Will consolidation among India’s hospital groups benefit all patients equally?
Are the growth plans of hospitals destined to put a certain category of patients - the uninsured, patients in smaller cities, for instance - further back in the admissions queue?
It’s that time of the year again, when we analyse the hits and misses over the past 12 months, and get set for the next year, with an eye on trends and market shifts.
Tracking the trends, it’s a no-brainer that private equity-driven consolidation of the healthcare sector in India will continue. KKR is reportedly closing in on Healthcare Global Enterprises, following its recent acquisition of Baby Memorial Hospital. Care Hospitals, backed by PE firms Blackstone and TPG, merged with Aster DM Healthcare, to become India’s third largest hospital chain.
Private hospitals, both promoter and PE driven, are expected to fuel an expansion in the number of hospital beds, and this will hopefully bridge the gap between available and recommended beds per 1000 people, an accepted global standard of care. A November 2023 report from global real estate consultancy Knight Frank and their US partners Berkadia, estimated that 2.4 million additional beds were required to bridge the gap between the 1.3 available beds per 1000 people (private and public hospital beds included) and the recommended ratio of 3 beds per 1000 people.
However, will consolidation among India’s hospital groups benefit all patients equally? Are the beds being added affordable for both India (broadly considered the urban areas, tier-1/2 metros) and Bharat (tier 3/4 cities, rural areas)? Are the growth plans of hospitals destined to put a certain category of patients – the uninsured, patients in smaller cities, for instance – further back in the admissions queue? Most of these patients tend to seek out smaller healthcare facilities, but these hospitals are reportedly facing increasing challenges.
The ‘Hospitals for Bharat’ report by LoEstro Advisors and Medium Healthcare, which analyses India’s Small and Medium Enterprise (SME) hospital sector, reveals that while SME hospitals (less than 200 beds) deliver 60 per cent of India’s healthcare and account for over 90 per cent of hospital beds, they face mounting pressures that threaten their sustainability.
As per the report, larger hospitals are acquiring SME hospitals and expanding to tier-II and tier-III cities, drawing high and middle-income patients away from SME hospitals, impacting their business performance.
Clearly, SME hospitals need a mix of high and middleincome patients, to balance the care cost of low-income patients and this balance has been skewed by the inroads of larger players into the traditional turf of SME hospitals.
Even though there is a clear opportunity, with SME hospitals reportedly growing at a 12.9 per cent CAGR, outpacing the overall hospital market CAGR of 11.3 per cent, the Hospitals for Bharat report outlines considerable challenges faced by them.
For example, larger chains outpace SME hospitals in marketing spends, with the former spending as much as Rs 4,22,000 per bed in FY24 versus Rs 10000 per bed by smaller hospitals.
Secondly, as per the report, SME hospitals have on average approximately 40 per cent less Average Revenue Per Occupied Bed (ARPOB) and 33 per cent more Average Length of Stay (ALOS) than large private chains. While large hospitals strive to reduce ALOS for better patient turnover and lesser variable cost per patient, with the industry average around 4 – 4.5 days for listed players, SME hospitals’ ALOS is 5-6 days, as they have a very heavy focus on OB-GYN.
While the the Hospitals for Bharat report proposes solutions for each challenge, will such strategies make them pricier for low-income patients, even as their revenues stabilise? While government initiatives like Ayushman Bharat do drive patient volumes to SME hospitals, the delayed reimbursement makes it unsustainable.
Thirdly, the report points out that currently, general medicine accounts for 45 per cent of volumes; surgery (e.g., Obstetrics & Gynecology) drives 65 per cent of surgical revenue in smaller hospitals. As a solution, the report suggests that introducing specialities like Cardiology, Orthopedics, Oncology, Gastroenterology, and Neurosurgery improves revenue through higher ARPOB (Rs 50000–Rs 150000) and contribution margins (30 per cent-70 per cent). But won’t investments in these specialities force SME hospitals to nudge more patients towards these facilities, regardless of the actual need?
Similarly, while the report suggests that price optimisation and effective strategies to ensure the right prices can be achieved via bundling diagnostics with therapy, tiered bundling of services, market benchmarking and pricing transparency and expanding ancillary services, will having diagnostics as a revenue stream result in overuse of lab tests, with unnecessary tests adding to the economic burden on patients?
One could argue that adding in-house pharmacies and diagnostics serves a patient need, as they can access more services within a single facility. While the LoEstro Advisors-Medium Healthcare report estimates that these services contribute 40-45 per cent and 15-30 per cent respectively to patient bills, tapping this potential should not be at the expense of patients.
SME hospitals serve a need for low-income patients in the so-called micro markets. Their existence helps patients, especially those not covered by insurance, deal with medical expenses in their home cities, rather than traveling to larger cities.
While SME hospitals have as much of a right as the bigger national chains to improve their revenues and meet the aspirations of their promoters, healthcare promoters and their funding partners will need to balance their growth plans with patient needs. Let’s hope 2025 sees a conscious attempt on this front.
VIVEKA ROYCHOWDHURY, Editor
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