not before a year and a half and in about six on capital expenditure.

Some of the single speciality hospitals that have raised capital from PE and VC firms are Delhi-based Centre for Sight and MyDentist, among others.