Indian Healthcare Successful Business Models

The Context - Indian Healthcare Industry

Understanding Business Models in Healthcare
Comparative Case Study
Contents
Indian Healthcare Market
Healthcare pie (2006)
US$ 34.2 Billion
Healthcare pie (2012)
US$ 78.6 Billion
Growth : 15% CAGR
Private Hospital Revenues
2006 US$ 15.5 Billion
2012 US$ 35.9 Billion
Understanding the healthcare market with 3P Model
Prevalence:
High prevalence, likely to be higher than reported
Change in disease profile likely to drive the prevalence
higher
Significant disparity between states & socio-economic
classes in prevalence
Propensity:
3% of population slips below poverty line every year due to
healthcare costs
Average cost of single hospitalization equal to > 6 months of
average household income
Only 10-12% of Indian population is insured though growing
at more than 35%
Provider:
Although India has 20% of global disease burden, we have
6% of beds, 8% of doctors, 8% of nurses & 1% of paramedics
Of the 13 Lakh private providers, 37% are unregistered
providing little quality assurance


Market
Characteristics
Propensity
3P Model of healthcare market
Indian Healthcare Market Characteristics
Consumer Viewpoint
Understanding consumers from the 3A model
Accessibility:
Inadequate infrastructure
High prevalence, increasing further
Regional disparity in India
Shortage of manpower

Assurance:
Unregulated and fragmented market
Lack of data or information systems

Affordability:
Inability to afford quality healthcare
Inadequate insurance penetration
Emergence of new diseases
Consumer
viewpoint
Affordability
3A Model of consumer needs
Why are private providers not filling the gap ?
There is considerable variation In RPB / year and EBITDA for hospitals within tier-1 cities

It is possible to achieve operating margins of 28%-30%, however, choice of business model will be an
imperative for success
UNDERSTANDING
BUSINESS MODELS
Understanding Business Models in Healthcare
Functional Mix Specialty Mix Level of Care Services Mix Growth Model
Preventive
Therapeutic
Rehabilitative
Education
Research
AYUSH / CAM
Single Specialty
Single Disease
Multi-specialty
Select Specialty
Primary
Secondary
Tertiary
Quaternary
Pathology
Laboratory
Radiological set-up
Dialysis Units
Radiotherapy Units
Laproscopy Units
Greenfield
Acquisition
Lease
Joint Venture
Congregation
Business Elements
Target Consumer - Positioning
Business economics
Capex per bed
Revenue per bed
EBIDTA
Geographic Mix
Hospitals Business Model
OT rent constitutes
17% of revenues but
indirectly it is
responsible for 50%
of hospitals revenues
Pharmacy & Consumables
generate 36% of hospitals
revenues
OPD, though generates 5% of
revenues, is responsible for
50% of IPD admissions
HOSPITAL: SOURCES OF REVENUE
HOSPITAL: COST STRUCTURE
(Operating Margin)
* All figures are a percentage of gross revenues
Specialty Mix Key to a profitable business model
0% 30% 40% 20% 10%
Specialty Margin
ARPP (IPD)
0
50 K
100 K
150 K
200 K
Cardiology

30%
~30%
Orthopedics

16%
OBG

Neurosciences

20%
Internal Medicine

12%
Pediatrics

General Surgery

22%
23%
ALOS (Average Length of Stay) of these specialties is an important determinant of profitability,
therefore their operational management is key to driving efficiencies
Note:
Bubble size - % revenue of that specialty
% inside the bubble specialtys EBITDA as seen in tertiary care facilities in metro cities in India
Service Mix
12.8%
6.4%
19.1%
4.1%
9.4%
17.1%
23.7%
7.4%
9.3%
11.6%
23.3%
3.0%
4.7%
19.0%
19.8%
9.3%
19%
35%
10%
40%
35%
25%
5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0%
10%
20%
30%
40%
Pharmacy OT Doctors Radiology Pathology Consumables Room Misc
Orthopedics Neuro-surgery EBITDA
Significant variance in service mix impacts profitability through;
Capital Expenditure
Revenue realization
Cost of delivery
Overview of Growth Models
Greenfield Acquisition Lease / Joint Venture Agglomerates
Max
Manipal
Sterling
Columbia - Asia
Fortis
Wockhardt
Reliance ADAG
Apollo Hospitals
Wockhardt Hospitals
Parkway Group
Narayan Hrudayalaya
I-Ven Medicare (ICICI)
Asian Health Alliance
DM Healthcare
Long gestation period,
delayed returns
High initial capital
requirement
Land availability, especially in
metros is a challenge
Fast ramp-up
High initial capital
requirement
Revenues accumulate from
day 1
Acquiring skilled manpower
along with asset limits
teething issues
Constrained by availability
Low initial capital
requirements
Assured revenue base from
day 1
Profit / revenue sharing limits
risk
Focus on core competencies /
specialties
Strategic stake (minor /
majority) in small to medium
hospitals across the country
Generates economies of scale
through bulk purchasing,
preferred services etc
Managing multiple partners
requires a capable
management team
Capex: High
Revenues: High
EBITDA: Delayed, High
Pay-back Period: 5-7 Years
Capex: High
Revenues: High
EBITDA: High
Pay-back Period: 5-7 Years
Capex: Low
Revenues: Low
EBITDA: Medium
Pay-back Period: 2-3 Years
Capex: High
Revenues: Medium
EBITDA: High
Pay-back Period: 3-5 Years
Target Consumer - Positioning
Lean Differentiators Differentiator
Cost Leaders
V
a
l
u
e

