Indraprastha Medical Corporation Ltd Management Discussions.

Industry Structure & Developments

Good health is the foundation on which a persons happiness and well-being rest. When a nations population is healthy, they make an important contribution to the economic progress of the country, as they live longer and are more productive. Studies have revealed the significant interlinkages between the economic performance of a country and the health of its population, making investment in health not just desirable, but a priority for societies. It is important that every citizen has access to basic healthcare facilities, an important factor which will influence a better quality of life for the populace. A comparison of the basic health indicators between developed and developing countries clearly show that developed nations lead the way in healthcare provision and utilization in terms of all resources - money, infrastructure, people, education, and products. Developing nations which have not been able to similarly invest in healthcare infrastructure, are characterized by lower human development.

Today, the primary challenge for developing countries like India, is the improvement of healthcare access across sectors, both in terms of reach and affordability, and the pursuit of universal healthcare to ensure that healthcare needs of the vulnerable and under-privileged sections of the society are addressed. Additionally, coping with modern diseases, public health engineering, disease surveillance and rising healthcare costs present significant challenges for the healthcare industry.

The recent COVID-19 pandemic has caused immense disruption, bringing to the fore, the importance of good health from an economic standpoint and the pressing need to devote resources for the prevention of future epidemics while managing such crises without excessive economic disruption. It is believed therefore, that once the crisis flattens, there will be a perceptible paradigm shift worldwide towards providing sustainable and equitable preeminent healthcare for all. For this to be successful, it is imperative that all stakeholders including healthcare providers, Governments, investors and consumers come together to understand, analyze and implement required changes across the ecosystem.

Globally, the healthcare industry is transforming rapidly. Several new health technologies such as wearable tech, telemedicine, genomics, virtual reality (VR), robotics and artificial intelligence (AI) although still nascent, are soon expected to change the very landscape of this industry.

To meet the demands of the future, much of these technologies should be capable of adequate scale.

 

"Harnessing the power of digital technologies is essential for achieving universal health coverage. Ultimately, digital technologies are not ends in themselves; they are vital tools to promote health, keep the world safe, and serve the vulnerable."

Dr. Tedros Adhanom Ghebreyesus,

WHO Director-General

It is safe to expect that the future of health will focus on well-being and prevention rather than treatment. Innovations are already breaking barriers in the way diagnosis and treatments are being provided. Technology will also help to democratize healthcare by flattening costs and breaking geographic hurdles. The increasing pace of technological innovation in healthcare will soon open a plethora of opportunities for healthcare service providers across the globe.

General Overview on Indias Healthcare Services Landscape

The healthcare industry in India is one of the countrys largest economic sectors, with regard to both employment and revenue. The various demographic changes such as the increase in demand for modern healthcare facilities, rise in awareness about diseases, growing health consciousness among people, increase in per capita income, changing lifestyles, transition in disease profile, etc., have all contributed significantly to the growth of the healthcare service industry in India. With the Government rolling out the biggest publicly funded healthcare plan in the world, many more doors of opportunity in the sector are now open.

 

"India has adopted a multi-sectoral approach towards the health sector. The country is focusing on four main pillars of universal health. These are preventive health, affordable healthcare, supply-side interventions and mission mode intervention."

Mr. Narendra Modi,

Prime Minister, India

Today, India is able to offer best-in-class healthcare services at a fraction of the cost in other major markets around the globe. The availability and advancement of healthcare facilities have contributed to the betterment

of healthcare services industry in India. Reduction in the cost of life-saving drugs and medical devices, versatile pharmaceutical services, world-class specialty hospitals in Tier 1 and Tier 2 cities and a large pool of well-trained medical professionals are additional factors that have supported this growth.

However, a substantial gap exists in the supply of healthcare services as compared to the demand. Indias limited healthcare infrastructure has historically been inadequate to meet the demands of a large and diverse population; public healthcare facilities are even now unable to adequately scale to effectively serve the needs of a growing population or reach the interiors of the country.

This unmet opportunity combined with strong fundamentals has largely led to the private sector taking center stage in Indias healthcare landscape. Private healthcare institutions provide world class facilities, employ highly skilled and globally recognized professionals, skillfully leverage advanced technology in treatments, and maintain high standards of quality.

Private sector players have been able to occupy a major share of nearly 80% of the countrys total healthcare market. They also account for almost 74% of the countrys total healthcare expenditure. Their share in hospitals alone is estimated at 74% while their share of hospital beds is estimated at 40%.

From the chart below, it is clear that both rural and urban India seek private sector treatment of illness and disease. Of the different levels of care mentioned here, private doctor/clinic is the single biggest point of contact for treatment of ailments for rural areas (50.7%) and urban areas (50%). This is followed by treatment at private hospitals, public hospitals and Health Sub Centres (HSC), Primary Health Centres (PHC) & others.

Today, the healthcare sector in India offers a potent mix of opportunities and challenges. The significant gap between ‘required and ‘actual healthcare infrastructure has driven considerable investment into assets like hospitals and other care facilities over the years. Healthcare in India today provides corporations with a unique opportunity for innovation, differentiation and profits; it has become a preferred sector for strategic and financial investments.

Government Initiatives are supporting growth of Healthcare industry

It is important to mention that the Countrys healthcare sector is strongly supported by the Indian Government which has been undertaking commendable work to develop India as a global healthcare hub. Over the years, several initiatives to drive the growth of the healthcare sector in the country have been yielding positive results. These initiatives have gone a long way in not only improving overall healthcare access for the general population but have also enhanced the quality of healthcare in the country.

