Healthcare industry is attracting significant capital
Healthcare industry in India is attracting significant amount of capital from Private Equity firms as it is one of the few sectors that continue to witness steady growth in the current challenging economic environment. New and emerging business models in healthcare delivery, steady growth in demand for healthcare services that are largely unmet by the poor quality public healthcare system and unique public-private partnership models adopted by several state governments are attracting Private Equity to the healthcare sector in unprecedented scale.
De-centralized healthcare delivery models are the flavour of the season among Private Equity investors. Chain of diagnostic centres, chain of single speciality hospitals such as eye or dental clinics, chain of pharmacies, chain of day-care surgery centres – are all witnessing significant growth opportunities which is a key attraction for Private Equity investors. The returns to investors from large corporate hospitals is a mixed experience in the past; while a few corporate hospitals have fared very well, many others have faced losses over extended period of time which deters new investors in this segment. In contrast, de-centralized healthcare delivery models have lower initial investment requirements, shorter payback periods and wider geographic reach all of which minimizes the inherent business risk.
The rapidly growing demand for healthcare services from the large middle-class population far out-strips the supply from the public healthcare system, both in terms of quantity and quality of healthcare. This is the main growth driver for the private sector healthcare industry, which is estimated to provide over 60% by value of all in-patient healthcare services.
Rationalization of cost of certain common procedures is also contributing to the growth in this industry. For instance, steady drop in cost of diagnostic procedures – CT scan or MRI costs have remained static or dropped over the last decade - triggered by larger population that can afford such services, which in turn brings scale economies have led to this virtuous cycle. Despite complaints of misuse / unwarranted procedures in certain cases by medical fraternity, the overall impact of this virtuous cycle is highly positive for the patients as well as the healthcare service providers. Similar trend is observed in non-invasive day-care surgeries, dentistry, ophthalmology, etc. which augurs well for the growth in these sectors.
Government can play a constructive role
Several unique initiatives by State Governments such as those in Tamilnadu, Andhra Pradesh and Chhatisgarh have proved successful in providing access to good quality healthcare for economically weaker section of the society through Private-public-partnership schemes. This is a positive development for the sector as it implicitly recognizes the poor quality of the public healthcare delivery system in India and instead utilizes private sector healthcare facilities, at competitive prices.
The proposed Cess for Universal Healthcare could catalyse significant growth opportunities for the healthcare industry in India. The key to success of this scheme is in implementation; one hopes that this is implemented on the lines of cess for Road Development, channelized through National Highways Authority of India and co-opting the private sector unlike the Education cess and Secondary & Higher Education Cess, which relies on the existing poor public infrastructure which could take decades to set right.N. Muthuraman is Director, RiverBridge Investment Advisors Pvt. Ltd., a boutique financial advisory firm and can be reached at email@example.com
This is the blog of the Print Version published in Business Line dated 9th Jan 2012