Opportunities Galore

Despite a low ROI of 15 to 20%, international groups like Parkway Group Healthcare, Pacific Healthcare, Columbia Asia and a host of others are penetrating the Indian healthcare industry attracted by unmet healthcare demand, intellectual pool, increase in private healthcare spending & the country's growing economy. Rita Dutta analyses the trend.

The Indian healthcare industry suddenly looks like the gold diggers' paradise for international investors. Singapore-based Parkway Group Healthcare PTE Ltd, armed with the expertise of building eight hospitals internationally and enjoying an equal partnership for Apollo Gleneagles in Kolkata, is in the process of setting up hospitals in Mumbai and Chennai. Similarly, Malaysia-based Columbia Asia, which built its first hospital at Hebbal in Bangalore recently, has more hospitals in the pipeline. Singapore-based Pacific Healthcare Holdings is coming up with hospitals in Hyderabad, Chennai and Bangalore. Additionally, the buzz is that Singhealth from Singapore and Bumrungrad Hospital from Thailand are trying to secure a foothold in the Indian healthcare industry.

Destination India

"The CII-Mckinsey report on healthcare made the world stand up and notice the immense opportunities that that were lying unutlised in Indian healthcare industry" - Dr Bhaskar Shah, Director, Asian Heart Institute

Healthcare sector is considered to have a complex structure; it is capital-intensive, but has a low Return of Investment (ROI) of about 15 to 20 per cent, in comparison with other sectors. Nonetheless, the country's unmet demand for healthcare facilities, increasing spending in private healthcare, growing population and economy, increase in life expectancy, lack of entry barriers and intellectual pool are fuelling the growth of the healthcare industry, attracting international investors.

Perhaps, what made the ball rolling was the CII-Mckinsey report (2002) on India's healthcare industry, opines Dr Bhaskar Shah, Director, Asian Heart Hospital (AHI), Mumbai. "The report made the world stand up and take notice of the immense opportunities that were lying unutilised in the Indian healthcare industry," he adds.

The report states that India would require 750,000 beds by 2012 and estimates that a fresh investment of US$25 billion is needed to establish quality health facilities in the next 8-10 years.

Since healthcare is dependent on the people served, India's huge population of a billion people represents a big opportunity. And it's the middle income group, which forms a large 250 million that the international groups are targeting, besides patients due to medical tourism. Estimates say that while the proportion of households in the low income group has declined significantly, middle and higher income-group has increased from 14 to 20 per cent. With the demand for healthcare far exceeding supply, the industry has transformed to a USD 23 billion industry, which is surging ahead with a growth rate of 13 per cent a year. While the general belief is that private healthcare spendings in India contribute to 60 per cent of the country’s healthcare service, the World Bank Report, 2004 has pegged it at 82 per cent.

Besides, the unmet demand, labour comes cheap in India. Drawing an analogy with Singapore, Dr Shah elaborates, "While the salary of a front office person in an Indian hospital would be around Rs 5000 and that of a senior manager would be around Rs 50,000 for a month, it would Rs 25,000 and Rs 2 lakh respectively in Singapore. Similarly, if a full-time doctor earns Rs 4 to 5 lakh monthly, a doctor in Singapore would pocket Rs 15 to 20 lakh."

The healthcare industry will witness presence of more international groups in the future as only ten per cent of the market has been tapped so far, say analysts.

Besides, allowing 100 per cent FDI subject to approval by the Foreign Investment Promotion Board under the Department of Industrial Policy and Promotion in the Ministry of Commerce and Industry is a sign of the market opening up for international investors, say experts.

For Singapore, the Indian government has gone a step ahead and inked the Comprehensive Economic Cooperation Agreement (CECA) in June, this year, paving the way for increased business and investment opportunities between the two countries for health sector.

Under the CECA, Singapore companies receive the most favoured nation (MFN) treatment for trade in health products and services as well as national treatment, which means they are treated on par with domestic companies; tariff concessions for exports originating from Singapore, including exports of pharmaceuticals and medical equipment. Most importantly, it allows easier access for investments, joint ventures and collaborations in the health sector.

