Associate at an India-based integrated healthcare services provider
- Indian hospital sector overview, assessing competitive differentiation, ARPOB (average revenue per occupied bed) and importance of ancillary services
- Hospital economics – OPEX and CAPEX pressures and EBITDA margin analysis, noting trajectory of specialist clinician payment model
- Payer mix trends and outlook given increasing government incentives, exploring preferred provider agreements
- Regulatory environment and consolidation capacity, highlighting EBITDA multiple trends
What are the 2-3 key developments you’ve seen from your time in the Indian hospital sector?
How do patients differentiate among the various hospital operators? What factors might influence the patient in choosing a hospital?
Could you break down ARPOB [average revenue per occupied bed] growth into its various components, whether it’s case mix, average LOS [length of stay] or pricing? What is the typical contribution from each?
Could you give us a sense of the pricing by speciality, having mentioned oncology? Where is it increasing the most vs the least? Medical inflation is running at 8%, and it was above 10% not long ago.
How important are ancillary services such as a primary care facility and so forth to a hospital’s economics?
What is your assessment of the cross-sell? How much of a hospital’s revenue would typically be fed from the primary care and so forth?
Where are you seeing the greatest pressure on hospitals’ OPEX and CAPEX?
Going from INR 5,000 to INR 6,500 per square foot is a 30% increase in cost. How does paying this elevated cost impact the economics of a new hospital?
Do you think you can still get a good return, or are the returns less than you’re used to when these costs are so high?
What arrangements do hospitals generally have with specialists? Is it a percentage of revenue, a wage plus a variable component or just a straight wage?
You said the payout to specialists is 20-25% under the fee-for-service model. How has that trended over time? What was that like five or 10 years ago, to help us sense the increase or decrease over time?
How does a target of bringing the specialists’ payout below 20% of revenue impact volumes? If someone has taken 25% right now, presumably they will have to perform more surgeries to be equal.
How would this decrease impact the EBITDA margin of a mature hospital longer term? Right now, it seems to be in that 20-25% range quite neatly. If doctors’ costs decrease to below 20% of the revenue, presumably the margins will increase 5pp, so we’re talking 25-30% EBITDA margins longer term.
What would drive the variance between a hospital getting 20% and 25% EBITDA margin?
What agreements do hospitals have with their health insurers? How does a hospital become a preferred provider? How important is that rating?
What are the KPIs for a hospital to have a preferred provider agreement renewed?
Are health insurers thinking about clinical outcomes as well? I know in some other markets, health insurers would refuse to pay if a customer has adverse outcomes or requires additional surgery.
The government is obviously concerned about affordability and accessibility. What do you think the government’s intentions or objectives are with the healthcare spending and trying to get more people covered by health insurance?
How do you think the payer mix will evolve over the next 3-5 years? It looks as if you’re saying the government spend on healthcare will double over that period.
How stable is the regulatory environment? Is there anything on the horizon that gives you concerns for the industry?
How would you characterise the M&A environment in the hospital sector? From the outside looking in, it seems the larger operators are stepping out while the financial buyers are coming in.
How does the government feel about the consolidation? It’s obviously more hospitals in fewer hands.
What EBITDA multiples are being paid at the moment?
Which markets around the world are a good benchmark or precedent for what the Indian hospital market could look like in 3-5 years?
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