healthcare industry 2010 project

8/8/2019 Healthcare Industry 2010 Project

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Project

Business Policy & Strategy

Management

on

Healthcare Industry

(In Private Sector)

BySanjay Sinha

Jaipuria Institute of Management

Lucknow


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Table of Content

Introduction 02

Present Scenario 03

Nature of Demand 04

Government Incentives 07

Medical Infrastructure Development 08

Real Estate players 09

Big Players Already in the industry 10

Industrial Setting 15

Trends and Drivers 15

SWOT Analysis of the sector 18

Strategic Needs 21

Future Potential 23

Concluding Thoughts 25


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Healthcare Industry

(In Private Sector)

Introduction

One industry that has grown in leaps and bounds since

1991, when the process of globalization started is the health-care

sector. Combining medical technology and the human touch, the

healthcare industry diagnoses, treats, and administers care around

the clock, responding to the needs of millions of people - from

newborns to the terminally ill.

The healthcare industry includes establishments ranging

from small-town private practices of physicians who employ only

one medical assistant to busy inner-city hospitals that providethousands of diverse jobs.

The Indian economy being highly diversified, is also

remarkably resilient through the global meltdown. This kind of

scenario proved to be the perfect setting for the development of

this industry especially in the private sector.

At present, the Indian public is generally demanding world

class facilities and quality and has the ability and the willingness to

pay for it. Also, in the last decade, there has been a growth in the

per- capita income of the fast increasing urban middle class (over


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200 million) which now has different perception of health care.

Whether it is in diagnostics, high technology or basic hospital

services, urban India will no longer put up with shabby wards,

outdated machines and endless delays. The growth in this sector

is also fuelled by the fact that there is deterioration in the

standards of pubic health facilities.

Due to the ever growing population, especially in the lower

income class there is increasing pressure on the free government

medical facilities and hence the middle and the upper income

group have to fend for themselves and they have to seek differentoptions.

Present Scenario

India is one of the largest healthcare markets in the world.

Various surveys and research studies have been conducted in the

recent past to understand and tap the unprecedented growth in

this sector. According to Seema Chaturvedi, MD of Accelerator

Group, a strategic advisory that has just brought out a hospital

CEO survey, the healthcare market is on an unprecedented growth

at about 16% each year. From Rs.1,02,600 crore in 2005, it now

clocks Rs. 2,00,000 crore and is projected to reach Rs 3,00,000

crore by 2012.


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Nature of Demand :

There are some economic factors which make India such an

exciting market. Since healthcare is dependent on the people

served, Indias huge population of a billion people represents a big

opportunity.

The middle income group in this vast base is also a large

300 million. India spends only 1% of its GDP on health, translating

into $35 per capita. There are various gaps in the Indian

healthcare market, which also present a vast opportunity. Good

healthcare in India is in extreme short supply. Hospitals in India

are running at 80-90 per cent occupancy. With the demand for


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healthcare far exceeding supply there is a lot of scope for new

entrants.

The rise in incomes and growing literacy is driving higher

per capita expenditures on healthcare. There is also an increasing

awareness that due to changes in eating habits, processed foods

and lack of physical activity, more and more middle income and

affluent Indians are suffering with life style diseases. There is a

shift in disease profiles from infectious to lifestyle-related diseases,

which is expected to raise expenditures per treatment. Lifestyle-

related diseases are typically more expensive to treat thaninfectious ones.

A new study by ASSOCHAM and Yes Bank (Healthcare

Services in India, 2009) reports that the industry employs over

four million people, making it one of the largest service industries

in the economy. Yet another survey by KPMG,2009, claims that

infrastructure spend on this sector is expected to reach

Rs.63,900 crore in 2013 nearly double the present value.

It is these number that are leading a new wave in Indias

healthcare sector. It may not be as celebrated as our telecom,

software or automobile industries, but according to a recent study,

it is growing at the rate of 16 cent per annum. In some of the

major metros, India is close to the global benchmark of 35 beds

per 10,000 people. What adds more muscle to the industry is the

increase of medical insurance to more people and the amount of

investment that private equity investors are willing to put into

expanding hospital numbers.


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The health care industry in India is not only restricted to

doctor and patient. It consists of the following:

y Doctors and Dentists

y Hospitals

y Protective care and nursing

y Pharmacies

y Allied medical, health services

y Research and Development

y Medical Insurance

As there are a number of related services included in this

sector, it is contributing a great deal to the economy and the GDP

of India. The health care industry in India earns revenues

accounting for5.2% of gross domestic product. An increase in the

gross domestic product to 6.2% GDP is expected. The present era

is likely to be dominated by expansion of demands in the market,

increasing prices and increasing awareness among the customers.

