2012 Section F
Group 4
[HEALTHCARE SERVICES] SERVICES] Analysis of the Indian healthcare services industry
INDEX 1.Introduction 2. Industry Industry Overview Overview 3. Major Players Players and their profiles profiles 4. Government Policies and Incentives 5. Key factors driving the the growth of Healthcare Healthcare Industry 6. Mergers Mergers and Acquisitions Acquisitions 7. Provisions for Healthcare in union budget 2012-13 2012-13 and its general impact: 8. Key financial performance performance indicators such as assets, EBITDA, PAT of major players 9. Recent events events related to industry industry 10.. Refe 10 Refere renc nces es
INDUSTRY ANALYSIS – HEALTHCARE INDUSTRY 1. Intr Introd oduc ucti tion on An industry with a combination of medical technology and human touch, the healthcare industry diagnoses, diagnoses, treats, treats, and administers administers care around the clock, responding responding to the needs of millions millions of people—from newborns to the terminally ill. The healthcare industry consists of the following segments:
Hospitals Hospitals – One of the biggest service providers in the healthcare industry, hospitals provide complete medical facilities ranging from diagnostic services, to surgery, to continuous nursing care.
Nursing and residential residential care facilities facilities – It provides inpatient nursing, rehabilitation, and health-related personal care providing a vast majority of direct care.
Home healthcare healthcare services services – This is the market segment providing skilled nursing and medical care facilities directly at home, under a physician's supervision.
Ambulatory Ambulatory healthcare healthcare services services – It includes outpatient care center and medical and diagnostic laboratories.
2. Indust Industry ry Overvi Overview ew
2.1 Evolution of Healthcare Sector in India
Changes in the healthcare service demand as well as requirements over the period of time has been shown below-
Years (Chronological Developments Developments in Indian Indian Market Market order) Till early 1970’s The he healthcare se services we were la largely go g overnment dr driven and mainly government hospitals were the only source for patients. It was considered as a charitable activity having tedious process for even simple procedures. From late 70s to early part There was an introduction of corporate activity with the of 90s opening of nursing homes. India started to grow and we started adopting technologies in providing services with having specialty and sub-specialty departments. Late 90s to date There ha has be been an an em emergence of of sp specialty ho hospitals an and
people require high standards of medical services. The sector is highly growth driven and people opting for new changes like health insurance etc.
2.2 Growth of Healthcare sector in India
In India the healthcare services market is expected to grow from US$35bn in 2008 to US$62bn by 2013. Reports show that market for healthcare service has compounded nearly 15% in the past 5 years. yea rs. This is mainly because of the increased level of awareness among people regarding health. A split of different areas of expenditure in healthcare shows that people are getting increasingly aware towards insurance and other facilities and three-fourths of the market is captured by the private service providers.
The projected growth of the market by 2022 and the increasing share of private service providers –
•
•
As a result of the increased growth, India having a current capacity of around 1.22mm beds, is estimated to require an additional 1.75mm beds by 2025, involving an estimated investment of US$75bn. In the private healthcare, around 61% of the expenditure is on outpatient care. Out of which 57% is on acute infectious diseases.
