Project

Business Policy & Strategy

Management

on

Healthcare Industry
(In Private Sector)

By
Sanjay Sinha
Jaipuria Institute of Management
Lucknow
 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
 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 provide
thousands 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
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outdated machines and endless delays.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 different
options.

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.
Nature of Demand :

There are some economic factors which make India such an

exciting market. Since healthcare is dependent on the people
served, India’s 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
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 than
infectious 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 India’s

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.
 The health care industry in India is not only restricted to
doctor and patient. It consists of the following:
 Doctors and Dentists
 Hospitals
 Protective care and nursing
 Pharmacies
 Allied medical, health services
 Research and Development
 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 for 5.2% 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.
 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:

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

the automatic route
 Infrastructure status has been accorded to hospitals
 Lower tariffs and higher depreciation on medical equipment.
 Income tax exemption for 5 years to hospitals in rural areas,
Tier II and Tier III cities
 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
average 4.3 of comparable countries like China, Korea and
Thailand. To reach a ratio of 2 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 Indian
healthcare 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 :

 Private equity,
 Acquisitions,
 FDI,
 FII,
 NRI investment,
 Joint ventures, tieups,
 Venture Capital,
 IPOs
 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:
  DLF inking a 26:74 joint venture with Fortis Healthcare for
setting up hospitals in its 200 acre plus integrated townships
across the country, at an investment of around US$ 1.5
billion. The JV plans to set up a chain of 200-450 bed
hospitals in 31 cities in India within three to five years.

 Fortis’s Lucknow MediCity, is being set up in Ansal’s 1,500

acre upcoming mega township.

 Hinduja Group and Limitless LLC, the realty arm of Dubai

World, are putting in about US$ 1.1 billion in their 51:49 JV to
build hospitals and medicare cities

 Ambuja Realty Development Ltd (ARDL) plans to develop

a couple of feeder hospitals in Siliguri (North Bengal) and
Bardhaman (South Bengal) for its proposed multi-specialty
hospital in Kolkata. ARDL had formed a joint venture —
Neotia Elbit Hospital Venture Ltd — with the Elbit Group of
Israel.

Big Players Already in the industry :

Apollo Hospitals Enterprise Ltd

 Manages a network of 50 specialty hospitals and clinics with

a bed capacity of over 9,000 across the country and abroad.
 Employs more than 62,000 people.
 Has tied up with insurers like BUPA (UK), Vanbreda
(Belgium) and Mondial (France) to direct inflow of foreign
 patients to India. Joint venture with Singapore-based
Parkway Group Healthcare Pte Ltd.
 Has tied up with Indian Oil Corporation (IOC) to set up its
pharmacies at the latter’s petrol stations.
 Is moving into smaller towns.
 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

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

about 10,000 Beds.
 Operations across North India - Delhi, Noida, Mohali,
Amritsar, Faridabad, Raipur and Srinagar.
 Has expanded through mergers and acquisitions.
 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
 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

 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.
 Presently has a bed capacity of about 1,390.
 Has tie-ups and association with Harvard Medical
International: USA whereby Wockhardt has access to
Harvard’s 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.
 It also has an agreement with Blue Cross and Blue Shield:
USA, Bupa: U.K., AEA International: Singapore and others.
 Plans to build 15 new multi speciality hospitals in Tier-II cities
in the country.
 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:

 9 primary centres at 7 rural locations
 8 secondary hospitals at urban and semi urban locations
 3 tertiary hospitals at urban and semi-urban locations.
 MHS is building another 600-bed multi specialty hospital in
Devanahalli, Bangalore
 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

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

the Asia Heart Foundation (AHF)
 Capability to perform 25 major heart surgeries and over 20
cardiac catheterisations a day
 Hub for telecardiology networks with a Joint Venture
between the Governments of seven hill states and West
Bengal, Karnataka Health Systems and ISRO
 A 5,000-bed Health City is coming up at, Bangalore, which
will comprise of 10 hospitals

Max Healthcare

 MHC operates 8 healthcare centres in the National Capital

Region (NCR)
 Bed capacity of around 765 beds and is expected to increase
to 1,500 -1,600 beds in the next few years
 Collaborated with Singapore General Hospital in the areas of
medical practices, nursing, paramedical research and
training
 Plans to raise US$ 85.36 - 97.56 million to expand its
hospital chain

Columbia Asia

 First healthcare provider to enter through the FDI route

 Opened the first community healthcare multi-specialty facility
at Bangalore
 Planning to invest US$ 15. 85 million to set up more
hospitals in Bangalore
 Tied-up with GE, to collaborate on a number of initiatives for
creating a medical Institute of world-class standards
 Global Hospitals