Market Size of Indian Healthcare Industry

The Indian healthcare industry is growing at a remarkable pace thanks to growing coverage, services and increasing expenditure by the public and private sectors. As per a report from the Ministry of Commerce and Industry, the Indian healthcare sector, which stood at a size of USD 110 billion in 2016, is expected to reach a size of over USD 372 billion by 2022, registering a CAGR of 22%. The hospital industry in India is expected to grow CAGR of 16-17% to reach a size of USD 132.84 billion by FY22 from USD 61.79 billion in FY17. The Country ranks 145 among 195 countries in terms of quality of healthcare and accessibility. Indias healthcare access and quality (HAQ) index increased from 24.7 in 1990 to 41.2 in 2016.

The Indian healthcare industry is marked by superior skills, knowledge, and professionalism. It stands out on the global stage as an efficient and cost-effective healthcare delivery system with its network of expert doctors and specialists, well-equipped diagnostics, and nursing services. Within the country, there is immense scope for enhancing healthcare services penetration and ample opportunity for the development of the healthcare industry as a whole.

Conducive policies for encouraging FDI, tax benefits, and favorable Government policies coupled with promising growth prospects are helping the industry attract private equity, venture capital and foreign players. Today, Indian companies are entering into alliances with domestic and foreign companies to drive growth and gain new markets. Going forward, fundamental factors such as rising income levels, ageing population, growing health awareness and changing attitude towards preventive healthcare, are expected to provide impetus and boost healthcare services demand.

In FY17, Indian healthcare sector stood as the fourth largest employer, employing a total of 3,19,780 people. By 2020, the sector is expected to generate 40 million jobs in India. The country is also expected to rank amongst the top 3 healthcare markets in terms of incremental growth by 2020. 1,00,000 jobs are expected to be created from Ayushman Bharat, the National Protection Scheme.

The Healthcare sector in India broadly includes Hospitals, Pharmaceutical Companies & Standalone Pharmacies, Diagnostic Services, Medical Equipment and Supplies, Medical Insurance, Telemedicine Companies, Medical Tourism and Retail Healthcare.

Structure of Healthcare Delivery in India

The Healthcare sector is divided into three major categories: primary, secondary and tertiary.

Source: Dun and Bradstreet - "Sector risk outlook - Hospitals" October 2014, via Thomson Research, accessed January 2015; "Rural Health Statistics in India ", Statistics Division Ministry of Health and Family Welfare Government of India, 30 April 2013

 

Primary Healthcare

The primary sector which mainly operates at the grass- root level has minimal involvement of private players. This is the first point of contact between the populace and the healthcare service providers. This infrastructure offers basic medical and health prevention services through a network of Sub Centers and Primary Health Centers in rural areas; in urban areas it is provided through Urban Primary Health Centres, Health Posts and Family Welfare Centers.

 

Secondary Healthcare

Secondary Healthcare refers to a second tier of health systems, in which patients from primary health care are referred to specialists in bigger hospitals for treatment. In India, the health centers for secondary health care include District Hospitals and Community Health Centres at block level.

This infrastructure provides inpatient as well as outpatient medical services, including simple surgical procedures. The various medical specialties offered under secondary healthcare include internal medicine, Ob-gyn, pediatrics and limited services in specialties like urology and cardiology among others.

 

Tertiary Healthcare

Tertiary Healthcare refers to a third level of health system, in which specialized consultative care is provided usually on referral from primary and secondary medical care. Specialized Intensive Care Units, advanced diagnostic support services and specialized medical personnel are the key features of tertiary health care. In addition to tertiary hospitals that offer services for single specialty, there are multi-specialty tertiary hospitals that offer a number of services in the same hospital. In India, under the public health system, tertiary care service is provided by medical colleges and advanced medical research institutes.

Scope to increase Indias Per Capita Healthcare expenditure

The recent Covid-19 pandemic crisis has served as a stark reminder of the importance of investing in augmentation of healthcare infrastructure. The continued variance of healthcare spends between urban and rural areas has resulted in a sharp disparity in healthcare availability across the country. The Government of India is planning to increase public health spending to 2.5% of the Countrys GDP by 2025.

Over the last two decades, India has taken considerable steps to grow its medical education infrastructure. The number of medical colleges in the country has increased to 529 in FY19 from 381 in FY13. The number of doctors possessing recognized medical, qualifications (under I.M.C Act) registered with state medical councils/medical council of India increased to 1,154,686 in 2018 from 8,27,006 in 2010.

Even though the country is witnessing rapid expansion in the healthcare sector, the shortage of medical workforce remains a reality and challenge. As per World Health Statistics primary data 2007-2018, the density of physicians per 10,000 population for India stands at 8 which is very low compared to the number for USA that stands at 26. As per the National Health Profile 2018, India has a density of 30.2 skilled health professionals (physicians/nurses/ midwives) per 10,000 population and the Sustainable Development Goal (SDG) target is a density of 44.5 per 10,000 population. To achieve the ratio reported by the USA with respect to the density of physicians, India will require an added 24.4 lakh physicians approximately.

Additionally, hospital bed density in India is merely 12 per 10,000 persons-significantly lower than the WHO guideline of 30 beds per 10,000 population. These statistics indicate the alarming healthcare infrastructure gap in the country and the tremendous growth potential of the Indian healthcare industry to help the country move towards the global mean.

Key Characteristics

Strong fundamentals inherent to the sector are expected to accelerate further growth in healthcare demand in India. This industry in India is broadly characterized by the following:

Increase in Population and Changing Demographic Trends

Indias extensive 1.3 billion population base offers a sizable market size and pertinent growth opportunities for health care services in the country. Empowered with unique demographic advantages, India is racing to rank among the worlds most developed economies in the next decade.

As per the National Health Profile 2018, 54.6% of Indias population falls in the age group of 20 to 59 years. This productive demographic group is expected to turn to modern and efficient healthcare services for treatments rather than rely on ill-equipped facilities.

While the population of India is considerably young, there is a parallel growing elderly population that is more than 60 years of age. In fact, the sheer number of elders in India exceeds the total population of several nations. The rise in the number of the elderly combined with rising life expectancy, is another proponent for quality healthcare.

