“Aim is to put up a hospital for Ayushman Bharat and make it viable”

ON AYUSHMAN BHARAT 

Ayushman Bharat is probably one of the most important initiatives of the government. A country like ours needs to have social security and healthcare is getting expensive. Medical inflation is going up. Over the last few years, it has gone up by 15 per cent. Minimum wages in the sector are going up. In addition, cost of consumables are going up, and new and innovative technologies are coming in. Some of these things are new, and cutting edge from foreign companies. You have to consider how to bring this to India and how to keep costs down. Because cost is a big play in India, you need huge volumes. Ayushman Bharat is a fantastic initiative. We need to find a balance between what is viable for the industry and what is affordable for the government, as both are important. This is an ongoing dialogue that the government and the industry are going to have. Down the road, you will find a solution. You’ll not get it right in the beginning. It’s a work in progress, and as long as there’s open dialogue and transparency on both sides, it should work.

ON INDIAN HEALTHCARE INDUSTRY 

From the healthcare industry perspective, demand is not going to go down, especially in a country like India. I think Ayushman Bharat is also going to take this demand out of the cities, as cities are already well covered. The bigger issue is the burden of disease in this country is really increasing, whether it’s air quality, or stress levels going up, cancer being a big epidemic — diseases will continue to happen. Healthcare players will continue to build as you need to have scale. Independent single hospital or small chains will find the going difficult as they can’t achieve economies of scale. Margins have clearly shrunk, as insurance companies are pushing them down; then you have costs rising, and you have certain government measures. Out-of-pocket expenses is an important element of healthcare spend, it is reducing over the years and would continue to do so with more insurance coverage. Therefore, scale is important for hospitals to agree with insurance companies on pricing that is viable.’ If you have size in the market, then you can at least defend your pricing with the insurance companies. So consolidation will happen in the industry over the next 5-6 years and finally, there may be 4-5 large chains. Of course, there will be specialty hospitals and they may be very successful. But eventually there will be consolidation. We see a lot of hospitals up for sale right now for different reasons.

PE PLAYERS AND  INVESTOR RETURNS 

Healthcare has always been an interest for the private equity players. It’s a very defensive sector and there has always been high growth in India. The challenge always is how to scale up, how to execute. In India, the biggest challenge is always about execution, whether it is putting up a project on time, or getting permissions on time. If you can get that part right and if you have good management team, you can build it into a model, which is a lot more predictable and works well. In term of returns, it’s been a mixed bag. Some of the PEs have done well and some of them have not. It depends on which cycle they got in, what the problems are. It could also be, whether they have gone in too high or got in with wrong promoters. But the fact is there has been continuous interest in healthcare and it is one of the few industries where people are getting exits. For this reason, it tells me, there will be continued interest in this sector.

GLOBAL HEALTHCARE PLAYERS AND PARTNERSHIPS 

Right now the only international player of size is IHH, and they have already made a large play in India. It’s a good sign that interest from international players is here. Healthcare is a local play most of the time. South African players have tried and experimented with an India play. They also have had local issues. People going and saying that “we’re going to dominate the world” – it will be difficult and is not going to happen. Eventually, healthcare will be a local play. Even if you look at the US, there are no healthcare players across the US, there are healthcare players in states, or across states or 3-4 states. There are players in the Mid-West or East Coast, but there is no one coast to coast. Kaizer Permanente is California-based. So you will have those kind of players as there will be synergy in these networks. A lot depends on what the partnerships will be like. Today, technology is commoditised, our doctors and outcomes are as good as those in the west. Probably only in a small percentage of cases people have to travel abroad for treatment. In 99 per cent of the cases, things can be done here well, with excellent outcomes at a fraction of the cost. Eventually, medical tourism is really an arbitrage according to me. You have to be relevant to the communities you serve. You can’t build a hospital according to medical tourism. If medical tourism is there, it’s an extra bonus. When we look at a hospital, we don’t see if medical tourism will drive patients to the hospital. What we see is: can we serve the community where the hospital is? Earlier, it used to be the whole city. Now it’s even a part of the city, as travel times have become longer. Medical tourism is about 7-8 per cent of our revenues.

MEMG’S GROWTH PLANS 

We continue to look at both greenfield options as well as acquisitions for growth. We’re evaluating a couple of acquisitions in the next 12-18 months. We’re looking at greenfield options in Bengaluru to consolidate in this market, and one more in Mumbai, which is under discussion. We’ve opened a hospital in Dwarka NCR last year. It’s a 500 bed hospital and doing quite well. As a group, we have done quite well. We started with a single hospital and now we’re the third largest healthcare player in the country. The intention is to keep growing. Am not going to say that we’re going to be the largest, but we will continue to grow aggressively in the markets where we are present. We want to be a relevant player in the markets we serve, we’re there for the next 20 years to build this out. This a large market with a long runway and we will continue to grow steadily with high quality of care. We hope to grow ethically and strongly. Delhi is a new market for us, we’re encouraged by the response and will continue to invest there.