Such changes will trigger a change in the health care industry

scenario for the better.

Around two decades back India health care industry had not

much to speak about. Indians, who could afford it, went to the

developed countries to get themselves treated. No foreigner would

ever dream of coming to India for their treatment. In the year

2010, things are absolutely different. No longer are Indians going

abroad for their treatment, but even foreigners are flocking to India

to take the advantage of cost effective quality treatment.


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Due to the above reasons, the Indian Government is giving

the health care industry a number of sops as mentioned below.

Government Incentives

As per the Investment Commission, Government of India, the

policy adopted is:

y 100% FDI is permitted for all health-related services under

the automatic route

y Infrastructure status has been accorded to hospitals

y Lower tariffs and higher depreciation on medical equipment.

y Income tax exemption for5 years to hospitals in rural areas,

Tier II and Tier III cities

y India's National Health Policy declares that treatment of

foreign patients is legally an "export" and deemed eligible for

all fiscal incentives extended to export earnings.

Due to the attractiveness of this Industry and seeing its vast

potential, a number of private players have invested in this sector.

Apollo Hospitals, Wockhardt Hospitals, Fortis Healthcare, Manipal

Group, Max etc. are just a few of them. It is due to these big player

and the competition generated by them, that a lot of new players

have joined in.

Medical Infrastructure Development

Medical infrastructure forms the largest portion of the

healthcare sector. As per industry estimates, the current bed per

thousand population ratio for India stands at 1.03 as against an


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average 4.3 of comparable countries like China, Korea and

Thailand. To reach a ratio of2 beds per thousand, by the year

2012, an investment of approximately RS.222,000 Crores, over the

next 6 years, in the private sector is envisaged. Despite this

investment, the bed to thousand population ratio would be far from

comparison with other similar developing countries.

Given the growing demand, the emergence of reputed

private players, and the huge investment needs in the healthcare

sector, in recent years, there has been growing interest among

foreign players and non resident Indians to enter the Indianhealthcare market. There is also growing interest among domestic

and international financial institutions, private equity funds, venture

capitalists, and banks to explore investment opportunities across a

wide range of segments.

Though it is a capital intensive industry the revenues

generated is expected to be growing at a CAGR(Compound

Annual Growth Rate) of 15%. Growth in private investment in

various forms :

y Private equity,

y Acquisitions,

y FDI,

y FII,

y NRI investment,

y Joint ventures, tieups,

y Venture Capital,

y IPOs


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Segments attracting investment include diagnostic chains,

medical device manufactures, hospital chains and health

insurance.

Till the last decade the health care industry was ruled by

leading specialist doctors , but now, seeing the potential and the

profitability real estate developers, leading business houses and

corporate and multi-national companies are investing in this sector.

Real Estate Players :

Leading Real estate players are looking at new business

areas such as hospital properties to maximize amenities in their

integrated townships. Some examples of leading reality investors

in this sector are:


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patients to India. Joint venture with Singapore-based

Parkway Group Healthcare Pte Ltd.

y Has tied up with Indian Oil Corporation (IOC) to set up its

pharmacies at the latters petrol stations.

y Is moving into smaller towns.

y Latest Project Is LAVASA Hill city Pune, which has the state

of the art integrated healthcare facility and wellness centre

which would provide world-class facilities for rejuvenation,

health education research and multi-speciality services.

Fortis Healthcare

y Has a chain of 62 hospitals with an installed bed capacity of

about 10,000 Beds.

y Operations across North India - Delhi, Noida, Mohali,

Amritsar, Faridabad, Raipur and Srinagar.

y Has expanded through mergers and acquisitions.

y Has a joint venture with Real Estate player DLF to set up

hospitals across the country with an investment of about US$

1.5 billion

y Owns a pharmacy chain by the name of Fortis Health world

and plans to open 250 outlets with an investment of US$ 195

million all over India

Wockhardt Hospitals

y Wockhardt Hospitals currently has a chain of 7 hospitals

located at Nagpur, Nashik, Surat, Rajkot, Bhavnagar, Vashi

and Goa with 4 new hospitals being commissioned at

South Mumbai, Bhopal, Patna and Jabalpur.

y Presently has a bed capacity of about 1,390.


