Disruptions, Developments & Dynamics – How will healthcare delivery in the Tier 2 & 3 market align itself in the AC (“After Covid”) era?

As India’s healthcare infrastructure faces its sternest test in the wake of Covid-19, one wonders, can businesses reinvent operating models and find opportunity in adversity? While the supply gap remains especially large in the context of healthcare in the Tier 2 and 3 market, the sector today faces its golden hour.

Telemedicine - Can Covid-19 be to telemedicine what demonetization was to fin-tech?

As occupancies decline and the era of remote healthcare emerges, hospitals are increasingly looking at telemedicine to engage with the patient. The number of articles being published on the topic buttresses the need for long term remote care especially in rural areas without adequate infrastructure or manpower. One of the major apprehensions is the reception the rural patient to online assistance. However, a recent report by the Internet & Mobile Association of India (IAMAI) & Nielsen last week showed that for the first time ever, rural India had more active internet users (227 million users) vs. urban India (205 million users) as of November 2019. Does this dispel the fallacy that the rural consumer is constrained by infrastructure and not aligned to the Internet of Things (IOT)? Possibly.

In an era where AI is the buzz word aligned to every innovation in the world, one must understand the ground realities. There is no denying that both telemedicine and AI are the future of healthcare but the important question remains - will there be stickiness of the patient to the model post Covid-19 or will the need for physical interaction lead the rural patient back to the less reliable local GP (“General Practitioner”)?

The need for successful sensitization in communities is the single most critical way to generate long term behaviour change in the rural patient. An integrated technology based primary care model (with telemedicine as a supplement rather than a substitute) aligned to the “influencers” of the community including the Village Level Entrepreneurs (VLE’s), community centres, schools and even the competitor in the local GP through a collaborative model can ensure long-term acceptance. However, without volumes, the unit-economics of such a model may still not work for the private sector player lacking adequate capital or like-minded long-term investors. It is here that a further integration to a hospital network by feeding patients for critical care to increase occupancy can provide long-term sustainability.

Only time can tell whether telemedicine will generate the same stickiness that UPI (“Unified Payments Interface) and E-wallets have post demonetization, but if there ever was a golden hour for telemedicine, it is surely now.

Migrant workers – a new patient base with the potential to unlock the Ayushman Scheme?

As millions of migrant workers flock back to their villages due to lack of jobs, one can expect a temporary shift of the workforce towards agriculture and other primary sector sources. For the Tier 2/ 3 hospital network, it provides a new patient base. Importantly, it may be a golden opportunity for the GoI’s Ayushman Bharat scheme, providing free health coverage to the bottom 40% of the poor and vulnerable population (a major portion of the migrant workforce), to increase its footprint across the currently starved private healthcare players who had previously been apprehensive of the scheme due its pricing. Businesses will need to recalibrate their cost structures and optimize their operating leverage towards a low fixed cost model that can easily absorb the PMJAY patient and see occupancies rise significantly, further unlocking return. With the increase in the number of hospital empanelments with the Ayushman scheme in the recent weeks, we may finally see greater acceptability with the private players.

A rediscovery of operating models for hospitals?

In a bid to find alternate revenue streams, hospitals are increasingly looking at home delivery of medicines and home pathology tests to serve the patient base. While it may only be a short-term supplement given the difficulty of competing in terms of pricing with the e-pharmacy behemoths (1MG, Pharmeasy etc.) who are increasingly focusing on the Tier 2 & 3 market, one can still expect 5-10% of revenues from this source in the long-run.

Further, hospitals are seeing a greater acceptance towards digitization through EMR (“Electronic Medical Records”) and Patient Data Analytics to minimize leakages and drive patient engagement through preventive healthcare in the Tier 2 market. This new data driven ecosystem will be crucial for future healthcare delivery.

Where the impact will be the most in the long-run is the reinvented cost-structure in the AC era. As hospitals battle to optimize space, overheads and manpower either through digital means or through restructured models (shift towards outcome based fees structures & shared resources vis-à-vis fixed salaries), one can expect many of these measures to continue in the long-run leading to the (re)discovery of a leaner cost-structure. This would be especially critical in context of the Tier 2 & 3 story where margins are already suppressed.

Less mobility and closer patient care – a boon for the Tier 2 hospital?

Typically a wealthy patient living in a Tier 2 / 3 city usually prefers to travel by road / take a flight to the closest Metro and get operated at the multi-speciality hospital of his/her choice for elective surgeries and critical care. In the AC era, with restricted movement, hospitals in the Tier-2 city may see an influx of the local rich. The local rich bring the added advantage of being cash-patients bringing further ease to the already stretched working capital position of private players. To ensure long-term stickiness however, hospitals will need to look at reinventing infrastructure and developing a differential pricing scheme to create a one-stop care model for all categories of patients – Cash / Credit / Ayushman.

Greater competition for the domestic patient due to absence of medical tourism – a challenge?

As the leading chains like Fortis, MAX & Apollo feel the brunt of the national lock-down with the entire international patient base (10 to 20% of revenues) diminishing completely, the local hospitals may see greater competition for the domestic patient wherever the competition exists. A large chunk of the domestic patients are aligned to a credit scheme like ECHS, CGHS, Ayushman where prices tend to be lower than the cash patient because of which the unit economics are not particularly favourable for the bigger chains where the cash patient dominates. The new era may force the bigger chains to reinvent their models inthe absence of international patients to compensate for lost revenue, putting pressure on the local chains. Only the fittest and the most technologically advanced will survive.

The post-covid healthcare delivery system will see many changes. A critical question remains the treatment of the Covid-19 tests for the incoming surgery patients - the process, structure and the costs, who absorbs it?

It is unfortunate that a pandemic has necessitated the need for adequate healthcare infrastructure in the country. While there have been positive developments, the need for fundamental policy support to the private sector remains. Infrastructure status of healthcare for long-term loans, tax-advantages and the need for viable PPP models can come a long way for increasing sustainability of last-mile healthcare delivery. On the other hand, a focus on “market-fit” and “sensitization” of technology platforms based on AI & ML with the rural patient rather than purely relying on technology itself can truly disrupt healthcare as we know it.

With adversity does come opportunity and it is high time that we embrace it to lay the foundation for a sustainable and inclusive healthcare network that India has needed for decades.

Prateek Ghosal..

Guest Author The author is Chief Strategy Officer, Ujala Cygnus Healthcare.