indian healthcare successful business models

8/10/2019 Indian Healthcare Successful Business Models

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Indian HealthcareSuccessful Business Models


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The Context - Indian Healthcare Industry

Understanding Business Models in Healthcare

Comparative Case Study

Contents


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Indian Healthcare Market

Healthcare pie (2006)US$ 34.2 Billion Healthcare pie (2012)US$ 78.6 Billion

Growth : 15% CAGR

Private Hospital Revenues

2006US$ 15.5 Billion2012US$ 35.9 Billion


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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 tohealthcare 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


5/27

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


6/27

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


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UNDERSTANDING

BUSINESS MODELS


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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


9/27

Hospitals Business Model

OT rent constitutes

17% of revenues butindirectly it is

responsible for 50%

of hospitals revenues

Pharmacy & Consumables

generate 36% of hospitals

revenues

OPD, though generates 5% ofrevenues, is responsible for

50% of IPD admissions

HOSPITAL: SOURCES OF REVENUE

HOSPITAL: COST STRUCTURE

(Operating Margin)

* All figures are a percentage of gross revenues


10/27

Specialty MixKey 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


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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


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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


Capex: Low

Revenues: Low

EBITDA: Medium


Capex: High

Revenues: Medium

EBITDA: High



13/27

Target Consumer - Positioning

Lean Differentiators Differentiator

Cost LeadersValue

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


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Evaluating Business Models

9.009.009.00Integrated medical institutes

9.009.008.00Academic medical institute

9.009.007.00Medical Colleges

7.009.007.00Indian Medicities

2.004.007.00Medical Mall: (Products & Services)

5.009.006.00Super specialty hospital (Single/Multi)

3.008.006.00Critical care set-ups

4.008.005.00Nursing homes, Gr. Specialty hospital

3.007.005.00Integrated Rehab Institute

4.007.005.00Specialty hospitals (Single & Multi)

5.008.004.00Diagnostic centres/ network clinics

2.007.004.00Day care set-up

2.006.004.00Multi-specialty Rehab Institute

2.008.003.00Life-style & disease management centers

2.007.003.00Wellness & rejunuvation centers

5.005.003.00CAM Academic Institutes

5.005.002.00CAM Hospitals

4.002.002.00Preventive checks & OPD;

Vaccination centres

2.007.001.00Integrated Clinics

4.004.001.00CAM Clinics

1.004.001.00Specialty Clinics

1.004.001.00Poly clinics

6.004.001.00Partnering Public-funded programs

1.002.001.00Clinic/network clinics

Operational ComplexityProfitabilityInvestmentBUSINESS-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


15/27

Healthcare

providerCentre

Insurance

company

BPL Population APL Population

Viability gap1funding in form of an annuity

for setting up facilities in select non Tier 1areas

Insurance premium2

State

75%

25%

100%

Funds operating

and capital

expenditure

Provides treatment

Reimburses privateprovider based on

agreed upon tariffs

IndicatesshareoffundingbetweenCentre

andState

Cess/ Surcharge/

Health tax

Electronic health cards distributed by government

Out of pocket

premium70%

Out of pocket

premium0%PUBLIC

SECTOR

PRIVATE

SECTORCONSUMER

Stakeholders involved

Monitoring

Agency

Ensures

governance and

quality of care

Quality

monitoring

National Healthcare Model


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COMPARATIVE CASE STUDY


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Comparative Case Study2 Healthcare Chains

ExampleChain 1

ExampleChain 2


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Chain 1Feeding 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


19/27

Chain 1Some 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


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Chain 2Every 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 crEBITDA Rs cr


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Chain 2Some 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 indifficult markets

Doctor engagement

Created and nurtured star doctorsdifferential 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 geographiesthereby 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


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Chain 2Some 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 modelhigh 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


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Annexures


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Healthcare Business Models (AnnexureA 1)

I. Preventive & Diagnostic focused models

BUSINESS MODEL/

DELIVERY FORMATSEXAMPLE

HEALTHCARE FUNCTIONS TYPES OF RESOURCES

Preventive

Di

ag

no

sti

c

Therapeutic

R

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h

a

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Int

erv

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ion

Sur

g.

Partnering Public-funded

programs

AIDS Campaign, Polio Vaccination

Disease Prevention CentresPreventive checks & OPD; Vaccination

centres

Wellness & rejuvenation

clinicsAnanda, Gold-spring

Life-style & disease

management clinicMedi-spa

Diagnostic centres/ networkclinics Dr. Lal's , SRL Ranbaxy, Stand aloneset-ups


25/27

Healthcare Business Models (AnnexureA2)

II. Therapeutic focused models

Global Healthcare MedicityMedicities

EHIRC, GangaRamSuper specialty

hospital (Single/Multi)

Fatima Hospital, Holy FamilySpecialty hospitals

(Single & Multi)

South point nursing hospitalNursing homes, Gr.

Specialty hospital

Trauma Care CentresCritical care centres

Laparoscopy Units, Dialysis

units (NEPHRON, USA),

Endoscopy centres.

Day care centres

Manipal Care & Cure ClinicsIntegrated Clinics

Cray Diabetes Management

Clinic, Kaya SkinSpecialty Clinics

Apollo Clinics, Max-ClinicsPoly clinics

Single Consultant ChambersClinic

Su

rg.

In

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Preventive

TYPES OF RESOURCESHEALTHCARE FUNCTIONS

EXAMPLEBUSINESS MODEL/

DELIVERY FORMATS


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Healthcare Business Models (AnnexureA3)

III. Multiple, Rehab, CAM & Retail focused models

_Medical Mall: (Products &

Services)

Vaidhyarathnam Moss, Holy Angels

College of Alternative MedicinesCAM Academic Institutes

Caritas Ayurvedic HospitalCAM Hospitals

Dr. Batra Clinic, Ayurvedic clinics, Reilki

Centres, AOL CentresCAM Clinics

Mayo Clinic, Rochester, Minn.Integrated Rehab Insti.

Rehabilitation Institute of ChicagoMulti-specialty Rehab Insti.

KGMCMedical Colleges

AIIMS, PGIAcademic medical institute

Medical City Dallas hospital (Over 95

specialties, attract patients across 75diff. countries)

Integrated medicalinstitutes

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TYPES OF RESOURCESHEALTHCARE FUNCTIONS

EXAMPLEBUSINESS MODEL/

DELIVERY FORMATS


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Emerging Opportunities (AnnexureB)

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 InsuranceWith 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 LabsWith 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

Telemedicine73% 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

indian healthcare successful business models

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