Hospitals

Power Pack

1
• Market Size and Growth :3

• Hospital Classification :5

• Challenges and Growth Enablers : 15

• Revenue and Operating Mix : 24

• Business Models : 31
Market Size and Growth
 Indian Healthcare delivery market is expected to grow at a CAGR of
14% between 2016-17

HEALTHCARE DELIVERY MARKET

Rs. 9,350
bn

Rs. 4,850
bn

Source: Crisil Research

Note: Healthcare Delivery market does not include the expenditure of
phramaceutical drugs.
Hospital Classification
CLASSIFICATION OF HOSPITALS

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 CLASSIFICATION OF HOSPITALS

Primary care/dispensaries/clinics

•Primary care facilities are mainly outpatient units that offer basic, point-of-

contact medical and preventive healthcare services.

•These units do not have any intensive care units (ICUs) or operation theaters.

• These act as first point of contact in the healthcare system where patients

come for routine health screenings and vaccinations.

•Primary care centers also act as feeders for secondary care/ tertiary hospitals,

where patients are referred to for treating chronic ailments.

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 CLASSIFICATION OF HOSPITALS

Secondary care

•Secondary care facilities diagnose and treat ailments that cannot be treated in

primary care facilities.

• These act as second point of contact in the healthcare system.

•There are two types of secondary care hospitals - general and specialty care.

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 CLASSIFICATION OF HOSPITALS

General Secondary care Hospitals

•A general secondary care hospital is the first hospital a patient approaches for
common ailments.
•It typically attracts patients staying within a radius of 30 km.
•The essential medical specialties in general secondary care hospitals include
general surgery, gynecology, pediatrics, ENT, orthopedics and ophthalmology.
• Such a hospital will have one central laboratory, a radiology laboratory and an
emergency care department.
• Generally, secondary care hospitals have 50-100 in-patient beds, a tenth of which
are in the ICU.
•The remaining beds are equally distributed between the general ward, semi-
private rooms and single rooms.
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 CLASSIFICATION OF HOSPITALS

Specialty secondary care hospitals

•These hospitals are typically located in district centres, treating patients living
within a radius of 100-150 km.
•These hospitals usually have an in-patient bed strength of 100-300, 15 per cent
of which are reserved for critical care units.
•Apart from the medical facilities offered by a general secondary care hospital,
specialty secondary care hospitals treat ailments related to gastroenterology,
cardiology, neurology, dermatology, urology, dentistry and oncology.
•Diagnostic facilities in a specialty secondary care hospital include a radiology
department, a biochemistry laboratory, a haematology laboratory, a
icrobiology laboratory and a blood bank.
•The hospital also has a separate physiotherapy department.
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 CLASSIFICATION OF HOSPITALS

Tertiary care

Single-specialty tertiary care hospitals

•Tertiary care hospitals provide advanced diagnostic services and treatments.

• A single-specialty tertiary care hospital mainly caters a particular ailment
(such as cardiac ailments, cancers, etc).
•Prominent facilities in India include the Escorts Heart Institute & Research
Centre (New Delhi), Tata Memorial Cancer Hospital (Mumbai), HCG
Oncology (Bengaluru), Sankara Nethralaya (Chennai), National Institute of
Mental Health & Neuro Sciences (NIMHANS, Bengaluru), and Hospital for
Orthopaedics, Sports Medicine, Arthritis and Trauma (HOSMAT, Bengaluru).

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 CLASSIFICATION OF HOSPITALS

Tertiary care
Multi-specialty tertiary care hospitals
•Multi-specialty tertiary care hospitals offer all medical specialties under one
roof and treat complex cases such as multi-organ failure, high-risk and trauma
cases.
• Most of these hospitals derive a majority of their revenues through referrals.
•Typically, such hospitals are located in state capitals or metropolitan cities and
attract patients staying within a 500 km radius.
• The hospitals have a minimum of 300 in-patient beds, which can go up further.
• About one-fourth of the total beds are reserved for patients in need for critical
care.
•The medical specialties offered include cardio-thoracic surgery, neurosurgery,
nephrology, surgical oncology, neonatology, endocrinology, plastic and cosmetic
surgery, and nuclear medicine.
•Prominent examples of such hospitals include Lilavati Hospital and
Hiranandani Hospital in Mumbai, and NIMS in Hyderabad.

