It Makes More Sense To Be In Big Cities And Metros

At a time when most big healthcare businesses are applying brakes on expansion plans, Azad Moopen, Founder Chairman and Managing Director of global healthcare chain Aster DM Healthcare talks about why it is difficult for companies to expand in Tier-2 and -3 towns. He also talks about the company’s growth prospects, how to avoid malpractice in medical profession and what is lacking in the government’s ambitious cashless health insurance scheme – Ayushman Bharat. Excerpts:
Are you looking at expanding the services of Aster DM Healthcare more in Tier-2 and -3 cities?
We started about 32 years back. Currently we have 25 hospitals, 116 clinics and 219 pharmacies spread across nine countries. In India, we have 13 hospitals and eight clinics, spread over five States with 4,000 beds at the moment. We were initially thinking of expanding in Tier-2 and -3 cities but now its actually the other way around for us. We tried, but we thought that as a business model for corporate hospitals, it makes more sense to be in Tier-1 cities and metros, so we completely changed our model in the last four years. We are now focussing on large cities, with large format hospitals. The smaller hospitals like the one in Kannur in Kerala were the ones started earlier. But again Kerala is slightly different. It is like a metropolitan city all together, but when we go elsewhere we make sure we are in large cities.

What hampers healthcare businesses from expanding in areas where there is more need – small towns, cities?
We were also thinking this is what is required. But in Kottakal area of Kerala we struggled a lot. In Kolhapur, Maharashtra it took us a long time to breakeven. Why is it that things are not working out in small towns — there are three reasons — one is the reluctance of specialist doctors to relocate to small towns as they don’t have facilities for their children’s education. Secondly, in a metro city, I can build a 500-600-bedded hospital but in Tier-2, I will have to build a hospital with lower bed capacity and so the equipment I keep there like a Cath Lab, MRI or CT scan will not have an ideal utilisation. And so the huge costs that I have to put in are not justified. Thirdly, affordability and insurance coverage is much more in Tier-I, which attracts businesses to invest there.

What are the growth prospects of the company looking like?
If you look at the last ten years from 2008, when the first private equity firm joined, and have just exited recently, we have seen up to 25 per cent of Compound Annual Growth Rate (CAGR) in topline and bottomline. When the private equity firm joined, the company’s valuation was a hundred million dollars, now we are anywhere up to a billion dollars. We have grown up to that size so we have done financially well.

In the current climate, as certain healthcare companies are bleeding because of wrong choices, how do you avoid headwinds?
On the contrary, healthcare can be made into a fairly stable business because it is required by people. The issue is to do it properly. We have a high capex requirement in India for building a healthcare facility. Huge amounts are required for acquiring land, building the structures and procuring equipment. If you can find a method by which someone can build you a healthcare facility and give it to you on rent so you don’t have a capex, let a medical equipment company bring their equipment on pay-per-use basis, and you come in as an operator with expert doctors and nurses, the business can run better.

You have empaneled one of your tertiary-care hospitals in Wayanad with the central government’s cashless health insurance scheme – Ayushman Bharat. How has the experience been?
I think the scheme will take more or less five years to stabilise. The main issue is that the package rates at which treatments are to be meted out in the scheme do not allow you to breakeven. Unlike in government hospitals, basic costs for human resources, material, electricity, water in order to build a hospital, are high. Interest cost for the banks have to be given out of the revenues. I have to make at least 10 to 15 per cent for fulfilling interest costs. If private hospitals cannot afford packages, they may choose not to take up the patients. I have instructed my staff that we must take Ayushman patients, even if we are not making profits out of the scheme but just cutting even and recovering the cost.

Certain private hospitals in the past have gone on to charge over a thousand per cent margin. What ethics come into play when bill your patients?
For us it is a no-brainer. We do not do escalated price. It is just cost-plus-margin for us. We just look at our cost and add ten to fifteen per cent as our margin. Some private hospitals may keep procedure charges low, but material charges high but that is wrong practice and it should not be done. – The Hindu Businessline