Healthcare Industry: The Connect & Crossroads Dr. Praneet Kumar - - PowerPoint PPT Presentation

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Overview of Healthcare Industry: The Connect & Crossroads

• Dr. Praneet Kumar

Chief Executive Officer Radiant Life Care Pvt. Ltd., New Delhi, India

praneet.kumar@radiantlifecare.com; ceo@blkhospital.com

Healthcare Franchise Knowledge Series (HFKS) 30th & 31st August 2013

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CURRENT STATUS OF HEALTH SECTOR IN INDIA

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• Healthcare in India features a universal health care system run by

the constituent states and territories of India

• Health is a state subject in India (on concurrent list in the

Constitution of India) with expenditure being borne as

• Three-fourth (3/4) by State Governments
• One-fourth (1/4) by Central Government
• Goals and strategies for the public sector in health care are

established through a consultative process involving all levels of government through the Central Council for Health and Family Welfare.

• Joint association with states for initiating various programmes and

projects to improve efficiency in the allocation for use of health resources through policy and institutional development

Constitutional Directives

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Comparative Health Indices*

Area Health Expenditure % GDP Doctors per 1000 Hospital beds/1000 India 0.9 0.47 0.8 World 2.6 1.5 3.3 Developed Countries 6.1 2.8 7.2

Health Statistics of India

* Verified data from 2009

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• In 2011-12 expenditure on health – 1.4 % of GDP
• Target for 12th Five Year Plan – raise it to 2.5 % of

GDP

• Allocation for National Rural Health Mission (NRHM)

increased to Rs. 20822 Crores, an increase of 14.9 %

• ver 2011-12
• Launch of National Urban Health Mission (NUHM)
• Out of Pocket expenses remain at 75 % - highest in

the world

Source: Budget Speech of Finance Minister (Finance Bill FY 2012-13)

Expenditure on Health in India

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• Indian Healthcare sector currently represents

a USD 40 Billion industry

• A break-up of the sector as of 2009 is
• Insurance & Medical Equipment
• 15%
• Diagnostics
• 10%
• Pharma
• 25%
• Hospitals
• 50%

Source: IDFC Securities Hospital Sector November 2010

Size of Health Sector & its Components

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• Consists of
• Medical care providers like physicians, specialist clinics,

nursing homes, hospitals

• Diagnostic service centers and pathology laboratories
• Medical equipment manufacturers
• Contract research organizations (CRO's), pharmaceutical

manufacturers

• Third party support service providers (catering, laundry

etc.)

Healthcare Provider Network

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Managed by Radiant Life Care Pvt. Ltd. Source: Budget Speech of Finance Minister (Finance Bill FY 2012-13)

• Institutional births, a main focus of the National Rural Health

Mission, have increased from 41% in 2004 to 47% in 2008

...however, meeting the Millennium Development Goal (MDG) for infant mortality rate (IMR) of 27/1000 live births by 2015 represents a formidable challenge

Recent Health Improvements

Maternal Mortality Rate (MMR) Infant Mortality Rate (IMR) Under 5 Mortality Rate (U5MR) Total Fertility Rate (TFR) 398 / 100000 live births in 1997-98 80 / 1000 live births in 1990 118 / 1000 live births in 1990 2.9 births / woman in 2005 212 / 100000 live births in 2007-09 50 / 1000 live births in 2009 64 / 1000 live births in 2009 2.7 births / woman in 2007

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• Focussing on investment that is closely linked to providing

better medical infrastructure, rural health facilities etc.

• 100 per cent foreign direct investment (FDI) is permitted for health

and medical services under the automatic route

• Investment-linked deduction of capex of 100% for new hospitals set up

with 100 beds u/s 35AD (increased to 150% in Finance Bill 2012)

• National Rural Health Mission (NRHM) allocated US$ 10.15 billion for

the up gradation and capacity enhancement of healthcare facilities

• Rashtriya Swasthiya Bima Yojana (RBSY) for BPL Families
• Allocated an additional US$ 1.23 billion for six upcoming AIIMS-like

institutes and up gradation of 13 existing Government Medical Colleges

Newer Initiatives in Recent Past

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• Maternal and child health
• Childhood nutrition
• New diseases on the rise
• Unfinished agenda of communicable diseases
• Financial burden

Key Challeges…

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• Low Effectiveness of Public Health Spending
• Unregulated Private Provision of Health Care
• Lack of Adequate Health Insurance
• Little Emphasis on Communication to
• Improve Health, and
• Create Demand for Health Services

