Industry Voice

Winds of Change

The Indian healthcare is throwing up significant opportunities, making healthcare administrators and policy makers sit up and take notice

Dr. Rakesh Kapur

Amidst the buoyancy of a mercurial growth of over 15 per cent for the Indian healthcare sector and the significant opportunities that it is throwing up for entrepreneurs, it is the churn in this sector that is making healthcare administrators and policy makers to sit up and take notice.

Driving Forces

Emergence of insurance: The revenue attributable to insurance or third party administrators (TPAs) from 2 per cent in 2001-02 to 16 per cent in 2005-06 has increased the total credit billing to 32 per cent in 2005-06 and it is further likely to increase to 50 per cent by 2011-2012. The domestic premiums have shown a 47 per cent increase in the first quarter of 2006.

Arrival of medical tourism: There was a time when Indian patients were queuing up for the ‘Mecca's of medicine’ in the US. However, the trend of outsourcing a task to the lowest cost competent provider has caught up in healthcare too. Currently, it is estimated that medical tourism accounts for USD 450 million and is expected to grow to USD 1.4 billion by 2012.

Changes in disease profile pattern: According to WHO's global burden of disease, the incidence of communicable diseases is likely to decrease at a fast pace, while non-communicable diseases will replace it as a major cause of death in another 10 years. This is especially true for India, where the convergence in healthcare statistics will be at a much faster pace, such that in 2002, 40.7 per cent of the total deaths were due to communicable, perinatal and maternal diseases compared to a world average of 31.8 per cent.

Increase in willingness to pay: The per capita healthcare expenditure grew by 9.3 per cent from 1993-94 to 2001-02, while from 2001-02 to 2005-06 it grew by 18 per cent annually. The average prices being charged by tertiary hospitals grew by 15 per cent annually from 2001-02 to 2005-06. However, Indians are by and large the most discerning and price-sensitive population, as evidenced by the entry and exit of a number of multinationals across the industries, and the demand for international quality at Indian prices.

Implications

• Rise in credit billing is likely to stretch working capital in this capital-intensive industry and bad debts as a percentage of revenue will start impacting the bottom line.
• The bargaining power will shift to the insurance companies who will apply serious pricing pressures on the providers. Therefore, only the lowest cost provider will manage to survive in the long run.
• Quality of medical care across the continents will converge towards a common denominator with some minor differences in delivery systems based on cultural preferences.
• Patients have begun to shop for the best deal available in the market.
• Quality of medical care will be one among the many determinants of a patient's choice of a provider.
• Decisions taken by doctors are no longer accepted as 'words of God', but are questioned by a rational and informed patient.
  

Imperatives for Healthcare Providers

As out-of-pocket expenses decrease as a percentage of total healthcare spending, price will no longer be a critical factor for direct consumer (though that will be monitored by the payor/insurance company). All imperatives need to be looked upon as answers to the following questions:

• How can we be the lowest cost providers?
• How can we delight the customer/patient and increase the patient base?
• How can we maximise our revenues?

Four key factors will govern the decision making:

People: Although, there is a gradual shift from a doctor-centric practice to a hospital-centric practice, the quality and reputation of doctors is still a key factor for the decisions made by patients. Secondly, the quality, approachability and consumer-friendliness of doctors, nurses, paramedics and support staff can be a key differentiating factor for large hospitals. Thirdly, there is a huge shortage of trained healthcare professionals, estimated to be a deficiency of 4,50,000 doctors and 1.2 million nurses by 2012 (Source: FICCI-Ernst & Young Report 2007). This shortage will translate into a premium for reputable and good doctors and nurses which the hospitals today can ill-afford.

I suggest a 3-pronged attack to tackle the issue:

• Defining an organisational structure which promotes merit, involving the doctors in decision-making without being too over-dependent on any one or two doctors. Career planning would hold the key to retention.
• Defining benchmarks for monitoring financial and operational productivity of doctors, nurses and paramedics so as to retai n and promote the best talent.
• Investing in good HR practices, improving the ratio of HR personnel to employees and benchmarking remuneration to industry standards. All senior doctors (senior consultants and above) must be equity holders in the organisation to create a sense of belonging.

