As hospital networks expand to newer cities and compete for customers, they would need to sharpen their focus on growth metrics and get professional management, said panellists at News Corp VCCircle Healthcare Investment Summit 2016 in Mumbai.
Participating in a discussion on ‘The Indian healthcare industry: where is the value creating happening?’, Vishal Bali, senior advisor, healthcare at TPG Capital, said while some hospitals are brimming at 90% occupancy, there are those that are at 30% occupancy. “This shouldn’t be the case when the Indian market is so large with very high demand for beds. A systematic approach to hospital management should help reduce this gap,” he said.
“There is a push now to be a bit more critical about the metrics,” Bali said, adding that the asset-light model seemed to be the best way to generate returns.
"Our business models have been built assuming influx from nearby cities and states. As these cities get their own hospitals, this influx is going to reduce and hospitals are going to take a re-look at their business models,” said Sumit Nadgir, director at India Value Fund Advisors (IVFA), adding that competition is going to be tough.
Nadgir said there is a need for hospital models that adequately meet the demand rising from tier 2 and 3 cities. Such cities require the same amount of capex but lower pricing points have been a challenge so far.
Samonnoi Banerjee, Principal at Bain Capital, noted that only the most successful hospitals can arrive at mid-teen to high-teen return on capital (RoC).
“For most networks, 100% of the profit pool comes from a couple of hospitals. The hometown flagship hospitals generate the bulk of the profits, but other hospitals within the network may not be doing so well,” said Banerjee.
Potential solutions for the challenges faced by players in the space include consolidation and transition from family run enterprises to professionally run entities, panellists said.
The summit was attended by over 300 delegates including investors and investment bankers.
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