The Whole System Has To Change For Outcome Based Payments: Dr Ashutosh Raghuvanshi

The healthcare providers in India are looking at steady waters to swim through in times to come. According to a report by the credit rating agency ICRA, the aggregate occupancy in the hospital industry will remain at 62 to 64 per cent in FY 2023-24. 

With a double digit growth rate of 15 to 17 per cent in FY23, the agency expects this rate to moderate to around 4 to 6 per cent in FY24 given the high base of FY23. Industry insiders opine that the demand in the hospital industry is backed by elective surgeries, resurgence of medical tourism and continued market share gains for organised players. 

Dr Ashutosh Raghuvanshi, the MD and CEO of Fortis Healthcare who runs more than 20 hospitals in the country maintains this confidence in the Industry. In an exclusive interaction with BW Businessworld on the sidelines of the NATHEALTH Summit 2023, he said that, “As far as healthcare is concerned in India, it is public knowledge that there is a deficiency in the number of hospital beds, there is shortage of physicians and also a shortage of nurses.” Due to these aspects Dr Raghuvanshi says that there is a huge demand in the industry and that demand has to be served, therefore the growth is imminent. 

Dr Raghuvanshi informs that in the last couple of years there has been decent growth in the healthcare industry, however because of the pandemic some of the developments went on a slow burner and many expansion projects could not take off. “Post pandemic the demand is huge, bed occupancies are as high as they were pre pandemic and international patients are back in similar numbers and all that is leading to upswing in the business environment and private health care,” he adds. 

Value Based Payments For Health

Many healthcare leaders and industry bodies in India are now rallying for a value based or an outcome based payment model to replace the currently at place fee for service model in the industry. A fee for service model is simply paying the healthcare providers based on the number of services or procedures that they provide whereas an outcome based model means paying the providers for better results or outcomes. 

Dr Raghuvanshi says “Presently, I do not believe that this can be implemented in the current form that the private sector operates in, as our systems are not geared up for this. But the systems will evolve over a period of time. And the DRG goals, a disease group coding, currently functional in the United States can serve as a path to an outcome based or a value based payment system.”

He further explains that the system should also have some capitation or a fixed cost for the hospitals as getting paid only for outcomes is unviable for private healthcare to sustain and survive.  “The whole system has to change and it has to be a collaborative approach, the private sector can participate in it but the initiative has to be created by the public sector,” Dr Raghuvanshi delineates. 

The CEO, enumerates that there also has to be some patients that are attached to a particular hospital. And only then the replication of how full care is managed and provided in the US by firms like ‘Kaiser Permanente’ will be possible in India. He further says that India can manage the full care for its citizens but only with a powerful digital healthcare ecosystem. 

“I believe that our policies have gone towards creating digital capacities. So, virtually the healthcare system can be provided, from primary to quaternary care and then the value based payment system can work but until that digital system is not in place, outcome based payment model is not going to be easy,” Dr Raghuvanshi says. 

Price, A Constraint In India

With material and manpower costs surging in the healthcare industry, cost cutting has become a crucial activity for the hospital sector, the Fortis CEO says in India price is always going to be a constraint. He says that the majority can’t afford the high price of the private sector but is compelled to access it due to an incapable public sector which does not provide the care it should deliver, and the price will always be under scrutiny for that reason, he believes.

“Various cost efficiency measures are being taken by various hospital groups, and individual hospitals as well and this will be an ongoing thing. There has to be an effort to reduce the cost year on year. That's how any business operates. And in a country like India, where many people don't get proper health care It is imperative on the private as well as the public sector to reduce the cost of healthcare delivery,” Dr Raghuvanshi illustrates. 

Opex Vs Capex In PPPs

To augment healthcare infrastructure across the country, the government brought Public Private Partnership with viability gap funding scheme, but the PPPs have seen only limited takers as of now. Experts say that the PPP models lack fundamental design and policy constructs which do not suit the healthcare industry.  

Dr Raghuvanshi says that the PPP models have not seen desired outcomes due to the way they have been structured, adding that the imperatives are different for the public sector and the private sector. “For the private sector the imperative is different, which is to make a viable business whereas for the public sector, it is important to provide the largest number of beneficiaries and the highest possible benefit and that is what causes divergence completely and hence there should be a practical approach while forming the policies,” he informs. 

Speaking on the design of the PPP models, he says many PPP projects have a capex led approach where viability gap funding comes in capex  but the opex in starting 10 to 15 years is actually double the amount of capex which is required to start a hospital. Due to this reason he believes the focus should shift from a capex fund to an opex fund.

Healthcare Financing In Tiers

Speaking of the reimbursement rates in the Ayushman Bharat Scheme, Dr Raghuvanshi says the rates are very low and for a private setup to become sustainable is not possible at those rates. “When one has to create a hospital which is solely dependent on Ayushman Bharat rates, then it is difficult to make it viable, especially in tier two tier three cities,” he enumerates.

Another challenge that the Fortis CEO believes exists in tiers is of getting specialised manpower specifically for tertiary and quaternary care. “It's challenging to attract specialist doctors to these places and if they come they come at a higher cost. And If your pricing is going to be lower and your cost is going to be higher then it becomes unviable,” he explains.

Plans For Expansion In Tier 2-3 Markets

On Fortis Healthcare’s plans to move to tier 2 and tier 3 cities, the CEO says that the hospital chain is not closed to moving into these cities but presently the group does not have a strong viability to do so. 

“Our fundamental business model is such that if it has to run in an optimal way then there has to be a cluster of hospitals in a given geography. Hence, the problem currently is that if we go to a new geography which has got no relationship with our other existing hospitals, there are no synergies. We can't share any manpower, we can't use our clinical talent. So for those reasons, we are not really looking to go to an isolated place,” Dr Raghuvanshi says.

He further says that if there was a region where multiple hospitals could come in a given geography the group would consider it. “But at the moment we want to remain focused in the larger geographies, especially Delhi NCR, Mumbai, Bangalore and Calcutta etc.,” he adds.

Acquisitions & Expansion Expected 

Delineating on the expansion plans for Fortis Healthcare, Dr Raghuvanshi says that the hospital chain’s balance sheets are looking pretty strong with an EBITDA to debt ratio of 0.6 and with this momentum, the hospital chain has an appetite to grow inorganically as well as organically. “We have an organic growth plan where we are going to add about 1400 beds in our existing hospitals and all these hospitals are operating presently at 75 per cent plus occupancy, so there is a demand also that needs catering,” he enumerates. He further says that the hospital chain will also look for acquisition opportunities within the clusters where the group can operationalise the business model.