Socio-demographic factors of the country, therefore, are expected to boost healthcare services demand in the future.

Rising Per Capita Income and Widening of Income Inequalities

India has witnessed tremendous economic growth over the last 3 decades. The country has been able to register robust GDP growth and has been consistently featured amongst the fastest growing economies in the world. Rising per capita income and the economic stability of the expanding middle class population, is bound to increase the demand for services. Improved affordability is a gateway for superior healthcare facilities.

However, even as India continues to develop, income inequality in the country is widening. Low per capita income, low expenditure on healthcare, and a low number of doctors coupled with poor insurance penetration in rural areas are reasons for the disparity in healthcare offerings between urban and rural areas. The inequality is evident even within the same urban city. People in the various income slab categories fall into unique baskets typified by varying healthcare needs. Each of these presents a market in terms of the addressable value proposition.

under-Served, under-Consumed

Indias healthcare space is under-served chiefly because of the absence of credible infrastructure, a situation spawned by decades of under-investment in the health sector. In addition, the domestic healthcare delivery infrastructure of the country is largely skewed towards the organized private sector, and primarily confined to state capitals or tier-1 cities.

The country continues to remain far behind the global curve in providing good quality healthcare access across its population. Making healthcare affordable and accessible to all citizens of the country continues to be one of the Governments key focus areas. Even in terms of metrics, be it the per capita number of beds or doctors, India lags developed as well as developing peers. In terms of infrastructure, India has 12 hospital beds as compared to USA which has 29 beds to serve per 10,000 population. India requires an additional 2 million beds to be at par with the global median. While Indias healthcare service infrastructure is under served, low affordability has also resulted in these services being under-consumed.

Changing Nature of Diseases

India has witnessed an extensive change in the overall disease profile of its population. The share of communicable, maternal, neonatal, and nutritional diseases for death decreased to 27.5% in 2016 from 53.6% in 1990 and that of non-communicable diseases increased to 61.8% in 2016 from 37.9% in 1990. This shift in the disease profile provides an additional need for healthcare services in the country. Non-communicable diseases tend to be of long duration, increasing the need for sustained healthcare services.

Transition in disease profile 1990 2016
Share of communicable, maternal, neonatal & nutritional diseases 53.60% 27.50%
Share of non-communicable diseases 37.90% 61.80%
Share of injuries 8.50% 10.70%

Source: Health of the Nations States 2017-India Council of Medical Research

Due to increased urbanization, the incidence of lifestyle diseases is expected to increase faster than any other segment. Within the lifestyle space, cancer is one of the fastest growing segments. The prevalence of cancer in India is expected to increase from an estimated 39 lakh in 2015 to an estimated 71 lakh people by 2020, according to an Ernst & Young report.

Emerging Medical Value travel (MVT)

The Indian healthcare industry has been doing exceptionally well in addressing the multi-billion dollar medical value travel opportunity. Over the years, India has grown to become the preferred destination for medical value travel because it scores high over a range of factors that determine the overall quality of care. From quality of therapy, to the range of procedural and treatment options, infrastructure and skilled manpower, unmatched care and compassion, to zero waiting for any medical procedure, and availability of generic drugs, the list of benefits for medical travelers are many.

Healthcare costs in India are extremely competitive compared to those in developed countries and other Asian countries. This is especially for costly and delicate surgeries like cardiac bypass, kidney and liver transplant, hip replacement, dental services, cosmetic surgery and bariatric surgery. The cost of travel and accommodation is also low as compared to developed nations. India also attracts medical tourists from other developing nations due to the lack of advanced medical facilities in many of these countries.

The Government estimates that the size of the medical tourism market would be around 9 billion USD by 2020 amounting to 20% of the global share; up from a size of 3 billion USD in 2015.

Country-wise Cost of Ailments

Treatment USA US$ Korea US$

Singapore Thailand US$ US$

India US$
Hip Replacement 50,000 14,120 12,000 7,879 7000
Knee Replacement 50,000 19,800 13,000 12,297 6,200
Heart Bypass 144,000 28,900 18,500 15,121 5,200
Angioplasty 57,000 15,200 13,000 3,788 3,300
Heart Valve Replacement 170,000 43,500 12,500 21,212 5,500
Dental Implant 2,800 4,200 1,500 3,636 1,000

Source: CRISIL Research

The Indian Government has been facilitating easy entry for International patients into the country by providing special medical visas. It has introduced multiple policies such as the introduction of e-Medical visa , multiple entry visas and longer stays as required for treatment. Additionally, the Indian Government has been actively mandating accreditations to wellness centers and Medical Value Travel (MVT) facilitators. These initiatives have gone a long way is enhancing Indias image as a preferred destination for medical tourists.

the Increasing Role of technology in Healthcare Delivery

Technological ubiquity and adoption of emerging technologies and tools by healthcare stakeholders hold the potential to improve quality, affordability and accessibility of health care solutions, thus reshaping healthcare delivery across the patient pathway

In India, most recognized hospitals have been investing in supportive technology and operative techniques. The timely adoption of certain advanced technologies has enabled availability and advancements in robotic surgeries, radiation surgery or radio therapies with cyber knife options, intensity modulated radiation therapy, image guided radiation therapy, transplant support systems, advanced neuro and spinal options in the country.

New health technologies such as wearable tech, telemedicine, genomics, virtual reality (VR), robotics and artificial intelligence (AI) are changing the landscape of the Indian healthcare system. Like many other markets, India too is at the cusp of a ‘digital health revolution as a vast number of healthcare companies have started adopting digital technologies in areas such as patient engagement, physician engagement, field force effectiveness, R&D efficiency and supply chain management. As the pace of digital innovation in healthcare accelerates, so will the opportunities for healthcare service delivery institutions across India who are willing to embrace the digital health space over the coming years. Post COVID, it is expected that technology will be embraced at an accelerated pace.