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

Hyderabad
 Invested US$ 36.58 million to set up ‘BGS Global Hospital’ in
Bangalore
 Tied up with the Sureka Group, to set up a 300-bed
transplantation and tertiary care centre in Kolkata
 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 year 2010 are:

Investment Name Place

Rs 1,000 crores SevenHills Health City Mumbai
Rs 330 crores Tata Medical Centre Kolkata
Rs.300 crore Apollo Hospital Bhubaneswar
Rs.250 crores Fortis Hospital Delhi
Rs.200 crores People International Hospital Bhopal
Rs.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 don’t
have a single place that’s 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.
Industrial Setting

 The industry is fragmented with a large number of

independent, privately run hospital and healthcare centres.
 Private sector corporate entities have aggressive expansion
plans.
 Indian hospitals are gaining reputation globally as “quality”
service providers
 Many Indian hospitals have secured accreditation from the
British Standards Institute and Joint Commission on
Accreditation of Healthcare Organisations
 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 increase
in 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
 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 India’s success in medical care is gaining in

momentum outside India. Cost is not the only factor weighing
in India’s 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.
 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
 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 .

 World class medical facilities using the latest

technologies.
 India has a top-rated education system which leads to
some of the most competent doctors and hospital
support staff.

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

incurred in US and other western countries.
  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.

 As per a report, Escorts Heart Institute & Research

Centre in Delhi performs 15,000 heart operations every
year where the death rate of 0.8% is less than half the
rate at most major hospitals in US and Canada.

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

impetus to the industry.

Weakness

 Excessive amount of privatisation

 Newcomers in the business
 Under developed infrastructure. Lack of transportation,
airports etc.
 Cut- Throat competition among the private players.
 Lack of highly qualified and experienced doctors.
 Mainly catering to the higher-middle and higher income
group.
 Lack of post operative care.
 The support staff is absolutely ignorant about the
standards of hygiene conditions required and
expected.
 Not much focus on research and development.

Opportunities

 Government incentives as mentioned earlier.

  Government spending on infrastructure development is
increasing.
 Cost of living is much less as compared to to
developed nations hence the cost of treatment is much
less in India.
 The international slowdown of the economy is having a
reverse impact on brain drain.
 Many multi-national companies are setting up bases
in India and they are having tie-ups with the healthcare
industries
 Compensation to US and UK overpriced Healthcare
 Partnership with Insurance Companies.
 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

 As there is a continuous research, development and

innovation in this sector internationally a lot of
investment is required for updation.
 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.
 Number of potential players who could invest is limited
especially as an individual investor,
 Requirement of localized and in-depth knowledge of
host country market.
 Difficulties in establishing and maintaining joint
ventures
 Competing destinations for health care tourism from
countries like Thailand, South Africa , Costa Rica
 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
 When a segment of the health care industry and an
organisation are both in a stage of growth, the major need of
the organization is for differentiation from its competitors.
 The role of the sales force often becomes more important at
this stage. Their key goal is to control the channels of
distribution/referrals.
  The most common way for health care services to achieve
differentiation is through distribution

Distribution
 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
 The best form of differentiation may be to have a number of
sites with one brand name. Example Apollo Hospitals.

Push and Pull

 Push: get doctors, nurses, and therapists to refer patients.
 Pull: get patients to choose a hospital independently for
various reasons, including word-of-mouth, advertisement,
performance, infrastructure or website visit.
 Push: The healthcare industry being at the nascent stage
the push strategy would work better initially.
 Pull: will become more important as people take control over
their own health care choices.

Upset the Apple Cart—Quietly

 Any useful strategy must include a means of upsetting the
competitive equilibrium and reestablishing it again on a more
favorable basis.
  Many physicians consider health care organizations
members of a medical fraternity.
 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:

 Increasing health awareness: share in total private

consumption expected to increase by 10%.
 Increasing penetration of health insurance,
 Rapid growth in private sector companies owning and
managing hospitals.
 High-growth in medical tourism.
 Cost of comparable treatment is on an average 1/8th to
1/5th of those in western countries.
 Service providers: curative and preventive in primary,
secondary and tertiary care.
 Diagnostics services: imaging and pathology labs.
 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.
 Healthcare BPO: medical billing, disease coding, forms
processing and claims adjudication.
 Training: large opportunity for training doctors,
managers, nurses and technicians.
 Most competitive charges for treatment.

 Fluent English speaking staff.

 No waiting list.

 Indian corporate hospitals have a large pool of doctors,

nurses, and support staff ensuring individualized care+
JCI Accredited Hospitals.

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

 India is renowned for ancient alternative therapies such

as Ayurveda, Yoga and Meditation, and Therapeutic
Massage.

 Its exotic tourist destination.

 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.
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 other’s effort.