ON GLOBAL PLANS 

For us, Malaysia is a big market. We consider it almost like a home market. We have a large medical school. A large part of our alumni base is there. Hospital was a natural extension for us. We have done very well with our first 

hospital there and we’re very encouraged. We’ll continue to expand in Malaysia. If you know the country well, it’s almost like an extension of India. We also continue to look at other international markets. We’ve looked at the Middle East; probably we are a bit late in that region. We should have probably gone in earlier. We may look at management contracts internationally, rather than putting capital. Other than that, we will look at focusing on India for the next couple of years. We may look at Africa, again purely as management contracts. The market there is growing and there are some interesting players. For any market, we need to have deep knowledge, as any market is attractive. Currently, we have around 6,000 beds. We should be close to 9-10k bed in the next 5 years.

PERIPHERAL BUSINESSES 

In addition to our hospital business, we have a subsidiary called Health Map. We’ve a joint venture with Philips, where we have 20-25 odd centres in Jharkhand, Chhattisgarh, where we go into government hospitals and take over radiology labs as public-private-partnerships. It’s a three-year-old company that’s excited by scale and is trying to build value healthcare. It’s excited by growth prospects in other areas like cancer, could be cardiac too; start taking over in partnership with the government areas where they are finding it hard to manage, all within government hospitals where we do a rate contract. If the infrastructure costs are taken care of, we can price them much more efficiently. So, for example, a CT scan could be priced at Rs 1,000 instead of Rs 3,000 at a private hospital. Along those lines, we’ll look at other businesses. There’s a separate team under the hospitals focusing on this business. And, that for me, along with Ayushman Bharat will be an exciting prospect. When we started, there was no Ayushman Bharat, but now the opportunity has grown much bigger and we can expand the scope and look at other areas. The mindset you require for operating is very different from the private sector. In diagnostics, we’ve invested in a company called iGenetic Diagnostics along with CDC (Centre for Disease Control and Prevention). It’s a startup and we’re very happy with how they are progressing. They are working on genetic testing and high-end diagnostic tests on categories like cancer, infectious diseases. They are also building a regular lab, which is required for scale. We’ve also invested in Pharmeasy, an online pharmacy. The government should have policy clarity, as we have seen some pushbacks from the regular industry players.

WORKING WITH STARTUPS 

It’s a very interesting and exciting space. If we like any companies, we invest in them. We’ve seen companies in AI. We have looked at a company in digital pathology, Spectral Insights, where we have invested. We’ve invested in a company that makes handheld breast scanners, the company is called UE Lifesciences. It’s a low-cost technology, great for screening. A big problem for some of the healthcare products is distribution, which is a big challenge. If there’s some company which can do distribution for several such products, it will be great. Selling is difficult in India; creating a sales force feet on the ground is challenging. If we think the technology is interesting, we’re open to an association. Ideally, if the product is good, we want to buy. It has to be interesting and has to be an unmet need right now. There are a lot of interesting things happening in India. Good thing about India is that a lot of entrepreneurs are coming up and there is capital available and an ecosystem is there. So, we need to create the environment. As a large healthcare player, we would like to invest in the ecosystem and understand what’s going on, as technology is moving so fast and disruptions can happen anytime. We need to be a little paranoid. Healthcare at home is also a huge opportunity as hospital costs are high. One of the main reasons why people end up staying a day or two more in hospital is because they are worried that should some complications arise, they are not sure about the quality of service they can get at home. We’ve invested in Portea and we work with them closely through our hospitals. We also put some protocols when we send the patients, which they follow. It’s a tremendous business and very complicated, which is made possible by using technology. 

INFRASTRUCTURE CHALLENGES 

The main problem is where the beds are coming up. Today, the problem is that the concentration of beds are coming up in the cities. You need to figure out how you can move beds away from the cities into the smaller cities and towns. Talent is a big problem. It’s not just about sending doctors to the smaller cities and towns. Doctors need good schools, family life and an entire ecosystem. We have decent healthcare in tier-2 towns, but we need to now move it to tier-3 and tier-4 towns and then think about villages. Am not saying that we need to have super specialty hospitals in every village, but at least in district headquarters we need infrastructure. And, this will happen. But we need a lot more investment. Telemedicine could offer a solution, where technology is improving every day. However, it has to be seamless and it has to be your own doctor. It’s not about coming to a telemedicine centre and talking to a random doctor. But can you talk to your own doctor? You can’t visit him at his place, but you can reach him through technology. He has your case history. It’s a convenience to the patient, rather than trying to create outreach centres. People need to have faith and that will happen only when they meet the doctor once. You need to have the trust. We’re working on building this model. Digital extension of our hospitals is going to be a focus area for us as we move forward. We’re going to use technology in a big way to see how we can have a continuum of care for patients at their convenience, to extend care beyond hospitals.