Rising Investments in Healthcare

Infusion of long-term capital in the healthcare space goes a long way in strengthening the healthcare infrastructure of the country. Demand growth, cost advantages and policy support are some of the factors that have been playing a very important role in attracting FDI in the healthcare sector.

In the past few years, the Indian healthcare industry has attracted a lot of interest from leading global private equity players and venture capitalists. The growth in multispecialty and single-specialty hospitals in India has largely taken place due to the strong backing of PE funding. Many multinational players have been trying to deepen their presence through partnerships and investments.

The Government of Indias decision to allow 100% FDI in the hospitals sector led to a significant increase in investments from overseas funds into the sector. These trends indicate rising investor confidence in the Indian healthcare space and deepen the perception of India as an attractive healthcare investment destination.

Growing Health Insurance Market

Health insurance encourages the demand for healthcare services as the insured pays a premium for the policy which is reimbursed by the insurer in case he/she has to undergo treatment on account of illness, sickness or disease. The insurance covers the health expenses of the individual to an extent, reducing their burden of healthcare costs. Therefore, an expected increase in health insurance market will drive the demand for healthcare services.

The growing incidence of disease along with low Government funding has led to an increase in the financial burden for the general public in meeting increasing healthcare costs. This coupled with high ‘out-of-pocket expenses is proving to be an impetus for increased health coverage.

From the above charts, it can be seen that the market for health insurance is on a rise. The health insurance premium and the number of persons covered under health insurance have increased substantially from the levels were in 2013-14. Schemes providing health insurance coverage to corporate employees are further helping market penetration of insurance players.

The health insurance segment in India has tremendous potential as less than 20% of all Indians are covered under health insurance. In rural India, 86% of the population is not insured, and 82% of the urban population remains uninsured. Given that healthcare services get extended to this set of the population, the industry will witness tremendous growth.

Retail Healthcare

‘Retail in healthcare means creating opportunities for a clinical encounter in a space other than in the hospital. Basically, the philosophy of ‘Retail Healthcare is to meet the consumers healthcare needs right where they are. Today, consumers are looking for convenience while selecting a healthcare provider. Increasingly, consumers are choosing proximity over distance, opting for reduced waiting time, same-day scheduling and extended opening hours (including weekends). Therefore, locating services in a retail setting within a neighborhood has become very popular. Additionally, today there is growing interest among a large section of the population in maintaining good health and being medically fit. This scenario is leading to a higher demand for a seamless healthcare delivery format to treat minor illnesses within a relaxed environment rather than in a hospital.

These changing consumer preferences and the increased use of technology have successfully influenced the transition to retail healthcare. Retail healthcare begins with a focus on preventive health and extends to the treatment of low complexity cases. The key aim of retail healthcare is to provide several quality services at lower costs in convenient settings.

In order to satisfy consumers demand for convenience and flexibility, healthcare providers are designing locally relevant spaces that are tailored to specific needs. These spaces are primarily focused on vaccination, patient education, information sharing, specimen collection and reports, wound dressing and aftercare, injections and in-person and tele consultations. The Retail Healthcare business includes Primary Care Clinics, specialized birthing centers, single specialty clinics, primary health centers and diagnostic chains, apart from Dental, Daycare and Home Healthcare formats.

Globally, Retail healthcare has grown substantially over the last decade. All the verticals under the Retail Healthcare umbrella are emerging as significant opportunities in the healthcare landscape and providing sizable untapped avenues which will further drive penetration of Indian healthcare service providers into local communities and neighborhoods.

Single specialty healthcare centers operating under the Retail Healthcare delivery format have already experienced growing popularity over the past few years in India. The segment now includes multiple treatment categories in areas such as fertility, maternity, ophthalmology, dental health, dialysis and diabetic care.

Strengths

Rich Repository of Experience

Indraprastha Apollo Hospitals strong brand image and best in class working environment continue to attract and retain top clinical and professional talent from India and abroad. The doctors and supporting medical personnel at Indraprastha Apollo Hospitals are not only well qualified but possess rich experience in their respective fields. The efficient clinical and non-clinical staff at Indraprastha Apollo Hospitals is well trained to deliver the best possible clinical outcomes to patients. Indraprastha Apollo Hospitals senior management team has established a strong ecosystem which enables and motivates the staff in delivering a superior level of care.

The doctors at Indraprastha Apollo Hospitals have an enviable track record whether it is in terms of performing critical surgeries or medical procedures. Their domain expertise is revered and has gained acknowledgement from patients across the globe. Many specialists across Apollo Hospitals continue to receive multiple accolades and awards at different healthcare forums due to their expertise in the field of medicine.

 

Widespread Network

Indraprastha Apollo Hospitals has established various touch points which facilitate smoother access to services for its patients. By providing premium and affordable medical services over the years, Indraprastha Apollo Hospitals enjoys many competitive advantages like enhanced customer experience, economies of scale, cost efficiencies, wider reach, access to a larger patient base and the leverage of synergies.

 

Broad Spectrum of technological experience

Indraprastha Apollo Hospitals has been at the forefront in outlaying necessary capital for enhancing and embracing the best available medical technology. This approach has gone a long way in enabling best-in-class treatment for patients and helping them recover at a faster rate.

Most recently, Apollo Hospitals has launched its advanced App, Apollo 24/7, which provides the platform for seamless virtual consults with doctors, integrated medical records and prescriptions, and the ability to fill prescriptions through Apollo Pharmacy.

 

Comprehensive Offerings

Indraprastha Apollo Hospitals has taken considerable steps to ensure that access to quality care is not restricted to the hospital setting, but is also available outside of it or in a post hospitalization scenario. Today, Indraprastha Apollo Hospitals breadth of service offerings successfully spans the entire value chain of healthcare services.