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y Has tie-ups and association with Harvard Medical

International: USA whereby Wockhardt has access to

Harvards expertise and experience in the fields of surgery,

other Medicare services, as well as in setting up and

developing hospitals of excellence throughout the world.

y It also has an agreement with Blue Cross and Blue Shield:

USA, Bupa: U.K., AEA International: Singapore and others.

y Plans to build 15 new multi speciality hospitals in Tier-II cities

in the country.

y Public-Private Partnership with the Government of Gujarat to

manage the 275-bed Palanpur Civil General Hospital in

Gujarat

Manipal Health Systems

Chain consists of:

y 9 primary centres at 7 rural locations

y 8 secondary hospitals at urban and semi urban locations

y 3 tertiary hospitals at urban and semi-urban locations.

y MHS is building another 600-bed multi specialty hospital in

Devanahalli, Bangalore

y Joint venture with Pantaloon Retail for comprehensive retail

healthcare foray plan to invest over US$ 195 million in

healthcare business in the next five years.

Narayana Hrudayalaya

y First-of-its-kind cardiac care hospital in Bangalore, set up by

the Asia Heart Foundation (AHF)

y Capability to perform 25 major heart surgeries and over20

cardiac catheterisations a day


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y Hub for telecardiology networks with a Joint Venture

between the Governments of seven hill states and West

Bengal, Karnataka Health Systems and ISRO

y

A5

,000

-bed Health City is coming up at, Bangalore, whichwill comprise of 10 hospitals

Max Healthcare

y MHC operates 8 healthcare centres in the National Capital

Region (NCR)

y Bed capacity of around 765 beds and is expected to increase

to 1,500 -1,600 beds in the next few years

y Collaborated with Singapore General Hospital in the areas of

medical practices, nursing, paramedical research and

training

y Plans to raise US$ 85.36 - 97.56 million to expand its

hospital chain

Columbia Asia

y First healthcare provider to enter through the FDI route

y Opened the first community healthcare multi-specialty facility

at Bangalore

y Planning to invest US$ 15. 85 million to set up more

hospitals in Bangalore

y Tied-up with GE, to collaborate on a number of initiatives forcreating a medical Institute of world-class standards


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Global Hospitals

y The US$ 9.75 million facility functions from 2 locations in

Hyderabad

y Invested US$ 36.58 million to set up BGS Global Hospital in

Bangalore

y Tied up with the Sureka Group, to set up a 300-bed

transplantation and tertiary care centre in Kolkata

y Planning to establish a US$ 240 million health city in

Chennai on the 46-acre hospital site

Some of the Mega Project due for completion in the year2010 are:

Investment Name Place

Rs 1,000 crores SevenHills Health City MumbaiRs 330 crores Tata Medical Centre KolkataRs.300 crore Apollo Hospital BhubaneswarRs.250 crores Fortis Hospital DelhiRs.200 crores People International Hospital BhopalRs.100 crores Narayana Hrudayalaya Health City

Source India Today: April 12th, 2010

Most of the above projects coming up are multispeciality in

category. The latest trend coming up in this industry are the

concept of Medicity. According to Dr.Naresh Trehan, the pioneer

of getting world-class treatment to India, " Even now, we dont

have a single place thats at the cutting edge not just of

technology and treatment but of education and research too .

Medicity is a new model where application and knowledge, cure

and prevention, health and wellness , work and leisure, East and

West can combine.


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Industrial Setting

y The industry is fragmented with a large number of

independent, privately run hospital and healthcare centres.

y Private sector corporate entities have aggressive expansion

plans.

y Indian hospitals are gaining reputation globally as quality

service providers

y Many Indian hospitals have secured accreditation from the

British Standards Institute and Joint Commission on

Accreditation of Healthcare Organisations

y NHS, UK has indicated India to be a preferred destination for

surgery.

Trends and Drivers

A. Increase in the population of the Middle income group, and

change in their demand pattern There is favourable increasein percentage of working class population from 32% in 2006 to

36% in year 2016. General awareness, literacy rates and

patient preferences in healthcare decisions is growing. With

an improvement in the quality of living and health insurance

this segment wants 3 star to 5 star hospital.