The increasing competition in the industry has forced players to explore new and innovative business models to tap into less-penetrated less-penetrated geographies as well as patient segments – •
•
•
Single specialty tertiary care hospitals, e.g. Healthcare Global Hospital chains solely focused on primary/ secondary care in Tier II/ III towns, e.g. Vaatsalya Provision of Healthcare cities, e.g. Dr Trehan’s Medicity
3. Major Players Players and and their their profil profiles es Major players in healthcare services can be divided into 2 categories – 1. Hospital Players 2. Diagnostic Service Players
3.1 Among the hospital service providers , following is the list of major players –
Company
CEO & Headquart ers
Sales (US $mm)
Chairman: Prathap Reddy Headquarters: Chennai
458.6
Business Description
Founded by Dr. Prathap C Reddy in 1983, as a 150-bed hospital in Chennai
Promote Promoterr (34%),
Larg Larges estt hosp hospit ital al chai chain n in Indi India, a, it also also operates neighbourhood diagnostic clinics, an exte extens nsiv ive e chai chain n of Apol Apollo lo Phar Pharma maci cies es,, medical BPO and health insurance services and and clin clinic ical al rese resear arch ch divi divisi sion ons s with with 53 hospitals (spread all over India and also in Mauritius and Bangladesh), over 8,500 beds, 1,050 pharmacies pharmacies and 100 neighbourh neighbourhood ood clinics
FII’s(24%),
CEO: Bhavdeep Singh Headquarters: New Delhi
219.9
97.2
Formed in 1996, was started by the promoters of Ranbaxy Laboratories
Second largest hospital chain in India with a pan India presence managing more than 51 hospitals and ~8,000 beds under management
Successfully completed acquisitions2005: Escorts chain of hospitals 2008: Malar Hospitals, Chennai 2009: Wockhardt hospitals
CEO: Nalla Palaniswami Headquarters: Coimbatore
29.3
Integrated healthcare company running a multi super-specialty hospital; part of Apollo group
Operates through Indraprastha Apollo Hospitals located in Chennai, Hyderabad, Kolkata, Ahmedabad, Bangalore, Bilaspur and Madurai
CEO: Sonjoy Mohanty
7.6
Integrated healthcare company running a multi super-specialty hospital; part of Apollo group
Operates through Indraprastha Apollo Hospitals located in Chennai, Hyderabad, Kolkata, Ahmedabad, Bangalore, Bilaspur and Madurai
Fortis Healthcare Hold Holdin ings gs Ltd. Ltd. (81%)
Promote Promoterr (51%),
group group
Corporate bodies (18%)
As of March 31, 2009, had performed around 2,000 cardiac surgeries, 400 joint replacements, 1,000 onco surgeries, 90 liver transplants and 135 renal transplants
Foreign corporate bodies (21%)
Alliance with international partners such as Aetna, Bupa, Cigna, GMC Services, HTH Worldwide, Vanbreda, World Access & Surgical Tourism (Canada)
group group
Alliance with AIG, ALICO, Vanbreda, Seven Corners, Corners, Internation International al SOS, GMC services, services, Emergency Emergency assistance assistance (Japan), (Japan), Companion Companion Global Global Health Healthcar care, e, Intern Internati ationa onall Claims Claims Service and Prestige International
CEO: Jaideep Gupta Headquarters: New Delhi
Key Investors
Promote Promoterr (51%),
group group
Corporate bodies (18%)
As of March 31, 2009, had performed around 2,000 cardiac surgeries, 400 joint replacements, 1,000 onco surgeries, 90 liver transplants and 135 renal transplants Operates in two segments: Ayurveda
Promote Promoterr (59%)
group group
Headquarters: Alwaye
MD: Amar Agarwal Headquarters: Chennai
Chairman: Devi Prasad Shetty Headquarters: Bangalore
Chairman: Ramdas Madav Pai Headquarters: Bangalore
Chairman: P. Namperumalsamy Headquarters: Madurai
Chairman: B. Soma Raju Headquarters:
business & healthcare services and software business
19.8
N/A
~110.9
N/A
N/A
Introduced formulations such as Kashaya to Kashayam Tablets, medicated oils to creams and formulations for treating diabetes, namely Trikantika Thailam, Kathakhadiradi Kashayam
Subsidiaries include Ayurvedagram Heritage Wellness Centre Pvt. Ltd., Ayu Natural Medicine Clinic, PS., Ayurvedic Academy, Inc., Ayu, Inc, KatraSoft Europe GmbH and CMS Katra Holdings, LLC
Engaged in operating eye care hospital
Services provided include intralase surgery, zyoptix / lasik laser, cataract surgery and phaco / zyoptix laser
In 2008, the company started 14 new hospitals in Tamil Nadu and Andhra Pradesh
Formed in 2001, was started by renowned cardiac surgeon Dr. Devi Shetty