 

High Brand Salience

Indraprastha Apollo Hospitals has built and maintained a strong leadership position in healthcare service delivery. As a leading healthcare provider, Indraprastha Apollo Hospitals is well-regarded in the industry. This position is largely due

to its unrelenting focus on consumer needs and safety, and its resolute spirit in maintaining its leadership position by embracing innovative cutting-edge clinical protocols. The reputation and trust built by Indraprastha Apollo Hospitals is a strong asset, and continues to attract large numbers of patients, very talented clinicians, and staff.

Weaknesses

Capital Intensive Nature of Industry

The Healthcare industry is highly capital intensive. The basic requirements for operating a medical facility, such as land; construction costs for specialized interiors; medical equipment; and manpower requires heavy investment. This can prove to be a barrier for expansion.

In addition, the maintenance of healthcare equipment also requires considerable expenditure. Also significant resources are expended on skilled manpower which includes doctors, nurses and para-medical staff comprising lab technicians, radiographers and therapists. It has been observed that once an enterprise is able to manage the initial capex requirement to set up a facility, the subsequent task of balancing day-to-day expenditure with competitive prices for healthcare services is challenging. Therefore, the basic cost of setting up and running a hospital is considerably high which escalates break-even levels and stretches viability.

 

Scarcity of experienced doctors and skilled medical professionals

The healthcare services industry is very manpower intensive. The quality of doctors and supporting healthcare professionals is critical to the eminence and efficiency of the business. India is a country with abundant manpower given the sheer size of its population. However, there is a huge gap in the provision of relevant education for a majority of this population and a dearth of competent training institutes for skilling the manpower. Therefore, skilled manpower - doctors, nurses and para-medical staff comprising lab-technicians, radiographers and therapists - are in short supply. Skilled professionals in the healthcare industry enjoy attractive opportunities both in India and overseas. Intense competitiveness amongst healthcare providers in urban areas has led to unsustainable increases in remuneration for qualified personnel. The availability of skilled professionals is therefore a challenge for setting up and profitably running a healthcare institution in India.

 

Regulatory Intensity

Multiple licenses and approvals required to set up a hospital is another barrier for private players to expand their operations. Today, apart from licensing and approvals, the prices of drugs and consumables are also being regulated by the Government. It needs to be understood that the value of output delivered by the sector is not just the sum of the value of inputs. There is an intrinsic value of services that needs to be considered.

From a regulatory point of view, there are many requirements which can prove to be onerous when compared to global norms like single window clearance. Better understanding between the various regulatory authorities and healthcare service providers is a must. It is important to understand that private healthcare service providers cannot be equated with other businesses. Healthcare service providers have to be viewed from perspective of the valuable services they are providing in the community.

 

Heterogeneous Markets

With a diverse and growing population, the need for quality healthcare services is a strong need in India. The requirements are different even in markets which are reasonably proximate. Every micro-market has a unique set of circumstances with variance in demographics, disease profiles, customer attitudes, seasonal variations, price sensitivity and so on. Hospitals in two different cities in the same state and even two facilities within the same city, have different operating circumstances with varying parameters. This necessitates a higher degree of customization and monitoring.

Significant management oversight is required in the face of these complexities for sustaining clinical standards, balancing case mix, ensuring adequate volumes and upgrading technology regularly.

Opportunities

Medical Value Travel

Medical Value Travel (MVT) is a growing multi-billion-dollar industry and is likely to grow further due to the many benefits that it offers to patients. World-class hospitals, equipped with best-in-class technology, skilled medical professionals and low treatment costs have strengthened Indias position as a preferred destination for medical tourism. Indian hospitals are able to offer superior services at comparatively lower costs. The assurance of quality healthcare facilities and cost-effectiveness are the two main factors that have been attracting millions of patients from across the globe for medical treatment in India. Proactive steps taken by the Indian Government like and e-medical visa, have also contributed to the growth of medical travel in the country.

 

Enhanced access and lower cost of delivery through Digital Solutions

Digital technology will play a crucial role in enabling access to healthcare for Indias masses. Ongoing digitization and the introduction of new technologies like telehealth, are already breaking down boundaries and creating patientcentric healthcare systems. Technology is enabling patients to book their appointments and opt for basic medical needs seamlessly from their homes. Doctors are able to access patient records at their fingertips and effortlessly provide consultations through the use of digital technologies and telemedicine. Technological development in recent decades has opened up ways to reduce distribution costs and increase healthcare penetration. Such solutions will be most successful in extending connectivity to rural and remote areas and offering first-class care without the burden of long trips to urban centers.

 

Changing Demographics

While India is considered to be blessed with a favorable demographic quotient given the relatively young population, it also has a very large number of ageing citizens in absolute terms. Therefore, Indian healthcare service providers have an opportunity to meet the healthcare expectations of the young and also attend to the increasing healthcare requirements of the elderly. Alongside, the country is witnessing a sharp increase in disposable income among several groups, including a burgeoning middle class, who can afford to pay for quality healthcare. These evolving demographics present an exciting opportunity to service providers.

 

Changing formats and consumer preferences

The general perception is that some hospitals tend to be intimidating to patients who respond better to a more relaxed atmosphere. Today, patients largely prefer accessing single specialty centers and other healthcare delivery formats for non-critical ailments. In order to cater to this trend, healthcare service providers have been providing a variety of options such as short stay centers, single specialty centers, neighborhood clinics, and home services. These alternate healthcare delivery formats are economically attractive as they require lower capital investment, achieve faster breakeven and deliver a better return profile. Some of these new formats have demonstrated greater specialization and the ability to create significant value as compared to larger multispecialty hospitals.

