Posted by guest blogger Arjun Ashar, a Chartered Accountant and founder of Arjun Ashar Capital Management. He can be contacted at email@example.com.
The genesis of India’s successful IT story was laid in early 1990’s when its early stakeholders capitalized on the low cost arbitrage model by taking advantage of India’s multitude of software engineers and they framed an efficient offshore delivery platform. Another such opportunity for the coming decade lies in the Healthcare sector in India. Indian healthcare in the 1990s grew at a compound annual rate of 16 per cent. Currently, the total value of the sector is more than 34 billion dollars. As per government estimates, by 2012 India’s healthcare sector is projected to grow to nearly 40 billion dollars. The full potential of this sector would be realized by adopting Public Private Partnership (PPP) model. Unlike Indian IT/ITES, which succeeded inspite of the lack of government support, healthcare in India needs a government umbrella due to sheer size of the number of people it seeks to serve. Only then, can one tap the mega opportunity that lies at our doorstep.PPP would involve synchronizing efforts of the central/state governments with that of the private sector enterprises towards achieving the broad public healthcare goals, which successive governments have not achieved in terms of coverage and quality of healthcare in public hospitals/clinics across India.
As witnessed in case of Special Economic Zones in India, the PPP model does not come without its share of challenges. Some of the key issues in this context would be equitable distribution of the burden of service delivery and costs, in a manner where the parties’ best equipped to meet the same are empowered to meet their responsibilities. For example, a blanket policy measure like universal free basic healthcare may be suitably altered to include universal free health insurance, partly subsidized by the government but wherein the policy obligations are shared with the providers of healthcare services.
At large, a PPP model demands a large dose of maturity from the public, the governments they elect, along with the responsibility to be borne by the private sector. Only then, can a sustainable alternative emerge to the current healthcare model in India.
Post liberalization, the share of health sector in India’s GDP has been at a level of 4 to 6 %. The central and state governments in India currently spend a meager one percent of the GDP on health sector. The private sector accounts for rest of the outlay. By 2011-12, at the end of the 11th Five Year Plan, the government outlay is expected to rise to two percent with the overall share of the entire health sector rising to 8.5% of GDP. As per current estimates, the total expenditure on healthcare in most developed countries is 8 % and upwards, with US spending a whopping 16 % of its GDP in 2007 on healthcare. The prevailing health expenditure outlay in India could undergo a massive transformation if the government and private players form a mutually rewarding partnership in a manner where interests of all stakeholders are considered. This contention is largely based on the premise that healthcare in India is largely under serviced as compared to developed nations. In sectors like telecom, Indian entrepreneurs have displayed a flair for exponential growth through use of technology. They catered to a large chunk of the one billion customer opportunity which was largely under serviced till the late 1990’s. The lessons learnt from telecom can be suitably replicated in healthcare, in terms of meeting the massive demand for basic affordable services.
Another interesting facet of Indian healthcare is that medical tourism is taking off in a big way, again, borrowing from the low-cost business model pioneered by ITES sector in India. At the 4th India Health Summit organized by CII in November 2007, Minister of Commerce and Industry Kamal Nath stated that medical tourism in India that was estimated at US $350 million in 2006, has the potential to grow into a US $2 billion industry by 2012.At the summit, India’s Minister for Tourism Ambika Soni stated that a total investment of US $6.5 billion was in the pipeline for setting up affordable hospitals and budget hotels for medical tourism. One additional feature is that medical tourism in real sense combines medical treatment with tourism. After all, it makes a lot of sense for a foreigner in India to spend another 300 USD for a round trip to Taj Mahal, since she has already saved a couple of thousand dollars on that Lasik Operation in say, Chennai. An entire additional eco system of hotels, airlines, tour operators also benefit. Some existing hospital chains have already smartened up to this opportunity by tapping additional revenue streams via innovative tie-ups with the hospitality and aviation sector. Fly to India with the preferred airline partner and get an additional discount on hospital room charges! Makes a lot of sense..
One needs to balance the moral hazard of treating foreigners at the cost of ignoring Indian patients by investing greatly in hospital bed capacity, which again would be simpler by having a PPP model. In this aspect, the idea of free universal health insurance needs to be further explored. The insurance premiums could be paid directly by government to medical insurance firms for all Indian citizens. In return, the risk would be borne by reputed private insurance firms. This would mitigate the risk of leakages which arise from having the government responsible for insurance risk. Instead we should adopt a model where the government just pays the medical insurance premium for over a billion Indians to select reputed firms. In turn, those insurance firms would bear the obligations of meeting the healthcare bills of all Indian citizens in need of healthcare. The government would recover its premium costs by more than commensurate savings in running government aided hospitals, since the cost of treatment would now be borne by insurance companies, who themselves have received huge premiums from the government for a billion plus Indian citizens. This model is unlike the present American healthcare model of steep costs, the burden of which for a large part remains, on the US citizen.
At present, the hospital segment in India is primarily dominated by a few hospital chains like Apollo, Fortis, Wockhardt along with government aided hospitals. Additionally, there are various non profit trusts managing major hospitals in India. At the unorganized level, there are numerous nursing homes and polyclinics. This fragmented structure in a large country like India, offers a huge opportunity for a mega corporate to deploy its ample financial and managerial resources and offer a consistent and high standard healthcare delivery model to the Indian masses.
Apart from large business houses and existing players, this sector has also recently witnessed the interest of private equity firms. In their search for the next 100 bagger from India, these fund houses have supplanted their understanding of the global healthcare industry into the Indian context. It is painfully obvious that the developed world has its advanced healthcare facilities which come at a very high cost even by first world standards, whereas the under developed nations have deplorable healthcare infrastructure. India is a uniquely positioned between the two extremes. The millions of doctors and paramedics in India can be a plausible solution to the world’s healthcare challenges and this opportunity is not to be missed by any of the stakeholders.
DISCLAIMER: The author is not a registered stockbroker nor a registered advisor. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.