Cost / Pricing Level
Niche: Super-specialty
Niche: Nursing Homes
Indian healthcare delivery market has seen adoption of various business models in response to the local needs and
changing customer behavior
A strong brand
Low cost provider
Revenue optimization
Stress on continuous improvement / innovation
Lean Differentiator
Seamless service delivery
1
2
3
4
5
Evaluating Business Models
9.00 9.00 9.00 Integrated medical institutes

9.00 9.00 8.00 Academic medical institute

9.00 9.00 7.00 Medical Colleges

7.00 9.00 7.00 Indian Medicities

2.00 4.00 7.00 Medical Mall: (Products & Services)

5.00 9.00 6.00 Super specialty hospital (Single/Multi)

3.00 8.00 6.00 Critical care set-ups

4.00 8.00 5.00 Nursing homes, Gr. Specialty hospital

3.00 7.00 5.00 Integrated Rehab Institute

4.00 7.00 5.00 Specialty hospitals (Single & Multi)

5.00 8.00 4.00 Diagnostic centres/ network clinics

2.00 7.00 4.00 Day care set-up

2.00 6.00 4.00 Multi-specialty Rehab Institute

2.00 8.00 3.00 Life-style & disease management centers

2.00 7.00 3.00 Wellness & rejunuvation centers

5.00 5.00 3.00 CAM Academic Institutes

5.00 5.00 2.00 CAM Hospitals

4.00 2.00 2.00
Preventive checks & OPD;
Vaccination centres

2.00 7.00 1.00 Integrated Clinics

4.00 4.00

1.00 CAM Clinics

1.00 4.00

1.00 Specialty Clinics

1.00 4.00

1.00 Poly clinics

6.00 4.00

1.00 Partnering Public-funded programs

1.00 2.00

1.00 Clinic/network clinics

Operational Complexity

Profitability Investment BUSINESS-MODEL

Higher investment and complexity of business, leads to better
profitability, if managed well
Scale: 1 to 3 4 to 6 7 to 9
LOW MEDIUM HIGH
Healthcare
provider
Centre
Insurance
company
BPL Population APL Population
Viability gap
1
funding in form of an annuity
for setting up facilities in select non Tier 1
areas
Insurance premium
2
State
75%
25%
100%
Funds operating
and capital
expenditure
Provides treatment
Reimburses private
provider based on
agreed upon tariffs
I
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S
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Cess/ Surcharge/
Health tax
Electronic health cards distributed by government
Out of pocket
premium 70%
Out of pocket
premium 0%
PUBLIC
SECTOR
PRIVATE
SECTOR
CONSUMER
Stakeholders involved
Monitoring
Agency
Ensures
governance and
quality of care
Quality
monitoring
National Healthcare Model
COMPARATIVE CASE STUDY
Comparative Case Study 2 Healthcare Chains
Example Chain 1
Example Chain 2
Chain 1 Feeding on the brand (Empty Calories !)
-12%
-12%
Existing hospitals
have been optimized
to the fullest
Expansions have
witnessed de-growth
in performance
EBITDA of the group has declined Expansions have not yielded fruit
EBITDA Rs cr EBITDA Rs cr
Chain 1 Some key learning's from its strategy & operating model
Business Model
Multi-specialty tertiary care offering the entire functional mix
Growth through JV / Lease
Mid-value, mid-price differentiator positioning
Doctor engagement
Belief in Brand > Doctor
Fee for service without flexibility
Poor star retention with significant loss in revenue due to attrition
No cross- leveraging of clinical staff across locations
Brand Strong regional brand perceived to be expensive not portable in other geographies
Growth
Selection of city based on me-too strategy
No detailed market assessment
No clear line of sight on doctors
Operating model in Tier 2 not aligned to location dynamics
Purchase centralized for less than 20% of value
Patient experience
Lack of common measures or frequency of measurement across locations
Soft Skill Training is a localized function with no impact measurement
Lack of standardized processes for feedback collection, evaluation or action
Look & feel - a function of acquired infrastructure rather than brand identity
Chain 2 Every new expansion has fed the brand
4 1 1 2 7
Existing
hospitals
Expansions
EBITDA of the group has steadily
increased despite manifold expansions
Most of the expansions have yielded positive
EBITDA either in Year 1 or 2
Example: Expansions done in 06
2006-07
2007-08
EBITDA Rs cr
EBITDA Rs cr
Chain 2 Some key learnings
Positioning
Super-specialty with focus on specific specialties and creation of Centres of
Excellence
High-value, high-price differentiator positioning, though was dynamically altered in
difficult markets
Doctor engagement
Created and nurtured star doctors differential payment model
Strong referral network
Invest in building a second line who initially feed off the brand
Designated HODs who had equity stake and nurtured new centers
Brand
Created strong brand in metros initially and then expanded to nearby geographies
thereby leveraging brand awareness
Actively invested in creating international networks
Leveraged International association to attract domestic patients
Patient Experience
A common MIS with central reporting
Segregated clinical management from process management to minimize conflict
Started a post-discharge management program
Instituted SOPs though with limited success
Lack of standardization of look & feel, constrained due its lease / JV growth model
Chain 2 Some key learnings from their strategy & operating model
Aim to be first mover in corporate healthcare in most Tier 2 locations
Extensive market assessment (demand and supply) before entry
Clear line of sight on doctors
Asset light model high number of brownfields with lease rentals linked to revenue
Followed differential strategies as per maturity of facilities
Revenue enhancement through surgical & case mix optimization in its mature
facilities
Enhanced utilization in newer facilities through referral network, outreach
programs & raising marketing spend to > 10%
Purchase standardized & centralized for more than 50% of value
Most Tier 2 hospitals are EBITDA +ve within first 2 years of operations.
Growth
Annexures
Healthcare Business Models (Annexure A 1)
I. Preventive & Diagnostic focused models
BUSINESS MODEL/
DELIVERY FORMATS
EXAMPLE
HEALTHCARE FUNCTIONS TYPES OF RESOURCES
Preventive
Di
ag
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Therapeutic
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Conv
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Int
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Sur
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Partnering Public-funded
programs
AIDS Campaign, Polio Vaccination
Disease Prevention Centres
Preventive checks & OPD; Vaccination
centres

