When Naresh Malhotra joined Bangalore-based Amalgamated Bean Coffee Trading Company as the executive in charge of its café business, Café Coffee Day (CCD), in August 2001, the company had 18 cafes across four cities. When he left the firm six years later, CCD was market leader with 430 cafes across 85 cities. Malhotra is now looking to replicate this growth, but in an entirely different space: primary health care.
In July 2011, Malhotra launched Modern Family Doctor, a Bangalore-based health care venture and its first clinic under the brand name The Family Doctor. The chain has now expanded to 20 clinics across Bangalore and Pune. Malhotra is looking to open 100 clinics over the next 12 months in these two cities and 500 across the country over the next four to five years. “It’s exactly the same as building a retail brand. I believe that I can use my experience at CCD in a more meaningful way in the health care space,” says Malhotra.
But why did Malhotra, a chartered accountant by profession who apart from CCD, has earlier worked for companies like Unilever, KPMG, A.F. Ferguson and the UB Group, decide to foray into health care? The impetus, he notes, came from his own personal need. A few years ago, when his aging mother needed medical attention, Malhotra found it impossible to locate a family physician close to his home. “We kept rushing her in and out of big hospitals when all she really required was a general practitioner who knew her medical history and who could attend to her whenever the need arose,” he says. “I realized there was a huge need to bring back the concept of the neighborhood clinic. We need one every 10 minutes from a home.”
Malhotra’s move also makes for a compelling business case. According to a 2012 report by PricewaterhouseCoopers (PwC) titled “Indian Healthcare Opportunity,” India spends around 5.9% of GDP on health care. The country’s health care industry is estimated to be worth around $65 billion, is growing at a 15% compound annual growth rate and is expected to be a $250 billion opportunity by 2020. But while there has been private sector investment in large metropolitan hospitals offering high-margin specialty services, investment in primary care has lagged.
The primary health care sector in India is around $39 billion in size but is highly fragmented. The country has around 26,000 government-run primary health care centers and 615 district-level hospitals. Those facilities should be the backbone of the public health care system, but because of what critics call the abysmal quality of delivery at these institutions, they are highly underutilized. Apart from the government-owned primary health care centers, there are around 200,000 privately-owned general physician clinics in the country. Most of these are run by single physicians who typically have basic medical qualifications -- a bachelor’s degree in medicine and surgery (MBBS) -- and usually practice out of their homes or from small clinics. There is no standardization in terms of processes, quality and service levels. As a result, more often than not, patients end up going to large tertiary care hospitals even for basic health care needs. It is estimated that around 80% of the population in India turns to private caregivers and more than 75% of their health care spending is out of their own pocket.
Garth Manning, CEO of the World Organization of Family Doctors (known as Wonca), points out that primary health care is the foundation of any health care system. Secondary and tertiary care should support primary care and not replicate or be a substitute for it, he notes. “Primary care offers care that is personal, ongoing and comprehensive,” he states. “It defines itself in terms of personal relationships between the patient and the caregiver. Secondary and tertiary care [facilities] define themselves much more in terms of disease systems rather than the holistic patient-centered approach of primary care. Without a solid foundation of primary care, any health system is unstable and unbalanced.In the United Kingdom for instance, it is mandated by law that every individual must have a general practitioner (GP) and a patient can be admitted to a hospital only on the advice of his or her GP. According to Manning, international research shows that health systems based on primary care have better outcomes, greater patient satisfaction and lower overall costs than a hospital-based system. “The third most common cause of death in the U.S. is doctor induced, and since India’s health system emulates the U.S. system in many ways, I wouldn’t be surprised if similar statistics applied in India also,” Manning notes.
Arnab Mukherji, assistant professor at the Center for Public Policy at the Indian Institute of Management Bangalore (IIMB), notes that in terms of policy debates in India, “a lot more thought needs to go into the role, access, and outreach for general practitioners and family physicians since they are the first line of medical care and there is a large under supply.” Mukherji adds: “General practitioners and family physicians cost less to train and provide appropriate care for many types of diseases. National Sample Survey data shows that lifestyle diseases as well maternal and childcare needs are the key sources of demand in India today -- all of these can be very competently handled by general practitioners and family physicians.”
Indeed, industry observers say that various studies indicate that hospital admissions reduce by 40% and health care costs reduce by 30% if a country’s primary health care system is strong. Rana Mehta, leader of the health care practice at PwC, notes: “India’s rising middle class with growing discretionary income is demanding better access to high quality and standardized primary and preventive health care services. We see the opportunity for new delivery models to capture this growing demand and believe that primary health care presents a blue ocean opportunity in India today.”
New-Age Family Clinics
Like Malhotra, others have also spotted this opportunity. In Bangalore, Santanu Chattopadhyay and Shantanu Rahman, both medical doctors, partnered to start NationWide Primary Healthcare Services in March 2010. NationWide currently has three hub clinics and 12 satellite clinics. Over the next 18 months, Chattopadhyay and Rahman are looking to expand their chain to 20 hubs and 120 satellite clinics. Prior to embarking on this venture and to equip himself for the business challenges, Chattopadhyay earned an MBA from INSEAD and gained corporate experience at Johnson & Johnson and Indegene Lifesystems.
