Healthcare Needs Patient Capital

Contrary to the size of the country and its disproportionate disease burden, provision of healthcare remains largely inadequate with high regional disparities and inequitable access. Healthcare services have attracted around $7 billion of private equity investment in the past decade, but less than a third has gone into new capacity additions; the rest are secondary transactions where investors have secured exits. Even so, compared with the estimated capital need of at least $35 billion over the next decade to bring India close to the World Health Organization (WHO) prescribed minimum per capita hospital bed, it is not enough. This gap may have to be covered, primarily, by the private sector, because the government is increasingly transitioning to the role of an insurance payer through Ayushman Bharat and similar state schemes.

Through our investment journey in this sector, we have identified four clear lessons on investing in healthcare.

First, healthcare delivery is a long-gestation play. It takes time for an operator to establish clinical prominence and franchise value. This is important because we see consistently that medical excellence trumps convenience, with patients preferring to travel to superior medical centres regardless of cost, whether financial or physical. This long-term outlook requires a patient investor that can align its investment horizon or provide flexible risk-weighted capital in order to achieve value and the best outcomes for patients. Operators must build deeper regional presence and clinically tiered ‘hub and spoke’ models to optimize their returns.

Second, as healthcare is an important societal need, profit and purpose are deeply entwined. Navigating this isn’t always easy for investors, so our institution developed a framework in partnership with experts at Imperial College, London to measure the impact a provider can create. The impact could be across four key dimensions —access, quality, workforce and stewardship. By using this framework, operators can either work towards improving equity of access and making quality care affordable at scale for patients or bring in a systemic ecosystem change by developing their workforce or pioneering different clinical approaches.

Third, the maturity of the healthcare sector in a country can be seen in the relative weightage of these dimensions—private investment is skewed towards quality and stewardship in a relatively nascent and underdeveloped healthcare sector, followed by a gradual shift towards access and affordability as the sector matures. We see this trend playing out in emerging markets in South Asia and Africa. India, interestingly, presents both contrasting trends, where large urban-focused private operators and investors alike remain apprehensive of expanding in smaller towns and rural markets on account of a high cost structure and limited availability of talent. Addressing this will require an active private-public collaboration and the use of catalytic capital to build last-mile access and to demonstrate viable ‘hub and spoke‘ models.

Last but not the least, the need for continued focus on both human resource development and ESG (Environmental, Social, and Governance) standards is vital. For both clinical and non-clinical staff, India lags the prescribed per-capita need, which constrains growth, and skews costs especially in non-urban areas where the workforce gap is much higher. In addition, healthcare is among the few sectors, which is favoured with a high women workforce participation and gives an opportunity to advance quality economic access further. In our experience, a strong independent board is key to driving these ESG initiatives and building a sustainable healthcare institution.

The next decade could be transformational for Indian healthcare, as favourable regulatory push and technology adoption leads to improved access, affordability and focus on much needed primary, preventive and chronic care. Digitization, in particular, could have a significant favourable impact on both patient engagement and operating cost structures. Given India’s unique characteristics and strengths, it would not be implausible to see a pioneering technology-led affordable healthcare model emerge out of India – or even see it becoming a medical hub to the world.

Srini Nagarajan is Managing Director and Head of Asia at British International Investment, and Abir Seth, Investment Manager focusing on Healthcare and Consumer at British International Investment