Systemic Constraints

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• In 1980's realizing that the government on its own would not

be able to provide for health care, the government allowed the entry of private sector to reduce the gap between supply and demand for healthcare

• Private sectors venture in the health care sector consisted of
• nly solo practitioners, small hospitals and nursing homes till

about 20 years ago

• Quality of service provided was excellent especially in the

hospitals run by charitable trusts and religious foundations

• In eighties, corporate healthcare marked its entry with Apollo

Hospital at Chennai after a chain of diagnostic centres established by United Group in seventies

Entry of Private Sector

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• Not for profit sector (charitable)hospitals
• Were mainstay before organized private sector hospitals emerged
• Have stagnated / decayed just like public sector hospitals because of lack
• f fund to upgrade – both physical assets and technology
• Nursing Homes – Mom & Pop like shops
• Have started dwindling
• Find challenging to survive
• Cannot match newer hospitals

Transition of Contemporary Health Infrastructure of upto early Eighties

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• Last three decades have witnessed a huge growth of private sector

healthcare services

• Various types of models have evolved / developed including

corporatization of health sector

• Hospitals chains – units in multiple locations, as national chains, although

none has a real pan India presence

• Regional Hospital Chains
• Emergence of single speciality models
• Eye care and Dental care chains
• Single Speciality Hospitals – Cardiac, Cancer, Renal, Neuro etc.
• Diagnostic Centres & Laboratories
• Opco-Propco model is evolving (similar to hotel industry)
• Few successes in Public Private Partnership Models
• Expansion in international arena

Growth of Private Sector

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• Medical Tourism is a relatively new concept, which is

becoming popular globally

• India has several advantages in favor of medical tourism
• Infrastructure
• Technology
• Cost effective medical care and hospitalization
• Qualified and skilled doctors
• Traditional Indian rejuvenation methods like yoga,

ayurvedic massage …people in western countries and corporate hospitals and wellness centers are cashing on this opportunity

Source: Indian Academy of Science

Medical Tourism

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• India has become a more attractive market for clinical testing
• Government amended Schedule Y of the Drugs and Cosmetics Act to

make rules on clinical trials more consistent with international practices

• India became compliant with the Trade-Related Aspects of Intellectual

Property Rights (TRIPS) Agreement and formally recognized product patents in Jan 2005

• Growth triggered in Indian clinical trial activity by
• Contract Research Organizations
• Quintiles, Omnicare, PharmaNet and Pharm-Olam
• Multinational Corporations
• Novo Nordisk, Sanofi-Aventis, Novartis and GSK.

Clinical Research

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• According to the latest data from Department of Industrial

Policy & Promotion (DIPP) for FDI inflow during April 2000 and September 2011, it has been

• Hospital and diagnostic centres – US$ 1.1 billion
• Medical and surgical appliances – US$ 417.79 million
• Drugs and pharmaceuticals sector – US$ 4.9 billion

FDI Inflows – Health Sector

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FUTURE OF HEALTH SECTOR IN INDIA

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• Healthcare industry
• US$ 40 billion industry today
• Growing at 15 % CAGR
• Expected to be US$ 280 billion by the year 2020

Healthcare Industry

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Demographic Factors

• Increase in population
• Shift in demographics – twin

challenges of large young population & rising population above 65 years of age

• Increase in incidence of

lifestyle related diseases

• Rising literacy
• Rise in disposable income

Impact

• Higher demand locally
• Demand for routine needs of

young individuals & families along with rising needs of elderly

• Increasing demand for tertiary

care speciality centres

• Increasing awareness both in

rural & urban areas

• Focus towards wellness & health

including propensity to pay

Factors for Growth in Health Sector

CRISIL Research Hospitals Annual Review November 2010 NFHS Survey, KPMG Analysis IDFC Securities Hospital Sector November 2010

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Economic Factors

• Strong Indian Economy including

Saturation in other sectors like IT, Retail

• Increasing options for healthcare

financing including tax benefits

• Rebate u/s 35AD upto 100 % of

capex for new hospitals with 100 beds

• Better Profitability (15-20% EBIDTA)
• Earlier Break Even (2-3 years)
• High cost of establishing hospitals –

land, building & technology

Impact

• Increasing demand from within

the country promoting supply side investments

• Attractiveness of Indian market

will entice more foreign players for capital investments & technology tie-ups across hospitals, diagnostics, medical equipment, etc.