 

Preventive Health and Wellness

There is considerable rise in health awareness across the population of this country. People are increasingly realizing the importance of healthy living and are taking considerable efforts to adopt a healthy lifestyle. They are recognizing the importance of diagnosing a disease at an early stage and preventing critical illness. This awareness has led to a promising opportunity in the areas of preventive health and wellness, encompassing preventive health checks, diet and nutrition, exercise and well-being.

 

Underserved and Poorly Served Markets

Significant inequalities exist in the quality of healthcare services available in metro cities and large urban areas as compared to that in the rural areas of the country. Indias rural population continues to experience access barriers to quality healthcare services. Even persons with better resources and financial means have to commute to metro / urban areas to gain access to medical treatment or related health care services. Healthcare service providers who are willing to penetrate into semi urban and rural areas will benefit from a ready marketplace for their services.

Threats

Increasing Costs

Healthcare service providers are required to deliver profitable growth to their shareholders and ensure commensurate returns on the bourses. Controlling costs and finding ways to improve realizations seem to be the golden mean. However, input costs in healthcare have become significant and are only expected to rise in the coming times due to increasing competition.

There is a substantial demand for certain finite resources such as land, quality medical professionals and equipment. Healthcare players also have to constantly enhance and adopt newer technologies which increase overall healthcare costs. Additionally, with the Governments thrust towards price reduction through regulation, there is a real threat of hospital finances being rendered unviable. The constraint of incurring higher costs leads to long gestation periods and relatively low returns on investment.

 

Changes in Government regulations

In the last few years, the Government of India has taken a number of positive initiatives which have benefited the Indian healthcare industry such as National Health Protection Scheme (NHPS) and Pradhan Mantri Jan Arogya Yojana (PMJAY). However, some of the structural issues that hampered the sector were a cap on stent and knee implant prices, which among others, were brought under the NLEM list. GST implementation also had an adverse impact on margins since hospitals were unable to utilize input credit on input services as hospital services are under the exempt category.

Frequent regulatory interventions by Government agencies and the possibility of price caps on drugs and consumables in the future augur further challenges for the Indian healthcare service providers.

 

Heightened Competitive Intensity

The competitive intensity from unorganized as well as organized players continues to remain high. Given the growing demand for healthcare services, many entrepreneurs and business houses have been entering healthcare business. The sector has been witnessing rising interest from private and foreign players. They intend to invest and venture in the various segments available in the healthcare industry. Most of these newer players are seen offering services at lower costs as compared to established players and creating further competitive intensity. There are even pockets of overcapacity in certain metros and rising competition could lead to competitors adapting unfair practices in order to survive, hampering the growth and profitability of other players. Every market player, whether from the organized or the unorganized sector, is striving for market leadership.

 

Shortage of Skilled Manpower

There is an acute shortage of skilled healthcare resources in India. At 8 physicians and 21 nursing personnel per 10,000 population; India stands well behind other countries including other developing nations like Brazil on these parameters. Unless immediate steps are taken to increase the number of doctors, nurses and paramedics, the shortage of manpower will lead to prohibitive costs and derail the delivery of healthcare services.

Company Overview Excellence in Operations

Indraprastha Apollo Hospital offers international standard medical care in New Delhi, delivering multi specialties under one roof. The hospital offers world class treatment at an affordable cost, focusing on specific areas where it can optimize efforts and values. Transplants, cardiology, oncology, neurology and orthopedic with higher revenue prospects are some of the key specialties.

Apart from these specialties, the hospital has been able to deliver outstanding clinical outcomes in some critical cases and emergences.

Medical Value Travel

Today, India is considered to be among the most affordable and best providers of healthcare among all medical tourism destinations. In Medical Value Travel, India is ranked in the top three destinations in Asia along with Thailand and Singapore. Indraprastha Apollo Hospitals has always remained at the forefront of this initiative to make India a preferred Global Healthcare destination. State-of-the- art medical facilities and cutting-edge technologies have enabled it to attract International patients in large numbers. The hospital prides itself on having a well-established track record of providing clinical outcomes comparable to the best in the world at a fraction of the International costs.

Indraprastha Apollo Hospitals been successful in attracting a large number of patients from neighboring countries as well as from Middle East and Africa. Today, patients from ASEAN countries (Myanmar, Cambodia, Indonesia, Philippines) and the Pacific Islands (Fiji, Samoa and Tonga) trust the hospital for their healthcare needs.

The Government of India has undertaken several initiatives to support medical tourism which in turn is enhancing Indias image as a preferred destination for medical tourists. For e.g. The Governments steps such as visa on arrival and e-medical visa have made the modalities of admitting foreign patients a lot easier. The hospital offers a wide range of high-quality services including Preventive Health Checks, Organ Transplantation (kidney, liver and cornea transplantation), Robotic Surgery, Cancer Treatment, Joint Replacement Surgery, cosmetic procedures, eye procedures, brain and spine surgeries, etc. Indraprastha Apollo Hospitals is extremely well positioned to leverage the opportunity emerging out of the growing Medical Value Travel segment in the country.

Infection Control and Environment

The Infection Prevention and Control Program, has been an integral part of the organization since its inception. Catering to and synchronizing with the global and national needs, the program focusses on decreasing preventable Health Care Associated Infections to a minimum, and supports a robust Antimicrobial Stewardship Program aimed at judicious use of antimicrobials. Like previous years this year also various campaigns focused on infection-prevention and control measures and towards Antimicrobial Stewardship (AMS).

Early and accurate diagnosis of infections, continuous interaction with treating teams on antimicrobials, focus on appropriate prophylaxis, non-inclusion from our hospital formulary, of antimicrobials without high impact scientific supportive evidence and strict vigilance of highly restricted antimicrobials which are not allowed to be issued by the pharmacy without clearance from Infection Control, are some of the measures instituted in this direction. Periodic review of antimicrobial guidelines is carried out. A new program addressing the community awareness on AMS by inclusion of public awareness note on each discharge summary, has been incorporated and is a unique drive in this country.