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 CLASSIFICATION OF HOSPITALS

Tertiary care
Quaternary care

•Quaternary care facilities are similar to tertiary care facilities and focus on

super-specialty surgical procedures (cardiac, neurological and

jointreplacements).

•These facilities also have in-house research departments, unlike tertiary care

hospitals.

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 CLASSIFICATION BASED ON OWNERSHIP

•Government-owned and managed: Brihanmumbai Municipal Corporation

hospitals, KEM Hospital and the Cooper Hospital (Mumbai), etc.
•Privately-owned and managed: Asian Heart Institute, Apollo Hospitals, Fortis,
etc
•Trust-owned and managed: Lilavati, Hinduja, etc
•Trust-owned but managed by a private party: Apollo Hospitals in Ahmedabad
is owned by a trust but managed by the Apollo Group, etc.
•Owned by a private player and managed by another private player: East Coast
Hospital, Puducherry is managed by Fortis Healthcare, etc.

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 CHALLENGES
AND GROWTH
ENABLERS

15
 India ranks much lower in key healthcare delivery infrastructure
parameters – Bed Density and Health Care Personnel.

HEALTH CARE DELIVERY INFRASTRUCTURE

HOSPITAL BED DENSITY HEALTH CARE PERSONNEL

Source: WHO World Health Statistics report

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 Healthcare spends in India still meager compared to the global
average.

HEALTH CARE EXPENDITURE AS % OF GDP

Source: WHO World Health Statistics report 2016

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 70% of the health care expenditure is done by individuals whereas
globally 60% of the health care expenditure is done by the government.

INDIA: HEALTH CARE EXPENDITURE AS % OF GDP

Source: WHO World Health Statistics report

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GROWTH DRIVERS

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POPULATION AND INCOME LEVELS

BREAK-UP OF BREAK-UP OF INCOME

POPULATION BY AGE LEVELS

Source: Census, Crisil Research

20
 Lifestyle-related illnesses or non-communicable diseases(NCDs)
have been increasing rapidly in India over the last few years.

CHANGE IN DISEASE PROFILE

Source: WHO Global burden of disease

21
 Though arrival of foreign tourists have trebled between 2013 to 2016,
predominantly the arrivals are from South Asia.

MEDICAL TOURISM
Foreign Tourist Arrivals By
Region (in %)

Source: Ministry of Tourism

22
 Costs of many serious ailments in India is lower by 60% to 80%
lower.

MEDICAL TOURISM : INDIA’S COST ADVANTAGE

Source: Industry
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 Revenue and
Operating Mix

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 Though 3/4th of the volumes of hospitals come from out-patients,
80% of revenues come from in-patients.

VOLUME AND REVENUE MIX

Volume mix

In-patient Out-patient
(25%) (75%)

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 KEY DRIVERS

• Surgeries and diagnostics

•Surgeries and diagnostics account for the bulk of revenues for most hospitals.
•The share of these verticals in total revenues differs across hospitals,
depending on pricing strategies and the emphasis on different specialties.

• Occupancy levels:
•Given the high fixed costs (equipment, beds and other infrastructure),
occupancy levels need to be commensurate for a hospital to break-even.
• Most large hospitals operate at over 65-70 per cent occupancy levels.
• The following factors can ensure high occupancy levels:
Good brand recognition
Reputed doctors

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A strong referral network
 KEY DRIVERS

• AVERAGE LENGTH OF STAY

•Large hospitals usually operate at high occupancy levels, but try to keep the
average length of stay (ALOS) short.
•This enables them to record higher utilisation levels and ensure that more
patients are treated at the same time.
Ailment-wise length of stay

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 KEY DRIVERS

• CONVERSION OF OUT-PATIENTS INTO IN-PATIENTS

•As per industry interactions, the OPD contributes almost one-third of in-

patient volumes in most hospitals.

•This phenomenon is especially evident during the initial years of operations

of a hospital.

• The OPD also acts as a feeder for a hospital's diagnostic/pathology centres

within the hospital premises.

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 DOCTOR ENGAGEMENT MODEL

• Hospitals generally operate on two models:

•Model I - Under this model, hospitals have 100 per cent doctors on its pay roles

(Resident doctors).

•Model II - Hospitals generally follow a mix of resident and visiting/consulting

doctors. Under Model 2 the consulting or visiting doctors share the revenue

earned by the hospital.

• Large hospitals in the country typically follow Model II.