And it's not just Indian market that the investors are gunning for. After the saturation of Singapore, the US and European healthcare markets, the investors are also eyeing Middle East, China, Vietnam, some African States and Thailand. However, India's bureaucracy and lack of disciplined workforce do peeve the international groups. "In India, one has to seek 80 to 100 licenses, while in the western world one does not have to procure more than 10," sighs an official of an international group.

Singapore-based Pacific Healthcare is foraying into Hyderabad, Chennai and Mumbai

Bengal Health City

Opportunities to build hospitals in India are coming either through Joint Ventures (Parkway) or individually (Columbia Asia). Take the Bengal Health City, which has plans an ambitious 100 hospitals over a sprawling 800 acres between Garia and Sonarpur, around 20 km from the city of Kolkata. Thanks to the perseverance and astuteness of Bengal's chief minister Buddhadev Bhattacharya and the Association of Hospitals of Eastern India (AHEI) - a group of 12 leading private hospitals- in peddling the mega Bengal Health City Project, Indonesia-based Salem Group will now develop roads, electricity connections, drainage and sewage system for over Rs 2000 crore for Kolkata.

Says Dr Sajal Dutta, president, AHEI, "If the international players don't enter India now, they are going to miss the bus. There are 20 other international players, not necessarily having healthcare expertise, from Bangladesh, Philippines, Burma to the US and the UK vying to have a pie of the Indian healthcare market."

According to Dr Dutta, "The project will have 100 hospitals, each having 500 beds. The project, to be operational by 2009, will build 20,000 beds in the first phase (2009) and the rest by 2012." However, according to Parkway Group Healthcare, which is assisting the Salem Group in building the Medicity, the number of beds has not been finalised yet. "We may build centres of excellence pertaining to various specialties. The project will take at least five years to materialise," says an official of the group. Asked whether his group will build a hospital in the Medicity, the official said, "We have not decided on that yet."

Parkway Group Healthcare PTE Ltd

The group, with single-minded dedication to penetrate the Indian healthcare market is Singapore-based Parkway Group Healthcare PTE Ltd. Besides, holding 70 per cent of Singapore's healthcare market, through its chain of Gleneagles Hospital, Mt Elizabeth Hospital and East Shore Hospital, the Group holds the reins of Gleneagles Intan and Gleneagles Medical Centre in Malaysia along with Gleneagles JPMC Cardiac Centre in Brunei. The Group is known to have correct business acumen, having sold two of its hospitals in the past, when the profit margin started dipping.

Explaining why India is the Group's present focus, Joshua Goh, Vice President, International Operations, Parkway Healthcare Group PTE Ltd, Singapore, draws an analogy with China, which has a population of 1.2 billion and is the fastest growing economy. "In the mid 90s, we were pondering on establishing hospitals in China. After initial rounds of talks with the comrades, we developed cold feet when we found that the legal system of the country was not foolproof to cover all sorts of risks. We could not have afforded to take any risk with our investor's money being at stake."

The group's relationship with India goes back to mid 90's, when they were approached by the Duncan Group to set up a hospital in New Delhi. While the project did not materialise, Parkway Group was hooked onto India. The group came up with its first Indian project in November, 2003 through a JV with the Apollo Group to build the Apollo Gleneagles Hospital, a 325-bed multi-specialty hospital at a cost of USD 29 million.

From the east, the Group has now ventured westwards. They have already worked on a tie-up with AHI to take charge of their administrative processes. "We are trying to make AHI run by professional management," says he. He is vocal about his dislike about hospitals managed by medicos. "Doctors are good at making excellent clinical decision, which are to be made at the spur of the moment. They are rather autocratic in their behaviour, otherwise. The approach of a professionally managed team is more participatory."

Parkway is also working on the details of entering into a JV with a corporate hospital to start a multi-specialty hospital in Mumbai soon. The initial stages of the super specialty hospital may start from the premises of the Mumbai hospital, before it flags off on its own. The Group is also looking for hospital projects in Chennai and other cities.

