Our Caribbean ops bring us close to US mkt: Narayana Health's Viren Shetty

In a Q&A, the executive vice-chairman of the hospital chain dwells on lessons from the pandemic, says hospital industry has always been dollar-exposed and thus had pressure on margins

Narayana Health has extensive expansion plans within and outside India. While medical tourism is yet to get back to pre-pandemic levels, overall patient volumes are rising in the domestic market. Speaking to Sohini Das, Narayana Health’s (NH) executive vice-chairman Viren Shetty talks about the lessons learnt from the pandemic, and what's next for Narayana Health. Shetty, son of NH’s chairman and renowned doctor Devi Shetty, also says the hospital industry has always been dollar-exposed and thus had pressure on margins. Edited excerpts:

Can you elaborate on your overseas expansion plans?

Our investment in the Cayman Islands is actually being added to our main campus over there. It is closer to the city and is a cancer hospital. This had been announced earlier and obviously due to a lot of delays during the pandemic and it has been very difficult to get material in and out because Cayman is an island. Everything needs to be flown and shipped. We are estimated to spend about $100 million on building an oncology-focused daycare surgery centre. Outside of that, we are adding much smaller investments in clinics, diagnostic centres, and things to bring our services closer to the people in the Caribbean. We are also pursuing opportunities in different parts of the region. So, outside India, the place we're placing most of our focus right now is the Caribbean.

The Cayman Islands has a small population. What are the plans to cater to a wider geography?

A: It is small, but they all need something and it has not been provided to them. Most of them had to fly out to the US or other places to get care. So, while very small, we are also very controlled in the number of services that we are offering. For us, it isn't just doing surgeries--we also want to get into primary care, secondary care, daycare work as well as a few things that are very advanced like robotic surgery and oncology.

Is there any North America expansion plan?

Yes, there is. We are just thinking many years ahead into the future because like I said, all the Caribbean islands put together are all very small. They don’t even equal the population of one Indian city and it's only a matter of time before we run out of opportunities to expand over there. But since we are close to the world’s largest market for healthcare, at some point in the future, we may look at expanding there. We are talking to people and are exploring the kind of role we can play, but it's still very early.

In India too, around Rs 1,000 crore investment is planned…

Our focus areas are Bengaluru and Kolkata, which are our oldest cities. They have our oldest hospitals and that’s where we are struggling to be able to admit as many patients as are coming today. Even today, the OTs are running full, the ICUs are full and we're delaying surgeries for many patients and keeping them there until we are able to process. So we desperately need capacity in both cities. That’s the highest priority. Outside of that, we're looking at brownfield investments in our existing hospitals in Ahmedabad, Jaipur, Delhi and Raipur, where we’ll be adding one floor, 20 beds, 50 beds, oncology, certain OPD blocks like that. The Rs 1,000 crore is mostly a large investment in additional campuses to the existing ones in Bengaluru and Kolkata. Since we lack space, we had to go to different locations, buy land and put up a large building. Now these are long-dated projects and it will take 2-3 three years for construction to happen, by which time the situation will also change--more and more people will need healthcare, and we'll have to invest even more. But there is overwhelming demand.

How many beds do you plan to add over the next 2-3 years?

A. Between the two hospitals we are planning in Bengaluru and Kolkata, we would look at 600-800 beds, but not all are the kind where you can sleep overnight. Most of the capacity coming up in Bengaluru, for example, is for out-patients because we neither have enough space for doctors to sit, nor enough for pharmacy. We need a very large lab, and a large number of OTs. So, those don’t really count as beds. In Kolkata, we are building a large hospital campus that will include beds. So, it's not entirely bed driven, but it's more capacity driven.

You want to bring down the in-patient contribution to revenue from 75 per cent to 50 per cent. Can you elaborate?