• Newer models will be explored
• Public private partnership (PPP)
• Opco-Propco

Factors for Growth in Health Sector

CRISIL Research Hospitals Annual Review November 2010 NFHS Survey, KPMG Analysis IDFC Securities Hospital Sector November 2010

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Economic Factors

• Rising cost burden of healthcare

system in the developed economies – high cost & long waiting periods in developed economies & lack of tertiary level care in third world countries – east Asia & Africa etc.

• Effective AY 2013-14, deduction u/s

80D up to a maximum of Rs. 5000/- available for preventive health check up for self, dependent children and parents

Impact

• Icreasig Medical Touris or

medical value travel) with facilitation through Government “upport M Visa

• Will drive demand for preventive

healthcare services

Factors for Growth in Health Sector

CRISIL Research Hospitals Annual Review November 2010 NFHS Survey, KPMG Analysis IDFC Securities Hospital Sector November 2010

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Economic Factors

• Increasing penetration of health

insurance through social insurance schemes

• Need to optimize costs and

increase efficiencies

• Rise in local incomes and

awareness level coupled with high operating costs in the metro cities and fear of over-supply of beds

Impact

• Helping bring affordability

thereby bringing more number of people under healthcare net

• Will make IT an integral part of

hospital management catalyzing investments in the domain

• Large number of specialty /multi-

speciality hospitals will come up, especially in tier II & III cities in heart, cancer, ophthalmology, maternal & child care and cosmetology

Factors for Growth in Health Sector

CRISIL Research Hospitals Annual Review November 2010 NFHS Survey, KPMG Analysis IDFC Securities Hospital Sector November 2010

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Other Factors

• Low-cost Healthcare Solutions

with High Success Rate

• Professional skills & experience

gained from centres of excellence in developed countries

• Availability of health manpower
• Industry level initiatives –

accreditation

Impact

• High credibility & affordable

healthcare

• Availability of skills, competencies &

expertise for high end & complex surgeries

• Adequate resources to deliver
• Quality assurance comparing with

best internationally

Factors for Growth in Health Sector

CRISIL Research Hospitals Annual Review November 2010 NFHS Survey, KPMG Analysis IDFC Securities Hospital Sector November 2010

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Other Factors

• Low-cost Healthcare Solutions

with High Success Rate

• Professional skills & experience

gained from centres of excellence in developed countries

• Availability of health manpower
• Industry level initiatives –

accreditation

Impact

• High credibility & affordable

healthcare

• Availability of skills, competencies &

expertise for high end & complex surgeries

• Adequate resources to deliver
• Quality assurance comparing with

best internationally

Factors for Growth in Health Sector

CRISIL Research Hospitals Annual Review November 2010 NFHS Survey, KPMG Analysis IDFC Securities Hospital Sector November 2010

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CONSUMPTION AND GROWTH IN HEALTH SECTOR

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• Key drivers for the tremendous growth are going to be
• Increasing penetration of health insurance – improve affordability
• will bring more people under the healthcare net

Source - IIB

Consumption & Scope of Growth

Year

• No. of Non-Life

Insurers Growth rate of private sector in gross direct premium Penetration of non-life sector Market share of health insurers (excluding standalone insurers)

2011-12 27 28.06% 0.70% 22.27% 2010-11 24 24.67% 0.71% 23.35% 2009-10 23 13.44% 0.60% 21.12%

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• Demand for healthcare services will be driven – by both urban and rural

markets in the coming decade with a distinct shift towards

• demand for wellness & preventive healthcare
• lifestyles and chronic diseases
• disease management services
• Attractiveness of the Indian market will entice more foreign players –

through capital investments and technology tie-ups

• will benefit hospitals, diagnostics, medical devices, healthcare IT etc.

Foreign investment inflow into the healthcare delivery sector is low, compared to

• ther industry segments. Foreign direct investment in hospitals and diagnostic centres

in the period between April 2000 and December 2012 is pegged at $1.54 billion (₹ 8,316 crore), compared with $ 9.78 billion (₹ 52,812 crore) in pharmaceuticals and $ 584.14 million (₹ 3,154 crore) in medical and surgical appliances.

