Focus on biz model, cut costs for patients, VCCircle summit panellists advise hospitals

Hospitals must choose the right business model and the country must have a robust insurance system to make healthcare available and affordable to all Indians as well as to attract investors, panellists at the News Corp VCCircle Healthcare Summit said on Thursday.

“People need a different mindset to set up hospitals in small towns,” said Ratan Jalan, founder and principal consultant at consulting firm Medium Healthcare Consulting. “There is no need to have 300 beds. If you have a place near the airport with McDonald's, PVR, it can also have a good hospital.”

Amit Gupta, COO at strategic investment firm Jupiter Capital, said the average length of stay at the hospitals must be cut to bring down cost for patients.

“For hospitals, occupancy is essential so they believe that more beds will give them better top line. Besides, the average length of stay for patients must be crashed out. Transition in healthcare from test to T20 is very imperative,” he said, using a cricket analogy.

He also said that north India-focused hospital chain Cygnus Medicare, which works on an asset-light model, has got the formula right for its operations. The company takes the land and building on a lease that is cost effective, he added.

Jalan of Medium Healthcare said that cost of operations in smaller towns and cities is lower as doctor, employee and interior-designing expenses are low even though equipment cost is the same.

The panellists also highlighted the need for a strong insurance system. 

Arjun Rao, founder and CEO of medical consultation services provider Syncremedies Healthcare Pvt. Ltd, said incentives in the value chain involving insurance companies, third-party administrators, corporate houses and individuals are not aligned well. This creates a gap for making healthcare available and affordable for people, he said. “Right now the insurance is for in-patients and outpatients are not insured,” he added.

Gupta of Jupiter Capital asserted that the entire process of settlement of insurance is archaic in the country where the patient is at the receiving end and the incentives in the value chain are misaligned.

More than 82% of middle-income Indians do not have health insurance and are ignorant about it, said Manish Shah, co-founder and CEO of personal finance website BigDecisions.com, in the opening address on the day two of the event. The remaining, who are insured, don't have nearly the amount of coverage they need, he added.

Consolidation and diversification

Discussions around consolidation, which was a running theme on day one of the event on Wednesday, got a broader coverage on the second day.

Consolidation depends on what stage of evolution the company is in, said Sanjeev Vashishta, CEO at SRL Diagnostics. Vashishta was earlier general manager of business development at the diagnostics company's parent firm, Fortis Healthcare. He was also part of the team driving the acquisition of some hospitals of Wockhardt for Rs 909 crore in 2009.

For a private equity investor, consolidation becomes an option that one has to consider seriously when a company is not able to scale up, said Siddharth Dhondiyal, managing director at India Value Fund Advisors, summing up one of the panels in the first half of the event.

Along with consolidation, diversification was also discussed where panel members explored the pros and cons of the process.

“Overall, diversifying into adjacent businesses makes sense if a company's core strength can be leveraged in that opportunity,” said Raghav Ramdev, director, ChrysCapital Advisors LLP. For instance, Apollo Hospitals resisted getting into other areas but has entered new areas such as dialysis, he added.

But Shantanu Rastogi, principal at General Atlantic, exploring the flip side of diversifying. “It is a distraction that looks good on paper as the dynamics of every practices are different,” he said.

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