B. Private sector covering the health care requirements of their

employees and their dependents. As medical reimbursements

are one of the important perquisites provided in the private

sector, Hospitals have started witnessing a number of patients

who visit for health check-ups as a preventive measure. The


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various health check-up packages offered include a

combination of CBC, blood sugar, cholesterol, urine, stool,

digital chest XRay, ECG, general examination, blood group,

blood sugar, liver profile, proteins, lipid profile, cholesterol, and

renal profile. Around 70 per cent of treatment decisions in the

country are based on lab results. This trend has further led to

newer avenues for companies involved in carrying out

diagnostic tests. Increasing health consciousness among

common people has created avenues for preventive

healthcare.

C. Increase in the number of patients suffering with lifestyle-

related diseases. Based on demographic trends and disease

profiles, lifestyle diseases cardiovascular, asthma and cancer

have become the most important segments, and in-patient

spending is expected to represent nearly 50 per cent of total

healthcare expenditure.

D. Reputation of Indias success in medical care is gaining in

momentum outside India. Cost is not the only factor weighing

in Indias favour. The rate of successful surgeries in India is

the best In the world. Not only are the patients of developing

countries come to India for treatment , but now there is a

growing awareness in the western world about the quality of

treatment in our private healthcare industry.


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Success rate of Cardic bypass

E. Lack of adequate Health infrastructure & high costs in the

West The healthcare systems in Europe and the United States

are under severe pressure; particularly the National Health

Service (NHS) in the UK, which has a long list of patients

waiting for over a year for surgery. In the US the healthcare

crisis has a different dimension. Around 50 million citizens are

uninsured, with even the insured having to pay dearly for

treatment. Further, the shortage of paramedical professionals

such as nurses has aggravated the situation. Patients from the

US are now regularly beating a path to India, as many of their

insurance companies have entered into tie-ups with private

Indian hospital chains.

F. Growing demand in smaller cities in India Till very recently, if

someone needed medical treatment like bypass surgeries,

kidney transplant or for cancer patients, the Metros were the

only recourse, But now due to the rise in demand there is an


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Increasing focus on unexplored regions of India in terms of

healthcare. There is a growing need for improved healthcare

infrastructure in tier II & III cities.

G. Increase in domestic demand overall due to increased life

expectancy and an ageing population. In the domestic market,

health spending will be sustained by two demographic trends:

increased life expectancy and an ageing population. Life

expectancy, which averaged 65.6 years in 2005-09, is

expected to increase to 66 years in 2006-10 .. Although the

rate of ageing in India is slower than the developed world, the

large population makes any increase significant in terms of

absolute numbers, and therefore also in terms of market

potential.

SWOT Analysis of the sector

Strengths:

A detailed study and analysis of the industry reveals

certain strengths of the Indian Healthcare sector .

y World class medical facilities using the latest

technologies.

y India has a top-rated education system which leads to

some of the most competent doctors and hospital

support staff.

y Medical cost is lowest in India 20% of average expenses

incurred in US and other western countries.


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y India has one of the largest pharmaceutical industries in

the world and it is self sufficient in drug manufacturing

and exports drugs to more than 180 countries.

y

As per a report, Escorts Heart Institute & ResearchCentre in Delhi performs 15,000 heart operations every

year where the death rate of0.8% is less than half the

rate at most major hospitals in US and Canada.

y The Government is providing a lot of benefits to give an

impetus to the industry.

Weakness

y Excessive amount of privatisation

y Newcomers in the business

y Under developed infrastructure. Lack of transportation,

airports etc.

y Cut- Throat competition among the private players.

y Lack of highly qualified and experienced doctors.

y Mainly catering to the higher-middle and higher income

group.

y Lack of post operative care.

y The support staff is absolutely ignorant about the

standards of hygiene conditions required and

expected.

y Not much focus on research and development.

Opportunities

y Government incentives as mentioned earlier.


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y Government spending on infrastructure development is

increasing.

y Cost of living is much less as compared to to

developed nations hence the cost of treatment is muchless in India.

y The international slowdown of the economy is having a

reverse impact on brain drain.

y Many multi-national companies are setting up bases

in India and they are having tie-ups with the healthcare

industries

y Compensation to US and UK overpriced Healthcare

y Partnership with Insurance Companies.

y The health care industry in India has capitalized on its

rich cultural resource and glorious past of medicinal

inventions. The combination of traditional Ayurvedic

treatment, ancient alternative therapies such as Yoga,

Meditation, Therapeutic Massage, Unani herbs and

modern advanced surgical techniques make India the

most important destination in the field of medical

tourism.

