Although most people are averse to relating healthcare with commerce, if a hospital is run efficiently as a business, it translates into better care and faster healing for the patient
At a traffic junction a shabby man in his forties knocked on my car window begging for some money. The
man was well built without any significant disability or disease, but a bandage wrapped around his knee, which looked like a small abrasion. The internal lawyer in my brain started arguing that this guy should work and should not indulge in begging. Requesting him to move ahead, I moved away from him and started glancing through the news paper only to hear a loud thud. As I looked back, the beggar was lying on the road with a classical epileptic seizure. Immediately there was commotion around, with gullible people looking for iron rods and water, both of which could spell disaster on the victim. I knelt down to ensure his breathing is facilitated. I could succeed in convincing others not to feed him water or push keys into his mouth to avoid him biting the tongue. Knowing that this would last few minutes and he would recover, I provided the possible comfort of my lap. He was up on his feet (for begging?) within ten minutes. By now the crowd had thinned down, my driver was anxiously waiting beside the road next to a no-parking sign. I offered him a drop to a hospital, which he promptly declined and showed me a prescription which looked apt for his condition. I pulled two hundred bucks off my wallet and placed on his grateful palms and moved on.
Sitting in the car I thought for myself. Ten minutes back, I declined to give him even a single rupee, only to turn around and throw two hundred bucks later. What an incredible transformation! That’s the way the human mind works. Our actions and reactions become emotional when it comes to the life and health of people. And hence talking about the nitty-gritties of a hospital business could probably seem inappropriate. If I ask a layman, "In a hospital, should I suggest investments and facilities that are good for patient care or those that are good for the business," the obvious answer will be the former. It makes sense when we do not consider the externalities of such endeavors. Like any other business, if doctors do not chase wealth within the framework of ethical guidelines, we wouldn’t have seen advent in healthcare, improving our life expectancy from 30 to 45 during the dawn of the 20th century to current the 67+.
According to a reliable report, we need to build close to 80,000 hospital beds (to make it simpler, more than 1000 nursing homes/hospitals) in India to cater to current demand. Currently we have around 1.5 hospital beds per 1000 people, compared to 3.5 in Brazil, 3.6 in USA and 4.3 in England. Bare minimum, we have to double our beds at the earliest. The right way to go would be to have smaller nursing homes with quality care in suburbs and smaller towns. It has to be noted that the opportunity should be good for an organized effort in smaller towns since the average beds there per 1000 people is only 0.3! Having said that at the current per capita rural incomes, it is also a challenge to run a profitable hospital business in smaller towns.
Quality healthcare business can't be provided by cutting corners in healthcare delivery. Unlike other businesses, hospitals should adhere to prescribed standards and guidelines. Most of the successful facilities manage it by being intensive on volume rather than price. But for doctors, who need to learn to enjoy their endeavors over worldly pleasures, it wouldn’t have been possible for us to see current state of healthcare in India. One of the most common dialogues across the table among doctors is "are we paying the price for having secured high ranks in academics?" Most of them work all days of the week and hardly take long breaks, even during the vacations. This scenario is because most of the nursing homes and hospitals are built around a doctor who owns the place. Systems and services are built around his expertise, including management controls, which make his presence inevitable. With lack of checks on pilferage and lack of practice of delegation, they become dependent on him taking a toll on his lifestyle. You will be surprised at the statistics that show in India the top three corporate players in hospital business hold less than 3 percent market share!
Not many talented doctors wish to take the risk of a capital investment of five crores and upwards in smaller towns. Only an organized effort by bigger investors (non-doctors), who can efficiently manage the show, can fulfill our dream of doubling the hospital beds for our needy poor. The existing models based on volumes suggest that it is viable to have quality healthcare delivery in nursing homes and hospitals in most of the smaller towns of India. Maybe it is time to explore a transparent and sustainable model in which the partial stake is held by local doctors who look into only medical aspects, while managers go about doing their job. The corporate organization that creates faith in doctors in this direction is likely to be highly successful.
The medical business is very peculiar in many ways. Let's take a few examples. When we buy a soap from a grocery shop, we almost know about the product and its use perhaps better than the shopkeeper. When we buy a television set or washing machine (consumer goods) we have a fair amount of idea about what we wish to buy, but get assistance from the seller and choose our product. When we buy a very fancy car that is available only in a few metros, probably we know everything about it. We take the trouble of traveling all the way to the showroom and buy it. In these circumstances we buy it on the advice from the seller or our family members. Contrary to this, our body is so complicated, almost every time we go to the doctor, we need to surrender to him. We have not the slightest idea of what is ideal for us. The other aspect of this transaction is the decision-maker—the doctor usually only recommends the medicine but its sold by a third party. The consumer has to purely trust the doctor's advice and purchase the product or service or resort to another expert, in this case another doctor. This ambiguity leads to a lot of misconceptions and lack of faith. So, if a corporate organization can create a strong image of faith by joining hands with local doctors, a successful business can be woven around smaller towns across India.
The good thing about the hospital business for people is that though outpatient facilities don't yield any significant profits to the hospitals, they are inevitable. A strong outpatient department is the base for any successful hospital. The main source of revenue for hospitals is from procedures. The procedures could be diagnostic, surgical or rehabilitating. A monthly average of 400 procedures (in two or three operation theatres and a labor room) make the hospital highly profitable. As a rule of thumb, a monthly income of close to 40 lakh should be the target to achieve at an operating cost of close to 25 lakhs by the third or fourth year of operation. This is achievable if the center has an out patient inflow of around 200 patients everyday. Unlike the popular belief, a shorter stay for a patient in hospital is monetarily beneficial to both, the patient and the center. An average stay is around 3.5 days per patient. The goal should be to discharge the patients earlier with good management practices and prompt care. All the hospital equipment needs to be amortized in four to five years. A substantial amount needs to be earmarked as an amortization cost to fund equipments worth Rs 1 to 1.5 crores based on the facilities provided. If efficiently managed, the business can be still hugely profitable at 50:50 debt equity ratio.
It is desirable to see more and more investors venturing into the hospital business with an organized, professional approach. They need to create a congenial atmosphere for doctors to enjoy their work.
Dr Hrishikesh Damle
Dr. Hrishikesh Damle is a first generation entrepreneur. He is CEO of Atrimed, a pharmaceutical company. To write to the author, please send an email to dare@cybermedia.co.in with the subject line
'Dr. Hrishikesh Damle'.
Disclaimer: The views expressed here are that of the author and do not represent the magazine's.
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