In our January issue, Express Healthcare presented 13 interesting business models and strategies introduced by dynamic professionals from the healthcare sector with a view to find feasible solutions to some of India’s pressing problems – limited access to healthcare facilities and mounting healthcare costs. On the same lines, we continue our quest to find more sustainable ideas to improve accessibility and affordability of healthcare in India.
Our findings tell us that the industry, inclusive of both private and public sectors, have been rolling out various plans to bridge this gap. However, the fact that still remains is that India needs scores of new hospitals to serve its healthcare requirements and these can be made available by way of partnerships between various stakeholders of the healthcare sector either in the form of public private partnerships (PPP) or other joint venture models. PPP is the most commonly used form of partnerships applied in Indian healthcare sector.
Shobha Mishra Ghosh, Senior Director, FICCI lists down some of the partnership models tried and tested so far in the Indian context which are as follows:
Service Contract Model: The public hospitals in the sector outsource the non clinical support services to the private sector. Examples-
- DOTS programme on anti-tubercular therapy
- Non-clinical hospital services, e.g. laundry, catering, waste management etc
- Clinical hospital services e.g. radiology, pathology
- Chiranjeevi scheme of Gujarat Government
Management Contract Model: Public hospitals are built and financed by the Government and handed over to the private partners for management to increase efficiency, improve quality and transfer operational risks, e.g. private management of primary health centres in Tamil Nadu. There is a large presence of corporate houses in management of such projects.
 “One has to do a on-the-ground study on the viability and the pros and cons of the arrangements worked out in the existing BOT projects in India.” Shobha Mishra Ghosh Senior Director, FICCI |
Joint Venture Model: For setting up new hospitals, the Government participates through equity which is limited to providing land. The facility is expected to offer free care to a certain percentage of OPD and IPD patients. E.g. – Land subsidy to private healthcare providers by Delhi Government for 25 per cent free IPD and OPD treatment.
Well, all of these partnership models have their own set of loopholes. Some of these common models used in India to set up hospitals and healthcare centres have been under constant debate. Reason being that the existing partnership engagements by the Central and State Governments along with the private sector have been made in a makeshift manner with no clear cut framework while scaling up at a national level.
To overcome these constraints, the industry is now seeking new avenues to build viable healthcare set-ups that will not only increase the number of hospitals but will also be sustainable in the long run. One such option that the industry is currently evaluating is the Build Operate and Transfer (BOT) model. The model comprises outsourcing the early stages of a hospital project’s execution to the specialists and once the project starts running smoothly it is taken over and run by someone like the government or a corporate entity.
 “In the public sector a PPP can be structured in various permutations and combinations of BOT models, due to availability of land with the government.”Ayanabh Debgupta CEO – Projects & Consultancy-Medica Synergie |
Elaborating on the legal framework of the concept, Ayanabh DebGupta, CEO – Projects & Consultancy, Medica Synergie updates, “A BOT framework is established through a contractual agreement between any two private/ public entities. In lieu of this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. ”
Dr Vivek Sama, MD, American Hospital Management Company, India has been involved in many private sector BOT projects in healthcare. He explains, “The BOT model involves a collaboration between the promoter group and the hospital development and management group. The relationship can be structured as a partnership, or as a service provided by the hospital group to the promoter group. As a partnership, it can be very similar to a PPP model. The hospital group will invest in the hospital and operate it for a number of years (usually >15 years) before handing it back to the promoter group. The hospital group generates financial returns during the years it is operating the hospital. Further, the promoter group retains the real estate and gets a fully functional hospital at the end of the BOT term. In the service model the hospital group charges a fee for the planning, development, and operations of the hospital on behalf of the promoter group. This is usually a consulting fee during planning and development and a share of revenue during the operations phase. The hospital group manages the hospital until it is functioning optimally, with well established clinical and operational protocols. It can then be handed back to the owner or promoter group for continued management, with limited supervision from the hospital group. Alternately, the management of the hospital could be outsourced on a long terms basis.”
How does BOT work in India?