One of the largest hospital chains in India with a pan India presence managing more than 35 hospitals and ~5,000 beds under management
Services offered include cardiology, paediatrics, neurology, gastroenterology, general surgery, dental, nephrology, urology, transplants, nuclear medicine, medical imaging and radiology
In Feb 2008 J.P. Morgan Partners and AIG Capital Partners made a combined INR4.0bn ($80mm) investment for a 25% stake in the group
Formed in 1953, was started by Dr. T.M. A. Pai as part of a university and healthcare township at Manipal
Provides tertiary, secondary and primary healthcare delivery services with 15 hospitals, 9 primary care clinics and 55 community health programs, 7 rural maternity and child welfare homes including ~ 3,700 beds under management
Provides services in cardiovascular, neurology, nephrology, oncology, urology, dental science, metabolic disorders, andrology & various other diagnostic services
Formed in 1976 by Dr. G. Venkataswamy with an 11 bed hospital opened in Madurai
Comprises of 5 hospitals with ~3,600 beds under management, 3 managed eye hospitals
2.5mm outpatient visits and 300,000 operations performed in 2009–10 with twothird of the outpatient visits and three-fourth of the surgeries serviced to the poor, free of cost
Formed in 1992, was started by Padmashri Dr. B. Soma Raju
Promote Promoterr (53%),
group group
Corporate bodies (9%)
J.P. Morgan Capital Partners AIG Global Asset Management
Kotak otak Privat ivate e Equi Equity ty Grou Group, p, Manipal Educ Educat atio ion n and and Medi Medica call Grou Group p International India Pvt. Ltd
N/A
Ashmore Investment Management
Hyderabad
CEO: Pervez Ahmed Headquarters: New Delhi
112.2
Comprises of 12 hospitals with ~1,400 beds under management, ~200 doctors and ~5,000 support professionals and ~45,000 patients treated in 2006–07
Services offered include cardiology, nephrology, chest diseases , neurology, emergency medicine and critical care, digestive diseases, oncology and orthopaedics
In Jan 2008, Ashmore Investment Management made a INR900.0mm ($23mm) investment to purchase a 19% stake in CARE Hospitals
Operates eight facilities (with 1,100 beds) in Delhi & NCR (National Capital Region), offering services in over 30 medical disciplines
Collaboration with Singapore General Hospital in the areas of medical practices, nursing, paramedical, research and training
Four new facilities to become operational by 2011: Max Hospitals in Bhatinda, Dehradun, Delhi, Mohali
Limited, N Prasad, Rakesh Jhunjhunwala
Max Max Indi India a Ltd., Ltd., Warburg Warburg Pincus, Pincus, LLC International Finance Corporation
3.2 Some of the major diagnostic service players are –
Company
CEO & Headquart ers CEO: Sanjeev Chaudhry Headquarters: Delhi
Chairman: Arvind Lal Headquarters:
Sales (US $mm)
Business Description
Founded in 1996, is the largest pathology laboratory network in India, servicing nearly 4,000 hospitals / path labs comprising over 50,000 doctors
Performs over 34,000 tests/day and caters to approximately 8 million patients in a year offering a comprehensive range of over 3,500 tests covering 95 technologies
Geographic footprint extends to Gulf countries, UK and SAARC
In July 2010, acquired Piramal's dignostic business for INR600mm (US$129mm), combined entity to have 170 dignostic centers serving more than 12 million customers
Established in 1949, is one of the largest diagnostic service provider in the country
N/A
N/A
Key Investors Fortis Healthcare Ltd., Religare Enterprises Ltd.
Sequoia Capital India,
Gurgaon
Chairman: Ajay Piramal (pre acquisition) Headquarters: Mumbai
N/A
CEO: Sushil Shah Headquarters: Mumbai
25.4
Offers more than 1,650 different t ypes of tests and has a pan India presence in all important cities and towns of India, in the form of laboratories and patient service centres
Employee strength of over 1,000, serves around 4 million customers every year
In August 2010, TA Associates bought a 16% for $35mm, also Sequoia capital holds 16% stake in the firm
Has 124 diagnostic centres over 85 cities and over 00 collection centres visited by more than 9900 patients per day
Offers a comprehensive range of tests in radiology, spanning X-ray, ultra sound, colour dooplers, mammography etc.
Founded in 1981 is one of t he largest laboratory chain
Service includes clinical laboratory machine, radiology and image services, hospital laboratory management and central laboratory services for clinical trials
TA Associates Inc.