Continuous efforts have been made towards an increase in Hand-hygiene through innovative tools and reinforcement so as to spread the message not only hospital-wide but across other medical institutions and to involve the community also in this most important hygiene aspect.

Through implementation of ‘bundles (of measures) and various campaigns as above, our healthcare indices currently stand 0.7, 1.3 and 1.1 respectively per 1000 device days for central-line associated bloodstream infections (CLABSI), ventilator associated pneumonia (VAP) and catheter associated urinary tract infections (CAUTI) and are comparable to the best healthcare centers, globally.

CoVID-19 Response

Early recognition of the impending danger from a new virus SARSCoV-2 causing COVID -19, helped us to start disseminating information and advisories to all healthcare workers of the institution and to attendants, visitors of the patients and to the community. We started preparations on infection prevention and control way back in January 2020 which helped the institution in keeping abreast with rapid changes in the country and in meeting the scourge effectively. Adequate training and retraining on PPE, hand hygiene, respiratory and mask etiquette and instilling other Infection Protection and Control (IPC) measures, and social distancing were rolled out immediately. Raising appropriate infrastructure with pressure gradients, engineering preventive adjustments, staff flow and patient flow, addressing Biomedical waste and creating and implementing amended SOPs in each area of the hospital, were additional priorities. As the cases kept mounting, we were also quickly addressing new challenges arising out of the increasing requests and rapid changes as per national and state guidelines and advisories, under challenging circumstances. We were closely aligned with the government in ensuring the response was quick and efficient. This has reinforced the faith of the community, the state and that of the national leadership, in our program and institution. We are amongst the first corporate healthcare providers to be accorded permission to start diagnostics and admission of COVID patients in specified designated infrastructure created for this purpose in record short time. Indraprastha Apollo Hospitals takes pride in being able to support the government in this manner and help the nation in this time of dire crisis. We diligently continue our efforts respond well to the needs of the state and the nation in the current COVID-19 pandemic.

Indraprastha Apollo Hospitals also has the privilege of continuing as the current secretariat for the Hospital Infection Society - India. There is active representation in various important expert committees in the Bureau of Indian Standards including Biomedical Waste and Infection Control Committee, the Antimicrobials Resistance (AMR) Containment Program of Ministry of Health and Family Welfare, Government of India, The Patient Safety Program of Government of India and AMR Containment program of Government of NCT of Delhi and various other programs of WHO-WR for India in healthcare associated infection prevention and control, as well as antimicrobial resistance containment.

Awards and Accolades

The Hospital received a number of awards and accolades during the year. Some of them are as under:-

Award Category/Project Awarded
CSR health impact award 2019 (3rd annual edition) Wash Initiative
CAHOTECH 2019 Award DIAL 77
Hospital Management Awards (HMA) Everyone Goes Home Safe - Creating A Culture Of Safety
FICCI Healthcare Award Uberization of Patient Transportation
Week Nielsen Survey Best Multispecialty Hospital
Swacch Hospital Award On 150th Gandhi Jayanti (by Ministry of Urban Affairs and Noida Authority)
Medical Value Travel Awards Liver Transplant Kidney Transplant
Qimpro Foundation Uberization of Patient Transportation Dial 77
ASSOCHAM Conference-cum- Awards Best hospital for Diabetes Outreach Programs
AHPI Healthcare Excellence Award, 2020 Nursing Excellence
Economic Times Healthworld.com Hospital Awards Plastic Surgery

Risks and Concerns

Given increase in operations, our organization is exposed to a wider range of risks and uncertainties. These internal and external factors may affect performance of the organizations objectives - whether they are strategic, operational or financial.

Indraprastha Apollo Hospitals operates in a business environment that is characterized by increasing competition and market unpredictability. It is exposed to a number of risks in the ordinary course of business. This is inevitable, as there can be no entrepreneurial activity without the acceptance of risks and associated profit opportunities.

At Indraprastha Apollo Hospitals, we identify business sustainability risks and opportunities on an ongoing basis and integrate these into our existing risk management framework. We have adopted certain processes which continuously enhance risk awareness and promote a culture of risk management.

The Board of Directors has constituted a Risk Management Committee comprising of Senior Management Personnel headed by the Managing Director to ensure that internal financial controls are in place. The Risk Management Committee identifies, assess, prioritize, manage, monitor and communicate suitable measures to manage such risks. The status of major risks faced by the Company and majors taken to address and minimize such risk are being reported on quarterly basis to the Board of Directors.

The risks that may adversely impact the functioning of the Company include, but are not limited to:-

• Competitive intensity and new entrants to the market

• Pace of obsolescence of technology and treatment methods utilized by us

• Inflationary pressures and other factors affecting demand

• Increasing costs of wages, materials, transport and storage

• Labour shortages and attrition of key staff including medical professionals

• Increased statutory compliances and regulatory pressures including changes in tax laws

• Complaints before the Consumer Courts filed by patients or their relatives against the hospital and the Consultant Doctors for medical negligence.

• On a Public Interest Litigation (PIL) regarding free treatment in the hospital, the Honble Delhi High Court vide its order dated 22nd September, 2009 has held that free treatment provided by the hospital shall be inclusive of medicines and consumables. The company has filed a Special Leave Petition before the Honble Supreme Court challenging the order of the Honble Delhi High Court. The Honble Supreme Court of India has admitted the Special Leave Petition and has passed an interim order on 30th November, 2009. In pursuance of the interim order, the Company has been providing free treatment to the patients referred by the Govt. of NCT of Delhi and has been charging only for medicines & medical consumables. The financial impact in the matter can be quantified only upon the final decision by the Honble Supreme Court of India.

• Increasing pricing pressure from insurance companies, e.g., requests for discounts on rack rates, medication etc. will have an adverse impact on margins and revenues.

