14 December, 2010 Pankaj Vaish Pankaj.Vaish@religaretech.com

Seminar on FOSTERING HEALTH FOR ALL

Panel Discussion II: Evolving Innovative Investment Ecosystems in Healthcare

Agenda

The Healthcare Provider Ecosystem

Indian Healthcare Sector: Challenges or Opportunity

Financing in Healthcare Sector

Solutions and Resolutions

Medical Technology/

Equipment

Land/ Building

Information Technology

OPEX

Talent/ Medical

Consumable/ Marketing

Healthcare Provider Ecosystem

2

INDIAN HEALTHCARE SECTOR CHALLENGES OR OPPORTUNITY

Indian Healthcare Sector: Challenges or Opportunity

Physical Infrastructure • At 5.1 % of GDP spend Indian healthcare spending is the lowest globally

• 0.86 beds/1,000 population against a world average of 2.61 and WHO norm of 3.9 beds/ 1,000 population

• 1 mn deaths / year due to lack of adequate healthcare establishments

• The share of healthcare spend by private sector is 80% and that of the public sector is 20%

Health Insurance • 80% expenditure borne by the patients

• Health insurance a mere 3%; State bears 12%

Medical Personnel • 2.1 doctors and nurses/ 1,000 population against a world average of 4.8

1.2 physician against world average of 1.5 (out of 1.2 only 0.6 are allopathic physicians)

0.9 Nurses against world average of 3.3

Unequal Distribution – the urban versus rural divide • Over 700 mn people have no access to specialists care

• 80% of the specialists live and work in urban areas

4

PWC Healthcare Report 2007

Indian Healthcare Sector: Challenges or Opportunity

As per the Government of India’s (GOI) National Rural Health Mission (NHRM) Document (2005)

• Only 10% of Indians have some form of health insurance and mostly this is inadequate

• Around 40% of Indians have to borrow money or sell their assets to meet their healthcare expenses

• Nearly 25% of Indians slip below the poverty line because of hospitalization due to a single bout of illness

5

Indian Healthcare Sector: Challenges or Opportunity

Exponential growth potential • Same as what the software industry has seen in the past decade

• Indian healthcare currently at $ 38 bn is expected to cross $77 bn by 2013 and touch $ 310 bn by 2023 – CAGR of 15% for the next 15 years

• Will generate over 9 mn jobs by 2012

• India needs to add 3.1 mn beds by 2018 against the existing 1.1 million and that alone means an immediate injection of $82 bn

Drivers for Growth • Growing population – @ 2% growth will reach 1.6 bn and cross China by 2050

• Increase in income level – today over 200 mn Indians have a PPP adjusted income of over $ 100,000/ annum

• Rise in Diseases – come back of diseases like TB, Dengue, Hepatitis, Malaria, Tuberculosis; High lifestyle diseases – Obesity, Diabetes, Hypertension, Cancer

Medical Tourism • Becoming a high quality low cost medical destination

• Likely to grow at 30% to touch 2 bn by 2012

6

Technopak Advisors; VVC Circle; Indian Brand Equity Foundation 2009 Study

Indian Healthcare Sector: Uniquely Positioned

The IT Perspective

Four Megatrends that will drive Indian IT

• Growth of Asian economies will contribute 20% of global GDP by 2020 (up from 10% today)

• Reduced working population in North America, Europe, China and Japan will push IT to India

• Healthcare will present one of the biggest business opportunities because of the rising aging population in the developed nations

• 80% of the growth will come from BRIC and new industry segments namely Healthcare, Public, Utility and Media

Using mobile technology to bridge the socio-economic and health divide

• Tele-medicine, tele-traiage, tele-assessments

• Preventive and informative care, remote monitoring, wellness education

7

NASSCOM 2020 Perspective Report

INDIAN HEALTHCARE SECTOR FINANCING OPTIONS

Means of Financing

External Commercial Borrowing

Long Term Bank Loan

Individuals (NRI)

Taxation

Private Equity Funds: Growing Business

Venture Capitalist: Seed Investments

Foreign Direct Investment (FDI)

IPO

• Healthcare despite of increased funds has attracted very few investors • FDI: Very few investments made in spite of government’s policy for

allowing 100 percent FDI in hospitals • PE Funds: Investing in emerging markets like Wellness, Biotech, Medical

Devices, Clinical Research Organization and Diagnostics • Pharmaceutical sector enjoys about $0 % of deals • Hospitals accounts for 24 % • 58 domestic PE Funds with $6 bn consider healthcare as an area of Interest • 22 deals in 2009 with a total announced value of $ 237 mn

9

Investor Perspective: Issues and Challenges

Deficient Government Regulations, Governance Structure and Protocols

Capital Intensive – Longer gestation period with breakeven period of 5-6 years for a new hospital

Low Health Insurance Coverage

Shortage of Manpower and Medical Talent

Accountability Issues

10

INDIAN HEALTHCARE SECTOR SOLUTION AND RESOLUTION RECOMMENDATIONS

Healthcare Ecosystem

• Affordable for small and mid level hospitals

• Pay per use Model: SaaS Model, Subscription Model, Smart Cards that carry patient history

• Offer better career options to retain work force

• Stop talent drain to the west • Improve Training Infrastructure • Consumable Group Purchase

• Public Private Partnership • Lease/ Auctions • Higher Floor Space Index/

Floor Area Ratio

• Group Purchase for High Technology Cost

• OEMs adopt Pay per use Models to reduces patient bill

• Implement PPP model Medical

Technology/

Equipment

Land/ Building

Information Technology

OPEX

Talent/ Medical

Consumables/ Marketing

ROI

12

How to Attract Investors

Rationalize Project Cost • Project Set-Up Costs have the following cost mix:

Land 10 -15 %

Building 25 %

Medical Equipment 40 %

Other (IT, Staff) 20 %

• Look at innovative low cost models

• A careful medical technology purchase as it constitute about 30-40 % of the CAPEX

Opex Cost • Better management and a close monitoring of the functioning of the hospital

• Better process management techniques and more accountability

• A better ROI

More investment should go into R&D in order to reduce technology cost

13

Improving the Delivery System: Summary

Reducing Costs

Cost reduction across the eco system (Land, Building, Equipment, OPEX)

PPP Model

Shift from curative to preventive healthcare

Manpower Training

Investments in Technology R&D: Indigenous

Empowering the Patient

Affordability: Insurance Schemes for low socio-economic groups

Accessibility: To Private and Public Systems

Reach: Penetrate into tier II and Tier III cities and rural parts of the country

14

Thank You