ON AFFORDABLE HEALTHCARE 

We all agree that people of the country should get good quality healthcare at affordable prices. Affordable is a very subjective term. What a lot of people don’t understand, and common people don’t understand is that the cost of some of the equipment and consumables is very expensive. Treatment today, especially of cancer, is prohibitive. Insurance plays a large role, whether we have public insurance or private insurance. So one thing that I always say is you should get insurance for your and your family’s sake. That’s why a programme like Ayushman Bharat can be a gamechanger. A healthcare event can push you into bankruptcy. Thirty per cent of farmer suicides happen because they have taken loans for a health incident, which is both unfortunate and sad. Forget about poor people, even the middle class has the same problem. Under-insurance is also a major problem. When people are working, they should make sure that they have better coverage for them and their families.

ON WORKING WITH  AYUSHMAN BHARAT 

Yes, we’re going to work with Ayushman Bharat. We’ll definitely allocate a certain percentage of beds for Ayushman Bharat. Medical colleges in general provide for high quality treatment at affordable prices as part of the cost is subsidised by tuition fees. It’s a clear fit for Ayushman Bharat to come in, as there’s a marginal cost. We’ve large number of medical college beds in our network, and even in corporate hospitals we’ll allocate certain percentage. But eventually, we will look at what’s the best way to engage with the government. That’s why with a programme like Health Map, we find it much more meaningful.

CREATING A NEW BUSINESS MODEL FOR AYUSHMAN BHARAT 

The government has taken the first stab at it. They are open to listening. Some areas have a decent pricing and some areas don’t. It’s work in progress and has to be continuously so. It may take 2-3 years to settle down. I want to see, using Ayushman Bharat, new infrastructure coming up and for me that will be success for the scheme. If Ayushman Bharat has enough margins, there will be a lot more money coming in to create new infrastructure. Now, people are not building new hospitals for it. They are more likely to use excess capacity to serve patients under this scheme. And this will quickly get exhausted and won’t make a big change. If you want to build new infrastructure and want the number of beds per patient to go up, you need billions and billions of dollars to come in. Two things need to be there. First, margins have to be reasonable, need not be a private sector margin. There’s also the myth that hospitals make a lot of money. But if you look at hospital balance sheets, most of them are in single digits. Rationalise that price even further. But for next 20 years, you will have people coming and investing, because of growth and volumes. You can build good quality, low-cost healthcare — not necessarily air-conditioned buildings. Second, I want to see if we can go and put up a hospital in a tier-3 town, purely on the basis of Ayushman Bharat, and the answer today is ‘no’. That will happen when you will see a huge amount of investment coming in, fresh investment, with the pricing being right. Can you build an Ayushman Bharat hospital? Before we get there, can we start doing pieces of it, say in a government hospital? It’s a discovery process, even for us. We’re not sure, if we’re going to be able to deliver. So we can look at taking over government hospitals instead of putting up a new hospital just for this. We have seen it work for radiology with Health Map. Can we do it with other areas, now? It’s very clear that healthcare has to move beyond cities. We have to work on newer models of healthcare to cater to a larger population, which is what Ayushman Bharat is trying to achieve. So how do you build a new model for healthcare which caters to Ayushman Bharat? Today, we don’t have an answer for it. But we’re looking at various models. That’s my eventual aim, and hope I can get there, when in a few years’ time, we can put up a hospital for Ayushman Bharat. In a few years, we would like to put up a hospital for that segment and still make it viable. Then, we can build multiple units of these. 

ON  COLLABORATION 

We don’t see it working unless there are very specialised areas where people are only going to focus on one area. For instance, in a general hospital you may want to work with, say, ophthalmology, which is specialised and there are volumes. For the main areas like radiology, cardiology, oncology, we would like to do it on our own. That’s where our expertise lies. But somebody may like to work with a cardiology unit or outsource their oncology department. It all depends on what the capabilities are for the person putting up the infrastructure.

ON THE FORTIS DEAL 

We lost Fortis fair and square, as someone came up with a higher price and felt they could do better than us. Eventually, it pushes all of us to be better and more efficient. It’s good for the market with IHH being there, it’s a positive for the country. More investment in healthcare is required. Whether it comes from foreign or domestic players is immaterial.

ON PRICE CONTROL 

I personally don’t think there should be price controls. Ideally, I would like to see margin control, rather than price control. Today, you have stent prices anywhere from Rs 8K10k to Rs 2 lakh. You can’t say that a stent price should be Rs 30k, then you will only go for a cheaper stent. If you say that you can’t have a margin more than x per cent from manufacturer to end user, then you make it work and nobody will complain. I’ve been hearing that the government is thinking about it and that’s a much better thing to do, in my opinion.

UNEXPLORED MARKETS 

There’s a huge opportunity in the North-east. We looked at an entrepreneur who has put up a nice hospital in Guwahati. It’s very encouraging. Again, the key challenges will be getting talent, getting right supporting staff, radiology technicians, nurses, health technicians, OT technicians. All these will be tough. However, ultimately, quality healthcare has to progress to some of these states.