Across the globe, BOT finds extensive application in infrastructure projects such as the energy sector (power plants, refineries), transportation (toll roads), water and wastewater plants, landfills and healthcare projects. In India, the concept is quite prevalent in the roadways and the energy sector. Healthcare being traditionally an asset heavy investment arena, BOT is still in its infant stage. The model is practiced in private and public sectors but functions differently in both arenas. Describing the BOT applications in the private sector, Debgupta, says, “There are few private sector healthcare enterprises who have adopted innovative BOT models that make healthcare business viable and scalable”. He further elucidates the scenarios in which it is applied.
Scenario 1: Here the builder is the owner as well as the financer of the project. Builder will purchase the land, develop the required infrastructure and lease it to the operator. The operator will pay the lease rent to the builder. There may or may not be some percentage of revenue sharing between the builder and the operator. In this model, the builder and operator do not share common expertise.
Scenario 2: In this case, venture capitalist is the source of finance capital. The ownership remains with the operator who is also the builder. There is no revenue sharing model in this framework. The financer holds shares in the healthcare organisation in proportion of the money invested and benefits from the return on capital is only through sale of shares or IPO.
Scenario 3: This is a co-ownership model wherein the builder and the operator establishes partnership by sharing equity. The builder will invest in land and building while the operator will invest in equipment and manpower.
Scenario 4: Real Estate Investment Trust (REIT) Model which assists healthcare infrastructure growth plans through acquisition, development, joint ventures and monetisation.
- Acquisition – REIT acquires running facilities and leases them to operators under long-term lease agreement. Operator benefits from REIT’s due diligence and under writing capabilities.
- Development – REIT, through its lease arrangements, is able to fund the development of state-of-the-art facilities for operators as a custom built hospital facility.
- Joint ventures – REIT participates selectively in joint venture structures that align its interests with those of its clients while providing an opportunity for shared growth in the investment.
- Monetisation – REIT offers alternatives to owning real estate assets by purchasing facilities from clients, who continue to operate the properties under long-term leases.
However, in the public sector, this model is treated more like a PPP which is a long time partnership between the public and the private entity rather than a technical BOT which is a contractual agreement meant for the initial stages of development and establishment of a healthcare set-up. Giving a clearer picture on this, Debgupta says, “In the public sector a PPP can be structured in various permutations and combinations of BOT models, due to availability of land with the government. In these kinds of partnerships, the role of the developer is played by the Government and operator’s role can be played by the private player, while financing the project can be shared equally between building and equipment by either party”.
| Comparison of traditional funding and BOT hybrid model | |||
| Traditional model | Future model | ||
| Cost per bed in lakhs | Key factors driving today’s costs | Cost per bed in lakhs | |
| Land | 10 | Right out purchase | 1 |
| Civil, Interiors & Services | 35 | Built up space–1000 sq ft/Bed building cost Rs 1200 / sq. ft | 3.5 |
| Medical Equipment | 15 | Minimal utilisation, unplanned procurement Market competition | 10 |
| Pre-operative Expenses | 05 | Higher loans, Delayed project | 5 |
| Cost per bed | 65 | 19.5 | |
An edge over other concepts
 “A BOT process, if handled by a competent hospital development firm, can and should deliver meticulous feasibility and business plan development so that all stakeholders have realistic and consistent expectations.”Dr Vivek Sama MD, American Hospital Management Company |
BOT as a model has some interesting advantages to offer if implemented in an effective manner. The concept allows stakeholders involved in the project to leverage their respective strengths i.e. land/ finance as well as hospital management expertise. Explains, Dr Sama, “The benefits are numerous. A BOT process if handled by a competent hospital development firm can and should deliver meticulous feasibility and business plan development so that all stakeholders have realistic and consistent expectations. The business plan, developed by a credible hospital group, provides comfort to financial institutions. Additionally, the hospital group is able to leverage its experience and network to the benefit of the promoter group. For instance, during the development phase the model will result in extensive savings in cost and time through project management, equipment planning and procurement, and vendor negotiations. During the operations phase, the professional hospital group is able to achieve better physician recruitment, better patient flow, and better contracts with payers and vendors. The result is the development of a profitable, efficient, and well reputed hospital in a shorter period of time.”
“A BOT model prevents an aspiring entrepreneur in healthcare from getting diluted in the effort to raise equity or corresponding debt,” points out Debgupta.
In a table below, Debgupta clearly portrays the difference in the kind of investment required for a traditional model and a BOT model.