Super Religare Laboratories
Warburg Pincus LLC, Sushil Shah
GOVERNMENT GOVERNMENT POLICIES & INCENTIVES
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Infrastructure status conferred on healthcare industry
•
Budgetary allocation to healthcare –Rs 62 billion (USD 1.51 billion)
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40 per cent depreciation limit on medical equipment imports
•
•
•
Income tax exemption for the first 5 years, to 100 bed hospitals set up in rural areas Reduced duties (between 5–8 per cent) on certain medical equipment and devices Customs duty exemption on specific personal medical aids like crutches, wheelchairs, walking frames, artificial limbs
•
Customs duty, excise duty and CVD exemption on specific medical devices such as talking books, Braille computer terminals, etc.
Regulatory Authorities
• • • • • • •
Poor supervision of small scale manufacturers Weak penalties for making and selling fakes and sub-standards India does not have list of essential drugs No compulsion to make and sell quality generics No supervision of detailing practices Prices kept relatively low Need for market competition to keep prices down
• •
IMA-refusal to recognize crucial role pf unregistered practitioner Who could be trained to deal with limited illnesses accounting for large percentage of Disease • Government PHC’s and hospitals quite unregulated for quality of service, presence of doctors, overcrowding, hygiene, etc Government accounting does not permit differential pricing • • No oversight over commercial hospitals & Nursing Homes
• •
No supervision of practices at retail and wholesale level No pursuit of criminals in Trade & Manufacturers Making & Selling Selling fake and substandard drugs Drug Regulatory authorities understaffed, under budgeted, poorly poo rly motivated • • Pricing decisions poorly framed; No framework of essential cheap drugs for masses • Need for system to pursue goal of “Affordable and Safe Health for ALL”
Some Issues
• • • • •
Health Governance is scattered over Ministries High Private expenditures on Health Care Poor efficiency of Government expenditures India must retain large and efficient Public sector for Health Care
Accept large number of unavoidable “illegal” medical practitioners: Co-opt them with training Minimize number of pharmaceutical manufacturers and ensure their quality •
• • • •
Insist on Regular Re-training of all practitioners Make all offences non-cognizable Enforcement of Patent and Copyright Laws Severe Penalties for criminal acts of making and selling fake and substandard drugs, poor hygiene in hospitals and nursing homes, Make it easier to sue for poor quality health he alth provision Manufacturers’ Involvement in patent protection (eg, fmcg, movies, recordings, etc) •
• • • •
Expand and improve quality of Drug Regulatory personnel Accept WHO List of essential Drugs Impose proportion of Generics Patent Laws must guarantee quality, affordability and Availability of Medicines
KEY FACTORS DRIVING THE GROWTH OF HEALTHCARE HEALTHCARE INDUSTRY 1. Domestic Demand
A. Treatment - The increase in the incidence of lifestyle-related diseases, including cardiac and related disorders, among Indians has triggered a demand for specialised treatment. A higher proportion of the Indian population is living in urban areas, where the propensity to seek treatment for ailments is higher. This is primarily due to easy access to healthcare facilities and higher disposable income, which make expensive treatment more affordable. B. Tertiary and quaternary care- Lifestyle-related diseases are likely to assume a greater share of the healthcare market. In-patient revenues of hospitals have increased since expenditure on lifestyle-related diseases has risen substantially. 2. Increasing Healthcar hcaree expendi expenditur turee in India India is expecte expected d to Increasing expenditure expenditure on Healthcare Healthcare - Healt increase by 15 per cent per annum. This segment is expected to constitute 6.1 per cent of the country‘s GDP and employ around 9 million people in 2012. Some section of society (urban) has a greater capability to spend money on its healthcare needs due to its higher income levels and access to insurance.
3. Demand-Supply Gap- There is a growing demand for improved public health infrastructure due to the country‘s high population and increasing disease profile. This highlights the need for better healthcare delivery, which addresses accessibility and affordability affordability issues. 4. Preference for Private treatment - In India, private healthcare accounts for nearly 80 per cent of the country country‘s ‘s total total healthc healthcare are expendi expenditur ture, e, althoug although h it is more more expensi expensive ve than than public public healthcare services. The preference for private healthcare can be attributed to better perceived quality and accessibility.