• Even the mid-sized hospitals in the India (100-400 beds) have visiting doctors

and consultants.
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 OPERATING METRICS

• BOR (Bed Occupancy Rate)

•APROB ( Average Revenue per Occupied Bed)
• Ailments/Case Mix
For a multi-specialty hospital, this denotes the mix of treatments related to
cardiac, orthopedics, neurology, oncology and ophthalmology.
A higher share of complex treatments in the case mix helps to increase
revenues.
• Surgery/medical mix
 This ratio denotes the number of surgery patients to medical patients.
 Having a higher number of surgical patients means that the average billing
per inpatient is higher.
• Other Revenue Streams
 Proportion of revenues from Diagnostics, Pharmacy, F&B.
 Business Models

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• Expanding in tier-II and III cities through primary and secondary hospitals

• Operation and maintenance contract

• Medicities (one-stop shops)

• Franchise arrangements

• Day care Centers

• End of Life Care Centers

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LEASE CONTRACTS
•In the hospitals sector, the ownership model has become a costly affair because
of the sharp increase in land prices, especially in metros and tier-I cities, over the
past few years.
• This has compelled private players to look for other models such as lease
contract.
•In a lease contract, the land owner develops the hospital building as per
specifications given by the private player, and then the private player enters into
a long-term lease agreement with the land owner.
For example, Apollo Hospitals has acquired land and a building on lease
from Orient Hospital, Madurai for a period of 60 years.

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Expanding in tier-II and III cities through primary and secondary hospitals

•Private players are now

foraying into tier-II and III cities
as income levels in these cities
are fast catching up with metros
and tier-I cities.
• This will increase the demand
for quality healthcare services.
• For Example: Apollo
Hospitals expanded into tier-II
cities such as Nellore through
its 'REACH‘ initiative as well as
open a super speciality hospital
in Vizag and Patna.
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Operation and maintenance contract
•Under an operation and maintenance (O&M) contract model, a large private
player (or a hospital chain) undertakes a contract for managing a standalone
hospital and overseeing functions like marketing, operations, finance and
administration.
•In return, the private player receives a fixed annual management fee and a
share in revenues or profits from the standalone hospital's owners.
•Apollo and Fortis have entered into such contracts to expand their base in
India. For e.g., Fortis has entered into an O&M contract with Cauvery
Hospital in Mysore.
•Apollo has 14 hospitals under the O&M model mostly across the northern
states.
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Medicities
•Medicities are an integrated Some planned and operational
township of super-specialty medicities
hospitals, diagnostic centers,
medical colleges, R&D, ancillary
and subservient facilities.
•The concept of medicity is based
on models already operating in
countries such as Scotland, the US,
France, Algeria, etc.
•However, the success of a medicity
would depend on its location and
the ability attract more in-patients.
•Due to large land requirements,
health cities are often situated in the
outskirts of a city.

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 FRANCHISE ARRANGEMENTS

•In this model, the franchisees obtain the premises (owned or leased) and bring in

the capital (both fixed and working) while the franchisor lends the

•brand name to the healthcare facility for a fee.

•The franchisor has to ensure that the service quality is maintained across all

healthcare centres that use its brand name.

•The franchisor may also help the franchisee in training and recruiting staff,

procuring equipment, designing the facility, etc.

•In India, a prominent example is Apollo Hospitals which franchises its primary

clinics.
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 DAY CARE CENTERS

•The objective of day-care centres is to reduce the need for overnight hospitalisation.
•In this type of setup, a patient is allowed to go home on the same day after being
treated.
•These centres have also given rise to the concept of outpatient surgeries.
•While this model is very popular in the eye care segment, other segments such as
arthroscopic surgery, general surgery and cosmetic surgery have also been using
this as a popular care delivery model.
•The advantage of day-care centre model is that patients can save on bed/room
rentals associated with overnight hospitalisation.
•The healthcare units, on the other hand, can have a streamlined setup with
optimum equipment, staff and infrastructure which helps bring down operational
costs.
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 End-of-life care centres

•The objective of end-of-life care centres or hospices and palliative care centres is to
provide care and support to patients who are suffering from terminal illness with
life expectancy of six months or less.
•Hospice and palliative care focuses more on pain management and symptom relief
rather than continuing with curative treatment.
•These centres are designed to provide patients a comfortable life during their
remaining days and cover physical, social, emotional, and spiritual aspects apart
from the medical treatment.
•Such type of care can be delivered onsite, where special facilities are set up, in the
hospital premises or at the patient's home.

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