Pacific Healthcare Holdings

Singapore-based Pacific Healthcare Holdings is coming up with Pacific Medical Centre, an international medical centre at Jubilee Hills in Hyderabad in a JV with Vitae Healthcare Pvt Ltd, a company formed by a group of doctors, scientists, and other healthcare professionals.

According to an official of Pacific Healthcare Holdings, Singapore, the group chose Hyderabad as it is ranked as one of the top three destinations for investments in India. "Hyderabad is a dynamic city with strong leadership. Contacts from NRI doctors within our group is also another factor," says he. In the pipeline are two more medical facilities. The Pacific Women's and Children's Hospital will be a 150-bed state of the art hospital specialising in fetal-maternal medicine, reproductive medicine, gynaecological oncology, neonatology and paediatrics. The Pacific Stem Cell Bank will provide both private and public cord blood stem cell storage facilities, which has clinical applications in the treatment of blood cancers and disorders. Asked about its other future investments, the official said, “We are continually looking for opportunities for strategic investments, alliances or JVs in new or existing markets to enhance our brand name and perceived value of our services.” The other cities that the group is trying to foray are Chennai and Mumbai.

Established in 2001 in Singapore, Pacific Healthcare Holdings is one of Singapore's leading healthcare service providers formed by a group of doctors. The group provides a comprehensive range of services that includes general medical and dental care, specialist medical care, cosmetic medical and dental procedures, health profiling and diagnostic services.

Columbia Asia

"We select such developing markets like India to expand and operate where private healthcare is recognised by consumers and the government agencies as a necessary supplement to the public healthcare system" - Tufan Ghosh, CEO, Columbia Asia

Down south, a few months back, Malaysia-based Columbia Asia set up its first 75-bed hospital in Hebbal, Bangalore through the FDI route. Explaining why India was chosen, Tufan Ghosh, CEO, Columbia Asia, says, the group selects such developing markets like India to expand and operate where private healthcare is recognised by consumers and the government agencies as a necessary supplement to the public healthcare system. Moreover, where there is a presence of large and growing middle and upper middle-income groups and options for quality healthcare are relatively limited or under served, growing third party payer and health-insurance industry.

"Bangalore offers a cosmopolitan market with a number of people from all over the country, adequate purchasing power and a discerning population aware of international practices. The city has plenty of local talent in doctors, nurses and paramedical staff and pointed to an under- supply of quality community-based healthcare facilities here," elaborates Ghosh.

In the pipeline, the group has two more hospitals, once again in Bangalore: one 150-bed tertiary care facility in Yeshwantpura area and another 75-100 bed facility in south Bangalore. The groups is also exploring markets in the southern and northern parts of the country.

Impact on Indian healthcare

Exposure to international quality standards will imply that completely Indian-owned operations will have to benchmark their operations against the international groups. The international groups promise to usher in standards and a disciplined approach towards work, along with accountability to Indian healthcare industry. Quality Assurance and Customer Care, the foundation of a good hospital, will get a boost because of the international presence in the healthcare market, opines Dr Shah.

Avers Vishal Bali, VP, Wockhardt Hospitals Group, Bangalore and member of CII’s healthcare group, "This is a welcome trend, which will professionalise the Indian healthcare sector. This is a step towards globalising healthcare, making Indian healthcare industry in sync with international standards."

According to Anne Marie Moncure, MD, Apollo Indrapastha Hospital, New Delhi, "Competition makes everybody better. There will be a marked improvement in customer services. As the world looks at India, the trend will reverse brain drain." For Dr P Mohandas, MD, MIOT Hospitals, Chennai, "Such projects create more job opportunities. It is a win-win situation for both the international groups and Indian populace."

