Thursday, December 14, 2006


Healthcare companies

Businessworld Gina S. Krishnan

The fates of Shivinder Mohan Singh, Analjit Singh and Habil Khorakiwala are somewhat intertwined. Their families made most of their fortunes in the pharmaceutical business — Khorakiwala owns Wockhardt, formerly Worli Chemicals, which was founded in the 1960s by his father F.T. Khorakiwala, while Shivinder’s grandfather and Analjit’s father, Bhai Mohan Singh, founded Ranbaxy Laboratories........

They aren’t the pioneers. That honour goes to Prathap C. Reddy, who set up Apollo Hospitals in 1983. In fact, Wockhardt, Fortis and Max have been built somewhat along Apollo’s lines. But what is significant is that they have taken the game to another level.

In less than a decade, Wockhardt, Fortis and Max have added close to 5,000 beds, something that took Apollo 20 years. (It is of course another matter that projections show that India needs an additional 80,000 hospital beds each year.) Their revenues have also grown briskly — about 30 per cent annualised for the past five years for each, according to Vivek Desai, managing director, Hosmac, a hospital consultancy....

The Strategies

According to a CII McKinsey report, the entire healthcare industry is worth $18.7 billion, with the private sector controlling 65 per cent of it. But this figure includes the pharma industry as well as other healthcare related businesses like pharmaceuticals, diagnostics, etc.....

One, the healthcare market in India is under priced, not only compared to the developed world, but also compared to other Asian countries. If a heart surgery costs $14,250 in Thailand, $20,000 in Singapore and $30,000 in the US, it costs $5,000-7,000 in India. This, despite the fact that Indian doctors (and nurses) are considered to be one of the best in the world.

Two, rising income levels and greater awareness has ensured that people are more conscious of the service level of hospitals and don’t mind paying slightly more if what they get in return is substantially higher.

Three, India’s cheaper healthcare has stoked the flames of healthcare tourism — patients come here from all over the world to be treated.

Also, traditionally healthcare is a recession-proof industry....

Max today has four secondary care centres — two at Panchsheel in south Delhi and one each at Noida and Pitampura (north-west Delhi). Plus, it has a general hospital (half- way between a secondary and tertiary care) in Patparganj in east Delhi. It also has as a massive tertiary care unit at Saket (south Delhi), which comprises a general hospital (Institute of Allied Medical Sciences), plus five superspecialty institutes....

Nephew Shivinder’s experience was different. Fortis decided to set up its first hospital at Mohali, Chandigarh, a market that didn’t have any other large, tertiary care private hospital. The idea was to attract patients from Himachal Pradesh, Haryana and Punjab. Simultaneously, it planned secondary care centres in other locations, which would be linked to the big Mohali hospital.

Soon, Fortis realised that time wasn’t ripe yet for the hub and spoke model. Instead, it put up another multispecialty hospital at Amritsar, though smaller than the one at Mohali. And focused on OPD camps in smaller towns and villages. This has turned out to be a win-win for doctors, patients and Fortis. While patients get specialty opinion at no cost, local doctors co-opted in this process become primary care-givers. and start referring their patients to the Mohali hospital.

Once the Mohali operations stabilised, Fortis turned its attention to the National Capital Region (NCR).... Fortis opened a 175-bed hospital in Noida with a focus on orthopaedics and neurosciences. However, the big step was Fortis buying out the Escorts Heart Institute and Research Center in 2005.

Fortis is also setting up boutique hospitals. There is already one called Le Femme which offers women’s health (mother and child care, adolescent care, cosmetic surgery, etc.)....

Wockhardt, for its part, started its first hospital in Kolkata with renal and kidney as a specialty way back in 1988, a few years after Apollo’s hospital came up in Chennai. This remained its only hospital for another 10 years till it opened a superspecialty cardiac hospital in Bangalore in 1998-99. Since then, Wockhardt has put up 10 hospitals covering major cities except Delhi, where it has already acquired land in Pitampura.

So What Has Changed?

Industry watchers say that Wockhardt’s first hospital in Kolkata was a standalone project, to test the waters. It became interested in this business only in the late 1990s, when there were signs that there was a market for such hospitals.

It then chose to focus only on superspecialty cardiac care hospitals, a model it had refined after Bangalore. Predictably, the next three — in Mumbai, Nagpur and Hyderabad — were cardiac care super-specialty units. In other words, every hospital became the building block for the next one, and so on. Wockhardt continues with its superspecialty bias, having put up a neurosciences and minimally access surgery, women health, orthopedics hospital at Mumbai and Hyderabad. It is finally moving to offer other superspecialities with the second hospital at Bangalore.

What Next?

The success of these hospitals is turning out to be some sort of a tipping point. Capital is now more freely available (see ‘Capital Flow’). Though Schroders, a private equity fund had invested in Apollo’s Delhi Hospital originally in 1996, hospitals hadn’t exactly caught the attention on investors. That seems to be changing. Says Hosmac’s Desai: “It could not be a better time for healthcare. Doctors think nothing of investing Rs 40 crore-50 crore to set up a minimally invasive surgery centre or kidney clinic, etc.” And in locations like Siliguri and Dibrugarh, which are not on the radar of corporate groups as yet.

Moreover, with India becoming a significant player in healthcare tourism, international chains have also begun looking at setting up shop here, though to stay competitive they will have to price their offerings intelligently. Add to this the fact that states are falling over each other to offer incentives to anyone setting up hospitals, and you get the picture.

But Devi Shetty, a renowned cardiac surgeon who is setting up two medicities in Kolkata and Bangalore, sounds a word of caution. He argues that to be viable on the long term, a hospital needs to have at least 5,000 beds. Today, only Apollo has those numbers. This means that the other players will have to scale up. Also you can expect far more M&A in this sector.

So where does this leave Apollo? Reddy argues that it has nothing to worry about.
Stories related to healthcare:

Healthcare in India

Health tourism

Brazil healthcare

Cheap surgery

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