5. Policy A. 1983–2000- Subsidies worth US$ 13.54 billion (INR 650 billion) have been provided to stimul stimulate ate privat privatee invest investmen ments. ts. This This includ includes es exempt exemption ion in custom customss duty duty for the import import of equipment and subsidised input, including land. B. 2000 onwards- The benefit of section 10(23 G) of the IT Act has been extended to financial institutions that provide long-term capital to hospitals with 100 beds or more. The benefit of section 80-IB has been extended to new hospitals with 100 beds or more that are set up in rural areas; such hospitals are entitled to a 100 per cent deduction on profits for five years. Custom duty on life-saving equipment has been reduced to 5 per cent from 25 per cent and exempted from countervailing duty. Import duty on medical equipment has been reduced to 7.5 per cent.
Presence of International players in India Johnson & Johnson
•
American multinational medical devices, pharmaceutical and consumer packaged goods manufacturer
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Employs more than 2000 people and the businesses span Consumer, Medical Devices & Diagnostics, Pharmaceuticals and Vision Care
•
American multinational pharmaceutical corporation headquartered in New York City
•
Pfizer Limited (India) has a turnover of US$ 184.96 million (March 2012)
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Two of Pfizer India's brands -- Corex (Cough Formulation) and Becosules (Multivitamin) -- continue to rank among the Top 15 pharmaceutical drug brands
Pfizer
Roche
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F. Hoffmann-La Roche Ltd. is a Swiss global health-care company that operates worldwide under two divisions:
Pharmaceuticals and Diagnostics
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After a contractual relationship of 10 years with NPIL, it was decided by FHLR to end en d the Frame Co-operation Agreement with NPIL in November 2003
GlaxoSmithKline
•
Originally from UK, established in the year 1924 in India GlaxoSmithKline Pharmaceuticals Ltd. (GSK Rx India) is one of the oldest pharmaceuticals company
•
The GSK India product portfolio includes prescription medicines and vaccines
Mergers & Acquisitions- Recent highlights •
In September 2011, India’s second largest hospital chain, Fortis Healthcare (India) Ltd, announced that it will merge with Fortis Healthcare International Pte Ltd., the promoters’ privately held company
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Abbot acquired Piramal Healthcare solutions in 2010 at US $ 3.72 billion which was 9 times its sales
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Fortis Healthcare one of the biggest healthcare chain of India acquired 23.9% stake in parkway holdings of Singapore based for USD 685.3 million (INR 31.10 billion)
•
Medfort Hospitals to merge with eye care chain maxivision (September 2011 report)
Mergers & Acquisitions- Summary
Industry Life Cycle
Provisions for Healthcare Healthcare in union budget 2012-13 and its general general impact: Major Highlights 1. Healthcare spending to be increased from Rs.26,897 cr to Rs. 30,702 cr an increase of 14%. 2. Proposed increase in allocation for National Rural Health Mission and launch of the National Urban Health Mission to meet the needs of urban poor and slum dwellers. 3. The Rashtriya Swasthya Bima Yojana (RSBY) , health insurance for the poor has been extended to cover MGNREGA beneficiaries. This scheme will w ill also include to cover people who work in unorganized sectors in hazardous conditions mine workers.
Direct tax proposals 1. Investment-linked incentives on specified business Under section 35AD, weighted deduction of 150% of the capital expenditures are proposed to be allowed to hospitals (as against current availability of 100% deduction) subject to the following key conditions: Hospitals with atleast one hundred beds for patients, anywhere in India • Hospitals commencing operations on or after 01 April Ap ril 2012 •
Capita Capitall expens expenses es not to includ includee expens expenses es on land, land, goo goodwi dwill ll or financi financial al instru instrumen ment. t. This This amendment will apply in relation to AY 2013-14 20 13-14 and subsequent AYs. 2. Expenditures on in-house scientific research and development
Under section 35(2AB), weighted deduction of 200% of expenditures (not being in the nature of cost of any land or building) incurred on approved in-house research and development facilities, have been extended for a further period of 5 years i.e up to 31 March, 2017. This will apply in relation to AY 2013-14 and subsequent AYs (upto AY 2017-18) 3. Expenditures on preventive health check-up Under section 80D, a deduction of Rs 5,000 is allowed for expenditure incurred during the year by an assessee on account of preventive health check-up of self, spouse, dependent children or parents.