Source: Bridging the Divide for a Healthy India – Joint publication by Grant Thornton and CII

…y 5, the puli setos shae i healthae deliey seies estimated to be 19 % against 34 % in 2005

Consumption & Scope of Growth

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INNOVATIONS IN DELIVERY

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• High cost of land and building for setting up Greenfield hospitals, up-

gradation / re-engineering / redevelopment of existing hospitals – will lead to newer models of delivery

• will drive pragmatic policy formulation – public private partnership

(PPP) model

• will catalyze prop. co.-op. co. odel siilar to hotel idustry

While hospital chains are trying models such as tertiary care, secondary care, health city, hub- and- spoke and single speciality hospitals, those with a capacity of 100- 500 beds lead the pack… Chains of single speciality hospitals and diagnostics businesses will continue to attract interest from PE funds, as well as strategic players. Eye care, dental care, maternity pediatrics, orthopedic surgery, pathology, low- end imaging, etc, are areas in which we expect to see significant transaction activity in 2013 and beyond

Source: Bridging the Divide for a Healthy India – Joint publication by Grant Thornton and CII

Innovations in Healthcare Service Delivery Models

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• High operating costs in the metro cities and fear of over-supply – will drive more

healthcare companies

• will increase focus on the untapped smaller towns
• A report of private equity investors indicates that that two of ten healthcare deals were for

non metros earlier. Today the figure has doubled to four.

• Growing medical travel sector in India – will benefit from rising cost burden of

national healthcare system in the developed economies

• will increase international patients for specialty care
• Of the over 6 lakh-odd medical tourists that visit India today, over half or 55% hail from two

regions — Africa and West Asia. The market size of medical value travel would cross Rs. 62,000 crore by 2020 and Rs. 2 lakh crore by 2025 from Rs. 4,500 crore in 2010.

• Industry pundits forecast a 30% annual growth for the next 15 years.
• Development towards an integrated market – Where are we Now?
• Far from integrated market scenario – nascent stage
• will develop & mature eco system on the backbone of development of healthcare IT
• will need patient advocacy groups to come up to protect the rights of community

…pogess / uet status sie last yea

Innovations in Healthcare Service Delivery Models

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OPPORTUNITIES

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• Build and operate Greenfield ventures
• Invest in up-gradation / renovation / redevelopment of

existing hospitals and other health facilities independently ad / or i partership with Local Healthcare Parters

• Build and lease out and / or joint ventures
• Opco-Propco odel
• O & M contracts with hospital operating companies
• Public Private Partnership in association with
• State Governments
• National Rural Health Mission (NRHM)
• Urban Health Mission (UHM)
• Other Government agencies

Opportunities: Growth of Hospitals

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• Government is focused on developing PPP model to cover

the demand-supply gap prevalent in the healthcare sector

• Private sector expertise coupled with efficiencies in
• peration and maintenance would lead to improved

healthcare services delivery to the masses

• Developing Public Private Partnerships (PPP) models to
• Improve availability of healthcare services, and
• Provide healthcare financing

Public Private Partnership (PPP)

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• Land & Building (fixed assets) owned by developer / third

party

• Lease / fixed rental
• Generally linked to investment in property with or

without moratorium

• Fixed & variable component
• Variable component only
• Joint venture

Propco-Opco Model

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• Tremendous growth expected the coming decade due to
• Growing population
• Low per capita drug usage
• Increasing incidence of disease
• Global pharmaceutical alliances with Indian drug firms are

now two-way street, with major R&D deals being struck

• Glenmark Pharmaceutical has teamed with Dyax
• GlaxoSmithKline is working with Ranbaxy Laboratories
• Opportunities
• Setting up / Joint ventures to establish CROs
• Outsource Clinical Trials
• Establish Joint Ventures with Govt. sponsored organizations

Clinical Research

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CHALLENGES

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• Opportunities continue to present

…if fudig a eoe less isous, tetiay ae footprint will improve in Tier II cities

• ROI landscape

…etu o apital ill satisfy the iestos aspirations

• Investor appetite has increased for the sector

… despite this, funding is low due to

absence of priority lending platforms

Challenges

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• Commissioning & Execution

…healthae ahitetue eig a highly specialised field, India lags in execution capabilities

• Operational Challenges

…uality of apoe aailale & shotage of apoe i numbers

• Pricing creating Un-necessary competition
• Isuae “etos Challeges

… Actuarial process not mature, leading to lack of product innovation

Challenges

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CONCLUSION

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…oppotuities i the aea of health seto i India, are enormous …a judiious aalysis of suh oppotuities ill

• ffer a decent value proposition for

entrepreneurs / investors …etu o apital ill satisfy the iestos aspirations

SUMMATION

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• Uget eed to estalish Healthae

‘egulatoy Authoity of Idia

• Formulate robust and pragmatic public-private

partnership (PPP) model

• Availability of capital at optimal cost

Key Facilitators & Drivers

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Thank you very much!