One of the major vulnerabilities for healthcare organisations such as ours is that we are only relevant for a person at the absolute end of the healthcare journey. Everything that happens before that, from the time they start to feel a little uneasy, from the time they take the medicine, get a diagnosis, have to talk to some doctors, we are not participating in any of that and more often what happens in this country is that people may not get the best advice. They may be recommended surgery too late, they may be recommended surgery too early, and they may be put on the wrong sort of drugs. So, for us, we believe it’s very important that if we want to be a total healthcare provider, we have to be there for the patient from time they start to feel a little uneasy, but it’s hard because not everyone wants to go to a hospital for every little thing. So, part of this is another amount of investment, not on the same scale of adding hospitals, but another investment in building clinics much closer to where people live - close to their apartment, close to their office, close to the main road, which are smaller, which allows them to consult, which also gives them the option for them to talk to doctors on the app or the medicines online or for someone to come home and take the test. So, those are things that will be valuable for our patients in the cities where we are present and that's part of the thing we are doing. So, at least half of our revenue should come from people not in the hospital.

Will you get into small specialty hospitals like childcare etc?

Our business model depends a lot on scale. It's about running very large campuses, focusing across the spectrum, investing in huge amounts of equipment. One MRI can't just be used for one department. We use it across multiple departments so it makes sense to buy a very high end MRI. For the way in which we operate, running a single specialty chain of hospitals may not make sense. But there are people who have done it very successfully, positioning themselves at the premium end and that makes sense for them. It may not necessarily make sense for us. What we would experiment with is trying to do maybe in our daycare surgery or retail clinics or things that are slightly smaller format, but still multi-specialty.

Is there a post-Covid strategy?

The biggest change we will implement is from our learning during Covid19, but it does not just apply for the pandemic. It is that people want to spend as little time as possible in the hospital. During Covid-19, people were scared and they did not want to visit hospitals. So, we had to ensure they spent as little time as possible. Now, this has become a matter of convenience, and not just about infection control. We have to invest in a lot of things on the back-end, good scheduling system, an application for patients to coordinate, etc.

Lots of capacities were added during Covid – for medical oxygen, temporary manpower, etc. How do you plan to utilize them now?

There was a need that we have seen even before and a trend that is going forward where you will come to the hospital only for very specific things. Either you are very sick or you need some sort of procedure. So, now because maybe that investment could have happened sometime in the future, but it's happening right now where every bed becomes an intensive care bed, which has oxygen suction, monitoring and soon. So, it is part of a long standing trend, maybe it has accelerated a lot. So, the infrastructure has been built. All of us, not just our group, but all the other groups are very prepared for even a general ward bed, private room bed and all of them to be converted to an intensive care bed overnight.So that gives us that flexibility to adapt.

Any discussion with the government for creating hospital infra for the next pandemic?

There are many discussions and there were discussions for this long before the pandemic. The need for more hospitals in the districts, tier two towns was acute even when the most important concern in our country was elective surgeries, which are things that are not emergencies. Heart disease still kills many more people than COVID does, diabetes also, kidney problems. Those are major epidemics that go unnoticed. But this can only be solved by producing an excess supply of doctors and nurses. We can’t as a country think that we should only produce only exactly as many doctors as we need. You have to produce excess. So, with the government, I would say that the discussions are not so much about adding the hospital bed.You need the raw material. Raw material is people. So, we need more medical colleges, we need more doctors, and more nurses to be trained.

How many of your hospitals are treating Ayushman Bharat beneficiaries?

All our hospitals accept patients carrying Ayushman cards because that is part of our mission that we have to treat patients coming from everywhere, regardless of their ability to pay. So, there are zones dedicated for treating Ayushman patients and we will continue taking care of them.

Has your Jammu hospital broken even?

So, the Jammu hospital is a very rare example of a successful PPP project. The hospital was built and owned by the Shri Mata Vaishno Devi Shrine Board, which is a wholly owned trust of the government. They had built this beautiful hospital, but they couldn’t get anyone to run it. So, we came in and we said look, we will run it for you and as per our agreements, initially, we were supposed to take a percentage of profit, but now we said we don't even want that. This is our service to the nation; we will run that hospital for free as long as they are able to cover the cost. It has been 5.5 years since the hospital operation. It's been extremely challenging doing anything in that state, very difficult to get doctors and our hospital is not in Jammu; it is in Katra. So, it’s a little far away, but we have some of the best doctors of the state, we have the best equipment and it has broken even consistently for the past 2.5 months and this hospital does 60% of the patients under the Ayushman program. So, it is extremely affordable, providing the best as we can and does not make a profit, but just about break-even.

Any such plans for the North-East?