Projects on the cards
 “BOT can extend to public health and can be explored with experts in their domain for the right strategy of implementation, evaluation and modifications of even a national health policy agenda.”Meeta Ruparel Director, AUM MEDITEC |
Vivek Shukla, AGM Business Development and Corporate Relations, DM Healthcare opines that the model is practiced more in the private sector rather than the public domain and is adopted mainly by corporates who are not from the healthcare sector to establish hospitals in India. He further informs that corporates such as Hero Honda and Jindal Steel and Power Group have set up hospitals using the BOT model in the NCR for their employees. Similarly, well-known healthcare institutes such as Cleveland University, MIO and the American Hospital Management Company are also setting up hospitals in India using the BOT model.
Meeta Ruparel, Director, AUM MEDITEC also feels that quite a lot of projects coming in the private sector will be established applying the BOT concept. She also points out that these projects are customised to suit the demand of the stakeholders involved in such contracts. Dr Sama also informs that the American Hospital Management Company are working on two BOT projects in the NCR, and are in discussions for several more.
Where the public sector is concerned, there some few projects underway. Suresh Shetty, Health Minister- Maharashtra in an earlier interaction had informed us of one such project which the Maharashtra government will soon commence wherein the state government will provide the land and the private sector partner will be building the premise, operate it for a fixed term period and will then transfer the hospital to the State Government. When asked in which area of Maharashtra this hospital will be established, the minister informed that the project sanctioning is in its initial stage and will be made public as soon as the contract is signed. Ghosh also lists down some other BOT projects in the government sector that are on the cards.
Some examples of BOT/ Design – Build – Finance – Operate – Transfer (DBFOT) projects provided by FICCI are-
However, Ghosh questions the viability of these projects. “One has to do a on-the-ground study on the viability and the pros and cons of the arrangements worked out in the above projects to get a clear idea of the extent of success in such initiatives,” he replies.
| Project | Status in January 2011 | Cost (Rs in Cr.) | Type |
| Greenfield Super Specialty Hospital at Bathinda | Construction | 99 | Design – Build – Finance – Operate – Transfer (DBFOT) |
| Greenfield Super Specialty Hospital at Mohali | Construction | 118 | DBFOT |
| Punjab Institute of Medical Sciences | Construction | 225 | Concession BOT |
| Indira Gandhi Government Medical College (IGGMC) Complex (Maharashtra) | Bidding | 275 | Build Own Operate and Transfer (BOOT) |
The debate
Apart from the questions raised on the viability of the BOT projects backed by the government, there seems some kind of delusion surrounding the concept. While there are many who feel that concept will make a difference, there are few who rebut it as well. In fact there are some experts who feel that concept is quite misunderstood in India, especially when it comes to BOT in the government sector. Ruparel points out that the industry is not clear of the actual definition of the concept. What they do is applying some frameworks of the PPP model to BOT. Abhishek Pratap Singh, Senior Consultant, PWC also feels that concept is not well-perceived in India. He says the industry still needs to learn more before they set the trend. Gaurav Chopra, MD, HKS India on the other hand challenges all possibilities of the development of such concept in India. He asserts that BOT does not work in healthcare and certainly not in India.
Making better BOTs
Well, it’s still the learning period for the industry and contentions like these is sure to occur at this stage. However, the BOT contracts between the promoter group and the professional agency must be clearly written and complied with in order to ensure success for both parties. What could derail the development of such projects is a breakdown of trust between the involved stakeholders.
Moving forward, the industry will need to take that extra effort in understanding the implementing the right BOT model to attain sustainable healthcare set-ups. Ruparel suggests that the BOT approach or methodology should not be restricted to turnkey projects only. It can be applied in areas to employ IT support within hospitals, for Six Sigma deployment, brand building and development of marketing strategies for hospitals. She further goes on to say that BOT in healthcare service can also extend to public health and can be explored with experts in their domain for the right strategy of implementation, evaluation and modifications of even a national health policy agenda or for that matter even e-health network, etc. She feels if the right kind of BOT methodology is applied in healthcare it will lead to a lot of cost savings.
As said earlier, BOT in healthcare is still in its infancy and only time can tell whether this new concept will act as the catalyst for change or not. Having its own set of pros and cons, we can only hope that with the passage of time the industry will make the best use of this concept – applying it in areas that are pertinent.
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