In Mumbai, the father-son duo of Gautam Sen, a surgeon, and his son Kaushik Sen, a management consultant formerly with Bain & Co., have set up a chain of community medical centers under the brand name Healthspring. Healthspring currently has four clinics in Mumbai and is gearing up for a national roll-out. In Delhi, Pathfinder Health India founded by Niti Pall, a medical doctor, currently has around 10 clinics branded Health India Clinics. Pall, too, plans to go pan-India over time.
These new-age family medicine clinics typically have a group of doctors, nurses and support staff on their rolls as well as a network of consultants. Their infrastructure includes consulting rooms, diagnostic laboratories and pharmacies, and they offer basic health care services, vaccination services, health management, nursing, home care and elderly care facilities. These chains are strong on technology, maintain electronic medical records of their patients, and follow standardized protocols and processes. In addition to consultation at the clinics, the facilities usually offer round-the-clock support via telephone. They also play a significant role when it comes to referring their patients to specialists when required and coordinating with the specialists for continued care. The consultation charges range from around $3 to $6 per visit. Some of the practices also offer annual membership plans for individuals as well as families.
The capital expenditure required to build a typical clinic costs anywhere from $30,000 to $45,000 or more, while operating costs are upward of $2,500 a month. “It typically takes two years for a clinic to be profitable at a center level, but at Modern Family Doctor we believe that by keepings our costs low and improving productivity, it can happen faster,” says Malhotra. He suggests that a strong brand that is bigger than the individual doctors and high-quality, standardized service levels across the chain are critical success factors in this business. NationWide’s Chattopadhyay adds: “India has a very strong doctor-centric health care system. What we are looking to provide is an affordable and accessible patient-centric system.”
Attracting Private Equity
The model is also finding favor with private equity investors. NationWide for instance, has raised $4.5 million from Norwest Venture Partners. Healthspring has raised around $3.5 million from Catamaran Ventures, Reliance Venture Asset Management and Blue Cross Blue Shield Venture Partners. Malhotra’s Modern Family Doctor has received funding of around $2 million from Silicon Valley Bank-India. “Around 50% to 60% of the health care spending for individuals is in primary care, but investments have typically been in large diagnostic chains and hospitals. So there has been a fundamental mismatch so far. We see a huge opportunity for growth in primary care,” says Mohan Kumar, executive director of Norwest Venture Partners.
In recent times, large hospital chains like Manipal and Apollo have also been setting up neighborhood clinics. According to PwC’s Mehta, more large hospitals will likely move into this space in the future because they have recognized the growing demand for accessible and quality primary care. “Given the financials of this business, it is also easy to replicate and scale,” he adds. But industry players insist that there is a fundamental difference in approach. “Around 70% to 80% of the health care episodes in an individual’s life can be treated by general practitioners. But the big hospitals are setting up neighborhood clinics only to drive the traffic to their hospitals,” says Malhotra. Echoes NationWide’s Rahman: “Their clinics are like feeders for their hospitals. We on the other hand, are like gate keepers. Our attempt is to keep our patients out of hospitals.”
Kumar of Norwest Venture Partners however adds a note of caution. “India does not produce enough doctors to manage the country’s primary health care needs. If these chains [like NationWide and Modern Family Doctor] function like an average general practitioner, they will be only shifting the problem from an individual set-up to a corporate set-up. They need to focus on multiplying their productivity manifold.” Kumar adds that this can be achieved by “using technology, introducing new practices and challenging known conventions.” Ash Lilani, president of Silicon Valley Bank-India, suggests that the ability to scale is critical for success. In a conversation with daily newspaper, Times of India, Lilani said that execution is “key for these consumer-facing businesses. A lot depends on the business model, scalability and a team that can execute.”
According to PwC’s Mehta, in a given geography such as a metro area, a chain must look at having a network of at least 25 to 50 clinics before it can get the advantage of volumes. “I also believe that the use of technology, the ability to monitor patient data and also providing a seamless patient experience across the chain will be key success factors.”
Chattopadhyay of NationWide sees the biggest challenge in attracting the right medical talent. He notes that in India, most medical graduates want to become specialists because there is no glamour and respect or big bucks associated with being a general practitioner. Those who are unable to become specialists typically either join government hospitals, public sector units or private hospitals and nursing homes as duty doctors. “We want to show that there can be a strong career path for general practitioners also. For instance, at NationWide, an individual can start as a junior doctor and then move up to become a personal physician, clinic head and finally a partner,” says Chattopadhyay.
To address this challenge, NationWide has set up a medical training division that is aligned to the U.K.-based Royal College of General Practitioners (RCGP). The doctors employed by NationWide are encouraged to write the requisite exams and get certified by RCGP. “This helps in making the practice more robust and also enables the individuals to gain respect and recognition within the fraternity,” notes Rahman, who is himself an alumnus of RCGP.
Wonca’s Manning agrees. He points out that it is important to understand that “a basic MBBS doctor cannot possibly provide quality primary care or family medicine without proper training in the specialty.” According to Manning: “The National Board of Examiners needs to understand the importance of revising their family medicine training curriculum to make it much more relevant to modern practice, and the Medical Council of India needs to be persuaded to accept that family medicine is a specialty in its own right, just as pediatrics or surgery or ENT are.” Adds Mukherjee of IIMB: “Innovative schemes are needed to ensure that the GP practice not only survives, but that it also grows to ensure a better average level of public health in the country. Some of these schemes could involve time sharing activities, changing cost structures with medical education and looking at options that could reduce compensation differences between GPs and specialists.”