Structural shortages and uneven access to healthcare services offer a promising investment opportunity

India’s healthcare sector, a critical pillar of national development, is on the cusp of transformative growth. According to a senior World Bank professional, the country burdens ~20% of the global disease problem but lags significantly across key parameters compared to global averages.

The WHO recorded India’s bed density as 15 beds per 10,000 population, starkly below the global average of 29 beds per 10,000. Additionally, healthcare infrastructure is unevenly distributed across the country with 63% beds in urban areas catering to 35% of the population and the remaining 37% catering to 65% of the population. 

The growth in demand for healthcare will be catalysed by structural demand drivers such as rising income levels, urbanisation, increasing incidence of chronic diseases, increasing insurance penetration, and changing demographics.

Regions such as Maharashtra, East India, Rajasthan, Jammu & Kashmir, Haryana, and Gujarat are particularly under-bedded, presenting a high-potential market for investors aiming to bridge the gap. Conversely, cities like Hyderabad, with a bed density comparable to the global average, showcase how capital can elevate healthcare standards and outcomes. 

Impact of government policies and private insurance

Government initiatives such as Ayushman Bharat have significantly increased hospital admissions and made healthcare services accessible to the broader population. For example, Ayushman Bharat provides an annual health cover of over Rs 5 lakh to ~120 million poor families for secondary and tertiary care hospitalisation. 

There has been a growth of the private insurance market, accelerated by the COVID-19 pandemic, further driving demand for quality healthcare services. This has not only expanded the market but also highlighted the critical role that both the public and private sectors play in meeting this demand. 

Evolving market dynamics

COVID-19 accelerated the evolution of the healthcare business model, boosting the growth of single-speciality hospitals focusing on oncology, nephrology, and ophthalmology. These specialities have expanded beyond their regional frameworks and offer niche services nationwide. 

The pandemic also shifted focus towards Tier II and III markets. Large hospital chains are increasingly setting up their centres or acquiring facilities in these markets to address the needs of smaller communities. The decentralisation of healthcare services reduces patient burden on larger cities, which can then focus on advanced, high-quaternary care like liver, heart, and brain transplants. This shift is vital for ensuring accessibility and quality across the country.

Inflation and sustainable growth

Medical inflation in India ranges from 10% to 12%, posing a challenge for hospitals relying on non-government payor systems. To sustain growth, hospitals must focus on increasing occupancy rather than merely raising prices. It requires consistently improving infrastructure and service quality, especially in regional chains, to meet the rising healthcare aspirations of the local population. 

It is also critical to build quaternary care programmes in regional hospitals while maintaining access and affordability. This would help drive sustainable growth for the hospitals, while ensuring that local communities are being adequately served. 

Ensuring profitability and quality care

Profitability is essential for hospitals to reinvest in expanding bed capacity and improving services. Hospitals must balance serving diverse societal needs with maintaining profitability to ensure continued investment in the sector. This includes implementing medical protocols to avoid over-testing and over-medicating, while enhancing operational efficiency and profitability, and tightening control over costs and resources to manage efficiency.

Strategic investments and institutionalisation

Hospitals continue to attract significant investment due to the ease of exit and the inherent value of real estate-based businesses. Given the long time taken to establish greenfield projects, acquisitions present a faster growth pathway. Valuations in public markets for national players versus regional private markets offer lucrative opportunities for large chains to expand inorganically. 

Private equity firms play a crucial role in institutionalising traditionally founder-driven businesses. This includes improving physical and medical infrastructure through hiring better talent, with the vision of building a scaled, professionally run hospital group.

The Indian healthcare sector, particularly hospitals and medical devices, offers a compelling investment opportunity. This is driven by rising demand, favourable demographics, and the imperative need for infrastructure expansion. However, achieving a balance between profitability and ensuring access to quality healthcare for all sections of society is crucial.

As the sector evolves, investors can play a pivotal role in fostering innovation, promoting best practices, and facilitating collaborations between various stakeholders. By addressing the infrastructure gap and promoting affordability, investors can contribute to the holistic development of the healthcare ecosystem while realising attractive returns on their investments. 

The future holds immense promise for the Indian healthcare sector, and those who recognise and capitalise on these opportunities today will be well-positioned to reap the benefits of this rapidly growing market in the years to come.

The author is Head of India (PE) at Everstone Capital.