• The unprecedented COVID-19 pandemic has resulted in major revenue impact for the hospital. This is due to various factors such as sharp drop in OPD revenues, elective surgeries, consultations and international patients. If this trend continues, there will be losses and severe impact on cash flows.

Internal Control Systems and their Adequacy

We are committed to maintaining a high standard of internal controls in our operations. Our internal controls deploy a well-designed robust system which allows optimal use and protection of assets, facilitates accurate and timely compilation of financial statements and management reports, apart from ensuring compliance with statutory laws, regulations and company policies.

While no system can provide absolute assurance against material loss or financial misstatement, our robust internal control systems which are reviewed periodically provide reasonable assurance that all of our assets are safeguarded and protected. Our Internal control system is designed to manage rather than to completely eliminate the risk of failure to achieve business objectives.

The internal control system is designed to ensure that all transactions are evaluated, authorized, recorded and reported accurately. In addition to this, extensive budgetary control reviews the mechanism for timely review of comparison of actual performance with forecasts.

Such internal control procedures are further augmented by an extensive programme of internal, external audits and periodic review by the management.

Our management is responsible for assessing the business risks in all aspects of its operations and for implementing effective and efficient processes and controls whilst ensuring compliance with internal and external rules and regulations. While reviewing our internal controls, sufficient regard is given to the risks to which the business is exposed, the likelihood of such risks occurring and the costs of protecting against them.

Financials

Discussion on Financial performance and Results of operations

The financial performance of the Company has improved in the financial year 2019-20. The total revenue grew from ? 7,886.39 million in FY2019 to ? 8,314.55 million in FY2020.

The following table shows the key drivers of our revenues for the periods presented:

Particulars 31.03.2020 31.03.2019 increase (decrease) % increase (decrease)
Discharges 56,969 58,229 (1,260) (2%)
Revenues per patient (?) 145,828 135,225 10,603 8%
Average length of stay (days) 3.29 3.38
Out-patients 490,042 511,026 (20,984) (4%)
Revenue per bed day (?) 44,333 39,984 4,349 11%

 

Expenses

Salaries and Benefits

Our salaries and benefits expense of ? 2002.05 million during FY2019 increased by 7% to ? 2139.30 million in FY2020. Year ended March 31,2020 ( in million)

Particulars 31.03.20 % of revenue 31.03.19 % of revenue increase (decrease) % increase (decrease)
Salaries, wages and benefits (excluding managerial remuneration) 2,102.99 25% 1,962.04 25% 59.30 3%
No. of employees 3,215 3,022

 

Professional fees paid to doctors

During the year, professional fees paid to doctors has been increased from Rs 1975.55 million during FY2019 to Rs 2007.93 million during FY2020.

 

Administrative Expenses

The following table summarizes our operating and administrative expenses for the periods presented Year ended March 31,2020 (? in million)

Particulars 31.03.20 % of revenue 31.03.19 % of revenue increase (decrease) % increase (decrease)
Repairs and maintenance 192.58 2% 180.5 2% 12.08 7%
Rents and leases 20.17 0% 49 1% (28.83) (59%)
Outsourcing expenses 524.13 6% 467.07 6% 57.06 12%
Marketing and advertising 489.62 6% 433.97 6% 55.65 13%
Legal and professional fees 51.4 1% 37.9 0% 13.5 36%
Rates & taxes 33.45 0% 36.47 0% (3.02) (8%)
Provision for doubtful debts & Bad debts written off 26.22 0% 23.64 0% 2.58 11%
Other administrative expenses 442.9 5% 418.16 5% 24.74 6%
Total 1,780.47 21% 1,646.71 21% 133.76 8%

 

Provision for Income Taxes

The provision for taxes during the year ended March 31, 2020 is Rs 45.68 million compared to Rs 162.08 million in the previous year ended March 31,2019.

Human Resources

Our people form the nucleus of what we do at our hospital and we acknowledge the contribution of all our employees in our journey. The total number of employees in the Company as on 31st March, 2020 was 3215 as against 3022 employees in previous year. The Company has also engaged contractors for various support services in the Hospital and they have deployed 1052 workers as against 1024 workers in previous year. Besides the above, there are Consultant Doctors who work on a ‘Fee for Service basis.

These diverse employees bring their experience, culture and commitment to the work they do everyday to improve the health of our patients. Every employee of our family has embraced our philosophy of "Tender Loving Care" in the Patient Care journey.

We understand the value of diversity in culture, language, religious beliefs, and gender, and have been a key supporter to nurture the same in the company. Therefore, the Group strives to build a conducive work environment which embraces diversity and fosters inclusion. We are committed to nurturing and developing potential leaders that can continue to enhance our values and culture further.

We believe that the foundation of outstanding quality care is a highly skilled, caring workforce that is proficiently trained to provide personalized and evidence-based care. Therefore, our success largely depends on the high level of skills, commitment and professionalism of our people. Continuous learning is an integral component of the HR system which empowers our employees to be well- prepared for providing superior patient care. The human resource systems and procedures, and the organizations environment, encourage creativity and innovation whilst driving dedication and efficiency amongst the employees.

We are aware that commitment and competence of our employees are key drivers of overall organizational performance and thus we endeavor to strengthen the organizational culture and retain the best talent. As we plan for the future, our workforce continues to grow and we continue to focus on attracting the best talent in the country and across the globe.

Cautionary Statement

Some of the statements in this Management Discussion & Analysis describing the Companys objectives, projections, estimates, expectations and predictions contain certain ‘forward looking statements within the meaning of applicable laws and regulations. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Important developments that could alter your Companys performance include increase in material costs, technology developments and significant changes in the political and economic environment, tax laws and labour relations.

For and on behalf of the Board
Dr. Prathap C. Reddy Suneeta Reddy
(DIN : 00003654) (DIN : 00001873)
Vice Chairman Director
Place: Chennai Date : 24th August, 2020