What ever you said has been been absolutely right, and corporate hospitals were able to generate some profit till now but I only want to stress the point that with the upcoming legislations in various states( Delhi, Taminadu), national medical commission bill, modicare insurance schemes the whole scenario is going to change… The new regulations are going to tilt the balance heavily in favor of smaller establishments.
The corporate hospital business is inherently inefficient business for hospitals for following reasons
- Moat:The only moat they have is quality of care and experienced doctors… With capping of surgical and procedure costs, they are going to loose the moat as there is no differential pricing for various surgeries in New proposed legislation with regards cost incurred for maintaining quality. I am an anaesthetist so I can give you examples in anaesthesia… For a small surgery like laproscopic cholecystectomy the cost of anaesthesia procedure in a small nursing home can be as low as Rs 1000 while the same in a corporate hospital would be Rs 15000/… The smaller nursing can charge Rs 5000/ for anesthesia (400% profit) while the corporate may not be able to charge more than Rs20000/(33% profit)… Of course there would be huge difference in quality of anaesthesia care…The smaller hospital is not giving proper anaesthesia but what we call jugaad anaesthesia…Bigger hospitals may not be able to drop standards for fear of litigations, as they are dealing with different class of people… believe me the most difficult people to handle is those belonging to upper middle class who would come prepared (with Mr Google as there guide), with lots of complaints and questions with regard quality of healthcare but behave poorest of the lot when it comes to payments.
- Smaller establishments can pick and choose profitable procedures and surgeries while bigger corporates may not be able to do that.Smaller establishments will simply refer sick patients(unprofitable) to tertiary care hospitals, while tertiary hospitals can’t refer anywhere, they must admit and treat all patients.
3.Bigger hospitals need to maintain unprofitable support specialities, while smaller nursing came either outsource them or get services of inexperienced non specialists doctors.
There are numerous other reasons which I can go on and on.
Just go through all the proposed legislation changes while keeping in mind above reasons and you will get all the answers you need.
The next 5 to 10 years are going to be extremely difficult years for corporate hospitals. This mindless consolidation forced upon by the government will take time to settle into a more meaningful consolidation… The government must realize that you cannot settle costs of healthcare merely on popular demands of people.
Lastly many people think that corporate hospitals pay huge salaries to doctors so some of these legislations can bring the costs down by bringing salaries down… Actually speaking these hospitals pay huge salaries to only a few dinosaurs(which our Indian society has created), while the rest 99% of doctors are paid very poorly, so there is no way you can reduce their salaries any further. Unless the mindset of general people who created these dinosaurs changes. The mindset of people from South India is a lot better, so corporate hospitals in South India are far more efficient… I don’t want to start North vs south debate ( Myself i am a North Indian)
Apollo Hospital is indeed the leader in healthcare companies in India. There is lot of transactions going on in healthcare companies. Although I initially bought Max India only for Health Insurance, I am not able to understand is Healthcare a good long term investment from India perspective? With companies struggling to make profit, investing in best doctors, research and equipment will add to the woes, perception issue is another thing.
One thing I am not able to understand is why some big PE firms are on the buyer side. Apart from current low valuation, what other good they see in healthcare companies as long term investments that we are unable to see?
Reading all this, I am sad not only as an investor but also as an Indian looking at where the healthcare is heading. I have huge respect for Dr Reddy who created Apollo a lot…as the first man who bought quality heathcare to India. He struggled to create Apollo, government approvals, etc etc. He did that when he saw people in need had to go abroad and only the super rich could do that…he brought world class facilities to middle class and upper middle class in India itself…he created the best for India…I do not think this should be destroyed by policies. I think India needs Apollo, Max and fortis…India needs this quality…I felt bad when came to know that the best stent which is dissolvable is no longer available in india…ultimate losers were patients…middle and upper middle class and poor class people who turn middle will be ultimate losers if more Apollo, max and Fortis do not come up!
I think these hospitals need strong management to rethink the model. Max said in annual meeting that this year was a reset. I believe that these hospitals are not to perish but stay, quality is to stay…and improve…health insurance penetration and comprehensive insurance covers is one thing that will drive it and secondly more satellite clinics model for main hospitals can be a change of business model…sooner or ater government will realize and most importantly people will realize that they need this quality