Flawed biz model mars hospitals profitability

Written by Soma Das | New Delhi | Updated: May 2 2012, 08:00am hrs
At a time when world-class medical centres such as Stanford Hospital are hiring top-notch designers of Apple retail stores like Ron Johnson, ace hospitals of India seem oblivious to the fact that such exercises are important not just because of growing competition but also for enriching customer experiences.

Most tertiary hospitals here are just generic creations based on the formula of one size fits all without considerations of gender specific, age-related, paediatric or geriatric sensitivities, said Arvind Singhal, chairman, Technopak Advisors.

An average household, which spends 7% of its earnings on health today, would have to shell out 10% by 2020, even as the $60 billion domestic healthcare market grows over four times to touch $250 billion by then, according to a Technopak estimate.

Flawed business models such as very high operating cost due to systemic design faults and very high capital cost have kept the countrys top players from putting up their best performance.

For instance, in big cities top chains invest in the range of R75 lakh to R1 crore per bed in a tertiary set up and R50-60 lakh per bed in a secondary upgraded facility. With a little tweaking in the business models and designs, these costs can be slashed to R35-50 lakh for the former and R25 lakh for the latter, Singhal said.

Among other flaws, he counts lack of seamless integration in primary, secondary and tertiary facilities, random expansion, poor city and site selection and excessive focus on multiple specialities under one roof instead of achieving critical mass in a single specialisation.

He cited examples of Vasan Eyecare and Narayana Hrudayalaya, which have been able to cut costs dramatically by cashing on advantages of unbundling but still attained high efficiency rates.

The balance sheets of the biggest hospital chains would show you that their returns on investments have been far from impressive. This is replication of a story that is unfolding in the retail space as well where the high-cost model has not done well, he said.

A billion plus population of the country is being served by 13.7 lakh hospital beds, of which half are not functional. Of the total, over 8 lakh bed capacity lies in the private sector while public sector accounts for 5.4 lakh beds. About 70% of beds in private sector are concentrated in top 20 cities. For the beds in government hospitals, the comparable figure is 60%. This, when about 90 crore people live in tier-III cities and towns, 20 crore inhabit tier-II and 10 crore live in tier-I cities.

Singhal said the healthcare sector should experiment more with models such as three or four patients room, doctors-on home visit model and more technology driven interventions.