Submission Statement: Wall Street came to India chasing one of the world’s greatest hospital growth stories. It found something else too: a fight over who will pick up the bill.
Blackstone, KKR, TPG, General Atlantic and other global investors have spent about $10 billion buying stakes in Indian hospital chains over the past five years, according to data compiled by EY. That influx of capital has helped finance new facilities, expensive technology and a wave of consolidation in a country desperately short of hospital beds. It’s also made India one of the world’s most active markets for private-equity-driven hospital consolidation. Although PE-backed operators account for less than 5% of the country’s hospital beds, they command a presence in high-margin specialties such as cardiac surgery and cancer care.
Hospital revenue and valuations have surged, generating substantial returns for some investors. Yet the swift expansion of private capital in healthcare has raised concerns that it may be driving up costs and reducing patients’ access to care.
In August a parliamentary committee took aim at the economics of India’s private hospital boom, warning that an “unchecked influx of foreign capital” was facilitating acquisitions of cost-effective, midsize hospitals by large corporate groups. It recommended reconsidering foreign investment rules for healthcare, examining price caps and creating a regulator for hospitals.
“The biggest change in Indian healthcare hasn’t happened in the operating theater—it’s happened in the boardroom,” says Joseph Benaven, managing director of Kanate Hospitals in Kerala and a former president of the Indian Medical Association’s state unit. “Increasingly, hospitals are judged by return on capital and revenue per occupied bed.”
KKR is expanding its hospital portfolio. In August it agreed to acquire the Indian operations of Swedish hospital chain Medicover AB for $1.4 billion, a deal that will nearly double the number of hospital beds it owns in southern India to 10,000. The PE firm’s healthcare strategy has a proven track record. KKR previously backed entrepreneur Abhay Soi’s Radiant Life Care and helped merge it with listed Max Healthcare Institute Ltd. Its exit from Max Healthcare in 2022 is touted by the industry as a successful hospital investment.
India’s maturing capital markets have made this model especially attractive. Public listings and secondary share sales have given PE firms a clear path to cash out, freeing up capital for the next wave of acquisitions.
Other investors have also reaped substantial gains. Temasek Holdings (Pte) Ltd., for example, has generated roughly a 10-fold return on its 2017 investment in Manipal Health Enterprises Ltd. following a partial stake sale during the hospital operator’s initial public offering in July. The investment delivered an internal rate of return of about 30%, according to VCCircle, a provider of news and data on Indian private markets.
Yet the industry’s strong financial performance has drawn increasing scrutiny from policymakers concerned about affordability. Medical inflation has been running at as much as 13% annually, according to a parliament report.
“For all the benefits of private equity fund infusion, the tax we have to pay is higher cost,” says S. Prakash, chief executive officer of the General Insurance Council’s Health Insurance Ecosystem and Strategic Partnerships. Treatment at private hospitals costs, on average, five to 10 times as much as in the public system, with some of the biggest gaps occurring in cancer care, cardiac treatment, kidney failure and maternity services, according to a panel of Indian lawmakers.
The debate has also increasingly focused on what care should be covered. As hospitals move into more advanced and costly treatments, insurers are questioning whether some procedures provide a sufficient clinical benefit to justify their expense. Hospital operators argue that newer technologies, implants and surgical techniques improve outcomes despite raising costs.
To make coverage decisions, insurers need evidence-based treatment protocols, said Bhabatosh Mishra, chief operating officer of Niva Bupa Health Insurance Co., during an analyst call in May. He added that some robotic procedures can cost significantly more than conventional alternatives without delivering proportionately better outcomes.
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!ping IND
In the United States at least, there’s been a recent push to replace fee-for-service reimbursement models with more value-driven models and capitated per-patient payments. One of the consequences of this is that providers have to absorb more financial risk from patients with acute conditions that require expensive care. This provides incentives for consolidation, since bigger organizations can better absorb those financial risks.