Private Equity and venture capitalists which were much dependent on healthcare funding space, are taking a relook at the business model put forth by many of the hospitals. There is a saturation of tertiary care and therefore hospitals are focusing at expanding into Tier II and III cities for which PEs and VC are yet to be convinced on the viability of model to fund the growth plans.
The healthcare sector is also bogged down by issues like lack of medical expertise leading to shortage of doctors and nursing staff, besides scarcity of managerial skills to operate to next level growth. It is not easy for the healthcare industry to scale up the business after it gets its first round of funds. There is also no single body on similar lines that of NASSCOM which could lobby for tax exemptions in hospital infrastructure on similar lines that of Information Technology sector, according to Aluri Rao, managing director, Morgan Stanley Private Equity.
Even if PEs and VCs cannot ignore healthcare, which is the largest in the sector after financial services is now looking at models which have a business structure that is viable to infuse funds, stated Rao, in a discussion on VC Circle RedHot Sector: Healthcare at an investment Forum 2011 held here in Bangalore.
Between 2008 and March 2011, the healthcare sector has increased its services and segment offerings. The expansion or was primarily driven by the growing affordability, accessibility to insurance and increased life expectancy. PE funds have backed business models in healthcare delivery equipment, biotechnology, pharmaceuticals and life sciences, Rao added.
In a panel represented by Rajen Padukone, Rajen Padukone, chief executive officer, Manipal Health Systems, Rajiv Vasudevan Founder& CEO, Ayur Vaid Hospitals, Dr. Ashwin Naik, Vaatsalya Healthcare and Dr S Chandra Kumar, managing director, Kavery Medical Centre and Hospital, Trichy, the experts highlighted the positive aspects of PE infusion that led to the growth of healthcare sector.
Going by the saturation of tertiary care a visible trend is the demand for high secondary care which attracts an affordable and accessible population in small towns. Tier II and III towns are becoming hubs for healthcare providers. There is no doubt that such fund infusions provide a business perspective to the medical centre’s operations, stated Dr Chandra Kumar.
Airing a similar view, Vasudevan stated said that PE in healthcare allows a business model to get refined. The biggest opportunities in the traditional medicine space is rehabilitation of patients suffering from stroke. In such cases more than access to highly qualified medical professionals is the regular availability of para medics to take care of such patients.
“Healthcare is an area which requires maturity in terms of understanding. There are issues like lack of doctors in districts and patient comprehension to plan a hospital in Tier II and II cities.
According to the Manipal Health Systems chief, strategically managed hospitals business could be profitable even for PEs. “Therefore, we need to meet the expectations of the investments from PEs and Vcs, ”he said.
According to a report by Venture Intelligence, PEs and VCs have invested over $2 billion in healthcare and life sciences companies in the country India over the last five years and are eager to accelerate the pace of investments.
Healthcare which is $65-billion industry in 2010 is projected to touch over $75 billion by 2012 and $150 billion by 2017, according to Technopak Advisors. The Confederation of Indian Industry estimates an annual investment of $50 billion into healthcare for the next 20 years and India needs to add 3.1 million beds by 2018 against the existing 1.1 million and that alone means an immediate injection of $82 billion.