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Monday, 02 Jun 2014
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Funding models have to be mixed - public and private
A recent report by PwC stated that India will need to add at least 6,50,000 beds by 2017 at a capital investment of Rs. 1,62,500 crore. Do you feel this is an achievable task?

I think it's a very huge target. It is also important to understand that though we may have absolute number of this but the practice of punctual delivery is changing very rapidly. More and more procedures are becoming short stay of our day care kind of procedures. If you look at the WHO recommendation of our population to that ratio there can be shortage to check this in the country. However, the number of beds required in future is going down and the second point that is to be considered is that there is lot of infrastructure in the country,

Dr.Ashutosh Raghuvanshi
MD, Vice Chairman, Group CEO, Narayana Health

which is suboptimal or inadequate and at the same time there is some infrastructure where beds exist but the manpower is not there. In the private sector, sometimes there are beds existing but the patents are not there. So I feel that this target is pretty difficult to achieve and the problem is not strictly just adding beds but also having those beds to be managed to deliver care.


All field reports just look at the number of beds which need to be created, but that's not going to solve the problem quickly. You yourself think about Rs. 1,62,000 crore; you can imagine that kind of resource is not available - so I feel that this is the task which is very difficult to accomplish.


With huge capital investments required to improve & expand healthcare infrastructure nationwide, which financial (funding) model is most suitable?


As this is a very huge target so any one entity will not be able to fulfil this kind of gap. So when I say entity I won't necessarily mean company but what I mean there is a government or private sector, either one of them on there


own cannot bridge this gap. So the funding models in my opinion have to be mixed models of public and private. I think where the government goes wrong is that they spend small amounts of money obviously on the research part and most of money goes in paying salary and sometimes constructing buildings and also buying equipment. I believe the best financial model to achieve this kind of growth would be one where majority of infrastructure related funding comes from public sector and the private sector is maintaining and managing it. Those are the models which would be financially sustainable in the long term.


Although economic surveys claim that India spends around 4.1 per cent of its GDP on health, the fact is that 70 per cent of it is from people's own pockets or private spending, which means the government spends barely one per cent on health. Comment.


Yes you're absolutely right. The government spending is pretty low though they have committed more than one per cent -- about 1.4 per cent. As you rightly said, it is correct. 70 per cent of the expense comes out of the pocket. So, unless there are services which people can afford, this problem is going to remain. And I think, other than that, even if we take our expenses to four per cent of the GDP - it would still be inadequate to take care of the healthcare needs.


Going forward, do you feel most of the healthcare infrastructure improvement & expansion will be from the private sector vis-à-vis the public sector?


Going forward, I believe that the private sector is the one which would be driving this industry. We believe that the infrastructure consequently as competitive concern should be doubled up by the government or at least supported by the government, and the private sector should concentrate more on operating this segment rather then forgetting that.


Critics claim that most private sector healthcare infrastructure is only focused towards profit maximization and therefore unaffordable to most of the poor or even middle-class citizens. Comment.


I think this observation is partly true and unfortunately in any industry or any kind of transaction when there is scarcity, usually people who deal in that commodity will exploit that situation - this is precisely what is happening in healthcare in India as well.


Because there is no kind of organised health delivery system people have to look for themselves for primary care or secondary care. It depends on their own decision making mechanisms and they sometimes may not have adequate information. Therefore, they end up going to wrong places. As a result of that, the cost keeps going up for individuals. Many times people come to our kind of centre and they have spent all the money doing diagnosis - there is no money left for treatment. So this is the real problem and saying that the private sector is not looking for profits would be probably wrong. If somebody is investing money they would obviously expect adequate returns. For the industry's growth it is important that it is profitable - so we believe that as far as the costs or affordability are concerned that should be taken care of by scale.


Ideally, the model for a country like India which is with low resources, where infrastructure is created by public sector mainly - but sustained and maintained by private sector, that kind of collaboration managed by the public and private is the winning formula in our opinion. The majority of infrastructure still in this country is in the public sector which is in the government hospital. I believe that about 30 to 40 per cent is coming from these small nursing homes, which is five beds, two beds or ten beds kind of facilities. So they make a large number of that, but the proper organised corporate kind of hospital is barely 8 per cent of the infrastructure.


With public healthcare system failing due to inadequate funds, do you feel the Narayana Health model of quality healthcare at affordable costs is the way forward?


Absolutely we have strongly always advocated to create a scalable model where the scale is big so you get economy of scale at the same time quality is of paramount importance. If it is in the large scale then it is possible to bring the costs down to a point where poor people can afford it. We believe that if you create the volumes, automatically even if you're per patient margin is lower the overall margin will be decent. There will be lot of cost saving on fixed infrastructure which you have to have in the hospital in any ways. Therefore if you serve a large number of patient overall you profitability is only going to go up even if your margin per patient is low. We believe that this is a good model and we have been doing definitely well with this model


Tell us about the future growth, expansion plans of Narayana Health?


Currently, we are present at 27 locations in India - both small and big centers put together. We have certain plans to grow at the rate of about five to six units every year for next three years that is our short term plan. It would take our bed strength to about 11,000 beds and in the next five years we want to reach about 17,000 beds.


What is current bed strength ?


Current bed strength is 6,900 beds


What will be capex required for the expansion?


It will be mix of debt equity and also some internal accruals. So we would typically spend around Rs. 50 crore per new center, we try to do a model where we will usually have partnership with some local developer. In this way, a part of physical infrastructure will come from the partner - this is our model for going forward.


What will be the total capex for the next few years for the expansion?


We are expected to spend about Rs. 800 crore in the next three years.

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