In the aftermath of the pandemic, we are seeing many countries around the world find it difficult to reform their health care systems – or even get them back on track. India is no different. This is despite Indian health services making steady progress over the past decade.
In contrast to the country’s size and its disproportionate disease burden, healthcare provision remains largely inadequate, with high regional disparities and unequal access. Health services have attracted nearly $7 billion in private equity investment over the past decade, but less than a third have added new capacity; The rest are secondary transactions where investors have secured exits. Still, compared to the estimated capital requirement of at least $35 billion over the next decade to bring India closer to the minimum per capita hospital beds set by the World Health Organization (WHO), this is not enough. This gap can be primarily covered by the private sector, as the government is increasingly transitioning to the role of insurance payer through Ayushman Bharat and similar state schemes.
Through our investing journey in this sector, we have identified four clear lessons on investing in healthcare.
First of all, healthcare delivery is a long term game. It takes time for an operator to establish clinical prominence and franchise value. This is important as we constantly see that medical excellence is more important than convenience, patients prefer to travel to better medical centers regardless of the financial or physical cost. This long-term approach requires a patient investor who can align their investment horizon or provide flexible risk-weighted capital to achieve the best outcomes and value for patients. Operators must build deep regional presence and clinically ‘hub and spoke’ model to optimize their returns.
Second, since healthcare is an important social need, benefits and objectives are closely intertwined. It’s not always easy for investors to navigate, so our organization, in partnership with experts at Imperial College London, has developed a framework to measure the impact a provider can make. The impact can be across four key dimensions – reach, quality, workforce and management. Using this framework, operators can either work toward improving equity of access and making quality care affordable for patients or create a systemic approach by developing their workforce or pioneering different clinical approaches. can bring about changes in the ecosystem.
Third, the maturity of the healthcare sector in a country can be seen in the relative weights of these dimensions – private investment is skewed towards quality and leadership in the relatively nascent and underdeveloped healthcare sector, followed more slowly towards access and affordability. Slow change occurs as the field matures. We are seeing this trend in emerging markets in South Asia and Africa. India, interestingly, presents both opposite trends, with large urban-focused private operators and investors alike wary of expanding into smaller towns and rural markets due to high cost structures and limited availability of talent. Addressing this will require an active private-public collaboration and the use of catalytic capital to create last mile access and demonstrate a viable ‘hub and spoke’ model.
Last but not the least, the need for continued focus on both Human Resource Development and ESG (Environmental, Social and Governance) standards is important. For both clinical and non-clinical staff, India lags behind the prescribed per capita requirement, which constrains growth, and drives down costs especially in non-urban areas where the workforce gap Too much. Furthermore, healthcare is among the few sectors that favor high female workforce participation and offers further opportunities to advance quality economic access. In our experience, a strong independent board is critical to driving these ESG initiatives and building a sustainable healthcare organization.
The next decade could be transformative for Indian healthcare, as favorable regulatory push and technology adoption lead to better access, affordability and focus on primary, preventive and chronic care. Digitization, in particular, can have a significant favorable impact on both patient engagement and operating cost structure. Given India’s unique characteristics and strengths, it would not be unimaginable to see a leading technology-based affordable healthcare model emerge from India – or even see it become a medical hub for the world.
Srini Nagarajan is the Managing Director and Head of Asia at British International Investments, and Abir Seth, Investment Manager with a focus on Healthcare and Consumer at British International Investments
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