The above deduction to be within the overall limits of Rs 15,000 / Rs 20,000 prescribed under the said section of the Act
Indirect tax proposals 1. Service tax Rate of Service tax is proposed to be increased from 10% to 12% • All healthcare services exempted from service tax. However hospitals with twenty five or • more beds and central air conditioning cond itioning will not get this exemption. Govt hospitals shall be exempted from this tax. 2. Central excise Basic rate of duty increased from 10% to 12% and merit rate increased from 5% to 6% • Exemption from Excise Duty is proposed on specified life saving drugs • 3. Customs duty Reduction in Basic Customs Duty on the following items: • Item Current rate Proposed rate 10% 5% Probiotics 10% 5% Life saving drugs 5% 2.5% Iodine 15% 10% Isolated soya protein 30% 10% Soya protein concentrate
Key financial performance performance indicators indicators such as assets, assets, EBITDA, PAT of major players
Apollo Hospitals Particulars
Mar’12
Mar’11
Mar’10
Mar’09
Net Worth
2506.82
1898.94
1653.47
1461.17
Return on Net Worth(%)
8.88
10.04
8.31
Debt-Equity Ratio
0.26
0 .5 0
0.48
Revenue
2957.71
2463.66
1920.65
EBITDA
539.03
7.01
0.37
1531.07
425.95
323.07
228.43
Max Healthcare Particulars
Mar’12
Mar’11
Mar’10
Mar’09
Net Worth
3257.84
3285.37
1886.95
1070.63
Return on Net Worth(%)
8.88
10.04
8.31
Debt-Equity Ratio
0.24
0 .9 8
0.81
0.45
Revenue
793.97
498.54
3 7 3 .7 6
437.22
EBITDA
40.59
Fortis Healthcare
46.91
2 8 .0 0
7.01
36.28
Particulars
Mar’12
Mar’11
Mar’10
Mar’09
Net Worth
3257.84
3285.37
1886.95
1070.63
Return on Net Worth(%)
2.22
4 .2 5
4.81
Debt-Equity Ratio
2.00
0 .3 7
3.63
0.72
Revenue
2984.04
1497.56
945.18
632.11
EBITDA
586.97
499.46
189.91
3.04
89.18
Major /Key events events related to to the industry in in the last two or three three years 1. The All India Institute of Medical Sciences (Amendment) Bill, 2012, replaces an ordinance which allowed the six AIIMS-like institutes to become operational from Sep 15. The bill also gives the central government authority to establish more AIIMS-like institutes. The six institutes were were appr approv oved ed for for Patn Patnaa in Biha Bihar, r, Raip Raipur ur in Chha Chhatt ttis isgar garh, h, Bhopa Bhopall in Madh Madhya ya Prad Prades esh, h, Bhubaneswar in Odisha, Jodhpur in Rajasthan and Rishikesh in Uttarakhand. 2. Fortis Healthcare, the leading private healthcare chain promoted by the erstwhile owners of India’s largest drug firm Ranbaxy, has acquired the cream of rival Wockhardt Hospital chain’s assets – eight running hospitals and two green field projects - for Rs 909 crore 3. In Septe Septemb mber er 2011, 2011, Indi India’ a’ss secon second d larg larges estt hosp hospit ital al chai chain, n, Fort Fortis is Heal Health thca care re (Ind (India ia)) Ltd, announc announced ed that it will merge with Fortis Healthcare International Pte Ltd., the promoters’ privately held company. This will make Fortis Asia’s top healthcare provider with the approximate total revenue pegged at Rs. 4,800 crore. Fortis India will buy the entire stake of the Singapore based Fortis International
4. Private-Public Partnerships
The Indian Government is focused on developing the PPP model to cover the demand-supply gap prevalent in the healthcare sector. Private sector expertise coupled with efficiencies in operation and maintenance would lead to improved healthcare services delivery to the masses.
REFERENCES
1. Indian Brand Brand Equity Foundati Foundation on 2. FactS FactSet et 3. Equity Equity research research 4. indiafoonl indiafoonline.co ine.coM M 5. Moneycontro Moneycontrol.com l.com