So, for the Northeast, it will be pretty much the same sort of concept where the government is able to build infrastructure provided, running with our expertise, with our ability to get the best talent and run a hospital very efficiently. We can run it at least on a no profit, no loss basis, but you have to understand it’s very expensive. You are trying to run a world class tertiary care hospital. These things can’t be done unless a significant amount of capital investment comes in. So, for example, we would not be able to make that investment because we borrow money from the banks and the banks expect to make interest payments. So, if I’m borrowing around 8% to 10%, then over and above that, we need to make a return for shareholders, which is another. That’s even 17% to 18% on top of that, which is the base level. When you go into troubled areas, you have to run it on a no-profit basis. So, this combination works best.

Is medical tourism back to pre-pandemic levels now?

It still hasn’t recovered because the flight schedules are not as frequent as they used to be. Connectivity is very hard. There are a lot of difficulties for a lot of people to fill out Air Suvidha forms, get RT PCR done, get the visa and so on. So, its becoming extremely challenging. I don’t expect the medical tourism volumes to pick up to prior levels anytime soon. If they do, it will only be because all travel restrictions are removed, but if the current systems still continue as they are, its very difficult to expect very old, very sick people to travel across countries with as it is the hassle of managing the medical issues and they also have to manage these new laws that have been put in place.

But for us, it doesn’t  matter so much because our volumes have bounced back to pre COVID levels and higher just on the domestic volume because there’s just so many more people who suddenly realize they are a lot sicker than they thought they were. COVID made them much more aware of their healthcare needs and so for us, we are very happy being domestically focused and focusing on our immediate vicinity for all our hospitals.

How has the first quarter of FY23 been like in terms of patient footfalls, elective surgeries?

On the current run rate, it has grown above the pre COVID levels for all departments, barring the Covid related ones. I think the only thing that we'd be worried about is if these waves will keep happening. As we’ve seen in Western Europe and in the US, a large number of waves are constantly happening, but not associated with a rise in hospitalizations.

Where do you see Narayana Health in the next 5 years?

Without getting any forecasting, I will say that there is a level of growth that we’ve been able to sustain pre-Covid. We believe we can sustain that both on the revenue growth as well as the output growth, because like I said, we’ve made a tremendous number of investments in capacity, in improving our throughput, in doing very high end surgeries like robotics and oncology surgery and so on. So, that should sustain. So, over the next year, we will maintain the average levels of growth that we are seeing pre-Covid. For the next five years, we are making investments in infrastructure at several hospitals. This should kick in three years from now, as for the next two and half years there will be construction work and disruptions in the facilities.

Have margins in the hospital sector started to recover, or still under pressure?

They have always been under pressure for a lot of reasons. One is that there are a lot of inflationary pressures for industries and for places like steel, FMCG; they are acting like this is a very new thing. For us, we have always had inflationary pressures because our input materials, medical equipment we buy a lot of the drugs or the APIs come from abroad. So, the medical industry has always been extremely dollar exposed. So, on the cost side, there has been tremendous pressure and that has continued. So, a lot of the drug manufacturers we work with have indicated that rather than 3% to 4% price increase, they are looking at 10% to 15% price increase. Similarly, we had to increase the salaries by a lot in COVID because it was a very difficult time and a lot of staff put their families at risk and we had to completely rejig our manpower cost and manpower costs has always been in excess of inflation because there is environment of scarcity for medical care. Not just this temporary thing.

For us for the past 20 years, as far as I can remember, there has always been a shortfall of doctors. There has always been an above normal wage increase. So, on the cost side, huge pressure has been there. The other has pressure on the topline as well because private insurance companies, they are all part of these cartels that negotiate together and what they do is they conspire to fix the price. So, it's very difficult to get any sort of price increase over there, the government does not revise their rates. Whatever rates they offer now are the same that they were offering in 2014. Inflation, CPI increase doesn’t matter for them. This is what they pay. You take it or leave it.

The only way you can make sense out of this is by either increasing volumes, improving your efficiencies or by going into higher value added surgery. So, that means a lot of the bread and butter procedures from 20 years ago occupy a very small percentage of the procedures we do now and we get into higher end procedures because that’s where you can at least sustain and pay salaries and be able to afford to invest in infrastructure. So, margin pressure is always there, and will continue to be there, but that’s just part of the industry.