"It is sad that there are a few corporate hospitals in India with a pan-Indian presence. Most of the Indian corporate hospitals are catering to a niche audience in only a few urban areas" - Dr Alok Roy, VP, Operations, Fortis Group

Medical tourism will inevitably receive a fillip. It is said that seven years from now, the country will earn Rs 10,000 crore due to medical tourism. It is estimated that the country is currently earning Rs 1500 crore with an annual influx of 1,50,000 medical tourists. The ambitious Bengal Health City is slated to attract more medical tourists from Bangladesh, Burma, Bhutan, Vietnam, Nepal, Philippines and Cambodia. "

To promote medical tourism in the State of West Bengal, a special cell has been constituted with representatives from the Department of Health & Family Welfare, AHEI, hotel association, association of tour operators and travel agents. Says Rupak Barua, Senior Office-Bearer of AHEI and Vice President (Marketing and Administration), Peerless Hospital and & BK Roy Research Centre, Kolkata, "While the hospitals hope to generate more income, the state could earn the much-valued foreign exchange through this exercise."

Apart from medical tourism and job opportunities, associated industries of medical equipment, pharma, health insurance and support services of security, laundry and catering will witness a major boom, predicts Dr Mitul Thakker, Senior Manager, Marketing, AHI. The international groups are expected to encourage shorter hospital stays with emphasis on day surgeries. “This will bring down hospital acquired infection rates as well as reduce patient expense. Reduced hospital stays and reduced cost of surgeries will reduce the premium paid to insurance companies for healthcare," says Ghosh.

Dr R V Karanjekar, CEO, Dr D Y Patil Hospital and Research Centre, Navi Mumbai, feels that Indian doctors, considered to possess the best brains and skill-set in the world, will gain more international popularity, now. "With competition the cost of healthcare services may also plunge, but not immediately as the the new hospitals have to accrue profit from the investment made," he adds.

However, apprehension prevails about the fate of the internationally-run Indian hospitals, if the chief (which will mostly be from its international office) wishes to go back to his country. "Once the foreigner at the helm wants to go back or move on to another land, it may be difficult to run processes of international standards in the Indian context, where most of us have the crab mentality," says an Indian expert. Moncure quells the fear saying, "It is the responsibility of a leader to develop a second line of leadership. So even if the leader leaves, the second-in- line should take charge and manage the show."

Are Indian entrepreneurs shying away?

While the world is waking up to India's potential market, are Indian entrepreneurs lagging behind? Observes Dr Alok Roy, VP-Operations, Fortis, "It is sad that there are a few corporate hospitals in India with a pan-Indian presence. Most of the Indian corporate hospitals are catering to a niche audience in only a few urban areas." According to him, Fortis with over six hospitals in the North besides upcoming ones in Delhi, Gurgaon, Jaipur, and in the city in Punjab and Apollo Hospitals Group with international presence are the only two Indian groups that are leading the show in the corporate healthcare in the country. "With Escorts acquisition, Fortis's effort in strengthening itself in the healthcare sector continues," he quipped.

The Indian corporates are thus taking slow steps in testing the waters, as India does not have the system and processes in place and also lack in trained manpower. Major corporates like the Tatas, Apollo Group, Fortis, Max, Reliance, Wockhardt and Piramal are making significant investments in setting up state-of -the-art private hospitals in cities like Mumbai, New Delhi, Chennai and Hyderabad. The Reliance group, which runs hospitals in Jamnagar and a trauma care unit near the Pune expressway at Lodhivali, has acquired the unfinished hospital conceptualised by late Dr Nitu Mandke.

While the international groups may make expand their empires, they will never take the lead, feel experts. Says Dr Vivek Desai, MD, Hosmac, "The international group may only take about 10 to 15 per cent of the market. The boom will be driven by indigenous players."

So, while the international groups may lend much-needed standards and protocols, it is for the Indians to take it forward. Perhaps, a word of caution from Joshua might help: "Indians need to ensure that it does not commit the same mistakes that the US did with its health insurance. It should have rules and regulations in place, so that insurance industry does not hamper the growth of its healthcare market."

With inputs from Joy Roy Choudhury, Kolkata

rita_dutta@rediffmail.com