It reveals that the government will need to play a critical role as a catalyst by creating an enabling ecosystem which draws investments from both domestic and international players
NATHEALTH in association with PwC, recently released a report titled, ‘Funding Indian healthcare: Catalyzing the next wave of growth’ at NATEv2017, an annual seminar organised by the Healthcare Federation of India (NATHEALTH). It reveals that India will need much more participation from the private sector and conventional modes of healthcare funding will need to be aided by innovative modes funding to improve healthcare investments in India.
The report also recommends four scaling innovative modes which should be introduced for funding Indian healthcare. These include fund of funds such as pension funds, investment route through PPP, long–term debt. Report bats for financing through pension funds which may provide access to a large pool of money. It also suggested funding through business trust entity like Real Estate Investment Trusts along with bilateral investment treaties.
While underlining the need of huge funding requirements, the report says the FDI in the sector has been significantly increased in the last three years. However, healthcare expenditure’s share in GDP remains around 1.6 per cent in FY 16 and innovative funding modes would support the target of taking to 2.5 per cent 2030. It also highlights the fact that private equity deals are supporting the funding in the sector and value of transactions has increased from $94 million in 2011 to $1,275 million in 2016—a jump of 13.5 times.
The report also examines the key challenges the healthcare industry is facing and the opportunities with which Indian healthcare system can overcome these challenges. Excerpts from the report:
Private equity deals
- Value of transactions has increased from $94 million in 2011 to $1,275 million in 2016—a jump of 13.5 times. A gradual increase in the ticket size is now evident. Some of the key deals (over $50 million) include:
Emerging trends inhealthcare funding
Growth of venture capital and private equity – heightened investor interest in the past 5 years, with transaction value increasing from $94 million (2011) to $1,275 million (2016) – a jump of over13.5 times1
The success of initial public offerings (IPOs) – four key IPOs over the last 18 months – Dr Lal PathLabs, HCG, Narayana Hrudayalaya and Thyrocare – all IPOs were oversubscribed, reinforcing investor confidence in the sector 2
With the recently announced National Health Protection Scheme (NHPS), a precursor to Universal Health Coverage (UHC), the government is increasingly moving towards the role of being a payor.
Despite the best of efforts, public private partnerships (PPPs) are yet to meaningfully impact the healthcare delivery system.
A slew of investments by global health players, including the Parkway Group and a host of Middle East players, have strengthened the perception of India as an attractive healthcare investment destination.
References:
1. Merger Market
2. Money Control
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Innovative modes for funding Indian healthcare
Fund of funds
- Healthcare investment and improvement fund with a multi-billion dollar corpus to accelerate the overall pace of development – similar to India Infrastructure Finance Company Limited (IIFCL)
- Management body appointed by the government to handle the portfolio, allocation and management of fund
- Sources of funding – pension funds, others
- Investment route – PPP, long-term debt, social impact bonds
Financing through pension funds
- Access to a large pool of money
- Intervention by the government required to use this pool based on redefined riskassessment criteria
- Can be channelled through fund of funds
REITs/ business trust entity
- Dividing the asset operations and medical operations will trigger faster actions
- Help in overcoming real estate costs
- Insulated from instability of stock and bond markets
Bilateral investment treaties
- As an attractive investment destination, India already has 74 bilateral investment treaties
- Has a low cost of financing, e.g. India offers much higher returns compared to countries like Japan
- Potential for huge capital inflow
Long-term debt instruments
- Tax-saving and tax-free bonds for financing healthcare infrastructure
- Source for long-term debt financing
- Potential for huge capital flow via participation from retail investors
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