Threats

y As there is a continuous research, development and

innovation in this sector internationally a lot of

investment is required for updation.

y Lower attractiveness of India as an investment

destination due to perceptions of red-tape, lack of

policy clarity, lack of transparency, and problems of

efficiency.


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y Number of potential players who could invest is limited

especially as an individual investor,

y Requirement of localized and in-depth knowledge of

host country market.y Difficulties in establishing and maintaining joint

ventures

y Competing destinations for health care tourism from

countries like Thailand, South Africa , Costa Rica

y Lack of transportation, convenience and weak

infrastructure push customers away

Strategic Needs

Strategies which I can suggest according to the need of this

growing sector, with a number of emerging organisations offering

the same kind of services, are as under:-

Differentiation

y When a segment of the health care industry and an

organisation are both in a stage ofgrowth, the major need of

the organization is for differentiation from its competitors.

y The role of the sales force often becomes more important at

this stage. Their key goal is to control the channels of

distribution/referrals.

y The most common way for health care services to achieve

differentiation is through distribution


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Distribution

y In order to distinguish its offering from that of competitors, an

organization should consider:

1. Hours/days of availability

2. Number of locations

3. Accessibility / convenience

4. Cost effectiveness

y The best form of differentiation may be to have a number of

sites with one brand name. Example Apollo Hospitals.

Push and Pull

y Push: get doctors, nurses, and therapists to refer patients.

y Pull: get patients to choose a hospital independently for

various reasons, including word-of-mouth, advertisement,

performance, infrastructure or website visit.

y Push: The healthcare industry being at the nascent stage

the push strategy would work better initially.

y Pull: will become more important as people take control over

their own health care choices.

Upset the Apple CartQuietly

y Any useful strategy must include a means of upsetting the

competitive equilibrium and reestablishing it again on a more

favorable basis.y Many physicians consider health care organizations

members of a medical fraternity.


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y As a result, physicians or hospitals may compete with one

another, but they would rather avoid the use of overt and

aggressive competitive strategy.

Future Potential

High-growth in the domestic market arising from:

y Increasing health awareness: share in total private

consumption expected to increase by 10%.

y Increasing penetration of health insurance,

y Rapid growth in private sector companies owning and

managing hospitals.

y High-growth in medical tourism.

y Cost of comparable treatment is on an average 1/8th to

1/5th of those in western countries.

y

Service providers: curative and preventive in primary,secondary and tertiary care.

y Diagnostics services: imaging and pathology labs.

y Health insurance: less than 10% of the population is

covered by health insurance. The medical insurance

premium income is expected to grow to US$3.8 billion

by 2012.

y Healthcare BPO: medical billing, disease coding, forms

processing and claims adjudication.

y Training: large opportunity for training doctors,

managers, nurses and technicians.


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y Most competitive charges for treatment.

y Fluent English speaking staff.

y No waiting list.

y

Indian corporate hospitals have a large pool of doctors,nurses, and support staff ensuring individualized care+

JCI Accredited Hospitals.

y Can easily be combined with a holiday/business trip.

y India is renowned for ancient alternative therapies such

as Ayurveda, Yoga and Meditation, and Therapeutic

Massage.

y Its exotic tourist destination.

y Adds a FICCI-Ernst and Young report, India needs an

investment of US$ 14.4 billion in the healthcare sector

by 2025, to increase its bed density to at least two per

thousand population.


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Concluding Thoughts

If we want both organic (doctors, medical staff and nurses)

and inorganic (equipments, machines and infrastructure)

investments in the healthcare sector, we need to look beyond

investment-specific and capital market policies to the larger

ecosystem and make it supportive for investors.

There should be transparent regulatory frameworks and

better institutional governance. Most importantly, we need health

to be a core focus of Government policy. Some vital issues to

address are standards, pending legislation, investment in human

capital, setting up national councils/regulatory bodies,

accreditation, insurance etc.

Policy framework needs to recognize spinoffs from a

facilitative investment environment in terms of improving access to

healthcare, exploiting domestic and global opportunities in

emerging segments and synergies across segments.

Private sector must also look at healthcare from more than a

commercial perspective. Our analysis points towards the need for

stronger partnerships in healthcare, between the government and

private sector.

Even a realistic targets of 1.85 beds per thousand population

by 2012 needs an investment of US$ 77.9 Billion, the government

and private players need to focus on their core competencies/

responsibilities and work together to reduce inefficiencies and

complement each others effort.

healthcare industry 2010 project

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