Wellness & rejuvenation
clinics
Ananda, Gold-spring
Life-style & disease
management clinic
Medi-spa

Diagnostic centres/ network
clinics
Dr. Lal's , SRL Ranbaxy, Stand alone
set-ups

Healthcare Business Models (Annexure A2)
II. Therapeutic focused models
Global Healthcare Medicity Medicities
EHIRC, GangaRam
Super specialty
hospital (Single/Multi)
Fatima Hospital, Holy Family
Specialty hospitals
(Single & Multi)
South point nursing hospital
Nursing homes, Gr.
Specialty hospital
Trauma Care Centres Critical care centres

Laparoscopy Units, Dialysis
units (NEPHRON, USA),
Endoscopy centres.
Day care centres
Manipal Care & Cure Clinics Integrated Clinics

Cray Diabetes Management
Clinic, Kaya Skin
Specialty Clinics
Apollo Clinics, Max-Clinics Poly clinics
Single Consultant Chambers Clinic
Su
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Therapeutic
Di
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Preventive
TYPES OF RESOURCES HEALTHCARE FUNCTIONS
EXAMPLE
BUSINESS MODEL/
DELIVERY FORMATS
Healthcare Business Models (Annexure A3)
III. Multiple, Rehab, CAM & Retail focused models
_
Medical Mall: (Products &
Services)




Vaidhyarathnam Moss, Holy Angels
College of Alternative Medicines
CAM Academic Institutes
Caritas Ayurvedic Hospital CAM Hospitals



Dr. Batra Clinic, Ayurvedic clinics, Reilki
Centres, AOL Centres
CAM Clinics

Mayo Clinic, Rochester, Minn. Integrated Rehab Insti.
Rehabilitation Institute of Chicago Multi-specialty Rehab Insti.

KGMC Medical Colleges
AIIMS, PGI Academic medical institute

Medical City Dallas hospital (Over 95
specialties, attract patients across 75
diff. countries)
Integrated medical
institutes
Sur
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Int
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.
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Therapeutic
Di
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Preventive
TYPES OF RESOURCES HEALTHCARE FUNCTIONS
EXAMPLE
BUSINESS MODEL/
DELIVERY FORMATS
Emerging Opportunities (Annexure B)
Medical Infrastructure
An estimated US$ 69.7 Billion is
likely to be invested in medical
infrastructure by 2012
Health Services Outsourcing
Currently a US$3.7 Billion industry,
it is likely to double in the next 6
years and provide employment to
more than 300,000 personnel
Health Insurance
With premium collected of more
than US$ 700 Million in 2006, yet
only 2.4% of Indian population is
insured. Premiums are likely to
touch $ 3.8 Billion by 2012 with
an insured base of around 10%
Training & Education
With predicted shortage of
450,000 doctors and 1.2 Million
nurses by 2012, medical &
paramedical training could be a
$2.2 Billion industry by 2012.
Medical Devices
Currently a $ 2.1 Billion industry, it
is likely to grow into a $ 4.9 Billion
industry. With significant
government backing, domestic
contribution could increase to as
much as 50%
Pathology Labs
With revenues of more than $850
Million in 2006, fuelled by
technological advancements in
data transfer, it could grow into a $
2.6 Billion industry by 2012
Telemedicine
73% of Indian population
residing in rural areas provide a
significant opportunity, since
80% of healthcare facilities are
concentrated in urban India
Clinical Trials
Clinical trials offer a huge scope
for maximizing revenues for
established players with a
potential to grow at 25% annually
into $ 900 Million by 2012