Technology: The importance of technology in today's healthcare delivery cannot be overstated, the ancient science of diagnosing most illnesses by the pulse of the human being has been replaced by advanced radiological and pathological diagnosis. In fact, technology is going to be the key differentiator between hospitals. Technological advances in two distinct areas are going to impact the healthcare industry,

Medical Devices: The rate of obsolescence in medical devices is fast approaching unmanageable proportions. As per the pioneering survey conducted by Ernst & Young, most capital intensive medical equipment are not even able to achieve break-even in six years, by which time new diagnostic technology coupled with curative procedures has flooded the market. However, pressures to remain at technological forefront coupled with squeeze on margins makes it imperative for hospital administrators to have a capital expenditure management policy aligned to the business objectives. Aggregation, outsourcing and own-operate model need to be explored and financial implications of each investment must be examined in detail.

Telemedicine is another area which has given the capability to ordinary doctors to do extraordinary things. It has the potential to spur a new economy and change the business model followed in India. It not only allows the unreachable interiors access to quality healthcare but could also provide employment to rural masses. This is one technology which could actually help India achieve its dictum of "Health for all -2020".

Information Technology: Investments in IT systems is one area, where Indian hospitals are far behind its Western counterparts and that translates into not just being cost and labor inefficient, but also taking away the delight factor from the patients. A hospital with an average lead time of four days still maintains an inventory of 26 days because of lack of appropriate IT systems to manage its supply chain. A hotel with over 200 rooms allows you to check-out in less than 10 minutes while a hospital would still take a minimum of 90-120 minutes to discharge its patient. As per our calculation, a 150-bed hospital running at a bed occupancy rate (BOR) of 90 per cent can generate extra revenues of Rs 80 lakh per year by decreasing its discharge time from two hours to one hour.

Whether it involves storage of Electronic Medical Records (EMR) or monitoring disease outcome or being HIPAA compliant (Post JCI accreditation, HIPAA compliance may become a statutory requirement), IT is going to play a pivotal role in the success of a hospital.

Processes: The cornerstone of delighting the customer, achieving cost rationalisation or maximising one’s revenue has to lie in setting the processes right. As chains of hospitals become a reality, it becomes imperative for administrators to invest in processes that assure uniformity of patient experience. The real advantage for a corporate chain of hospital lies in its ability to leverage its size and systems to achieve a distinct cost advantage from the suppliers. Going forward, with the credit billing reaching an infliction point, processes to insure timely deliver of discharge summary and bills, and systematic follow-up will determine the health of healthcare establishments. People come and people go, however, organisations live on and flourish based on the systems and processes instilled into the grain.

Changes in focus of medical care from curative to preventive, success of the human genome project and advent of individualised gene-based treatment will bring up new ethical dilemmas hitherto unimagined and a painstakingly built reputation could be tarnished in a day and threaten the very viability of the hospital. An active ethics committee with clearly defined guidelines and executive powers and process for codification of the knowledge needs to be looked upon as a necessary risk management tool.

Branding: Branding and marketing is an extremely new idea to this media-shy industry, wherein less than one per cent of revenues of tertiary care hospitals is spent on marketing and PR. Media and industry alike have been quick to sound the death toll for small nursing homes or the 'mom and pop' shops of the healthcare industry with the advent of the corporate chains. However, they still flourish to the chagrin of chains, largely because they have been able to establish a certain brand equity for themselves, which is going to take a long time to diminish.

With a wide array of choices available to the discerning Indian consumer and the price taken out of the equation by the insurance companies, brand equity will play a major role in keeping a high BOR.

Branding is also an effective tool in attracting and retaining the best talent. The traditional 'word-of-mouth' route though effective in the noble healthcare profession, is unreliable and too slow. Key branding strategies used by hospitals are on the basis of competency of doctors, on patient experience and on technological superiority among others. However, the key is to maintain a uniform code of communication, choose the parameter that matters the most to consumers and most importantly deliver on the promise.

The writer is Manager-RABS (Healthcare Practice) Ernst & Young, India