Main Story

A 'Care'ful Expansion

Starting off from just 100 beds to 2000 beds today, the journey for Care Group of Hospitals has just begun. Reports Sonal Shukla

Dr B Soma Raju Chairman and Managing Director Care Group of Hospitals

A CII-McKinsey report projects that, the share of Indian private healthcare players will rise to $ 34 billion by 2012, as they capture more than half of the Indian healthcare market. In this race between leading Indian hospital chains, Care Group of Hospitals is one giant to watch out for, as it gears up to make a pan India presence. The Group is rapidly expanding in tier II and III cities in south and central India and has even ventured into the not so 'popular' rural healthcare space, to facilitate healthcare in the remotest corners of rural India.

Phase-I of the Group's expansion has seen doubling of its bed strength to 2000, by mid 2008. It has a grand target of achieving a bed strength of 5,000 by end 2010. "Care will proceed as per its short and medium term business plans, based on long-term vision of creating a model healthcare delivery system across the country. We will incorporate any interim public policy decisions in our plans as and when they arise," says Dr B Soma Raju, Chairman and Managing Director, Care Group of Hospitals.

The Group's short-term plan is to stabilise upcoming units, organic growth of existing units and increase the range and depth of specialties. The medium term plan is to double up capacity in existing cities, scale up ancillary business lines like primary health, home health, clinical research and medical and paramedical education. The Group plans to invest Rs 500 crore for its overall expansion. The initial expansion from 1000 beds to 2000 beds is funded through debt and private equity. N Prasad (main promoter of Matrix Laboratories) and Rakesh Jhunjunwala invested in the Group in 2005-2006. "This investment provided strategic strengths to the company. Their vision and commitment helped the company to draw an ambitious plan and successfully implement phase I," says Dr B Soma Raju.

Likewise, the UK-based Ashmore Investment Management has invested Rs 90 crore ($23 million) in Quality Care India Limited, (QCIL), the holding company of the Group. The funds will be used to partly fund its Rs 150-crore phase-I expansion plan. The remaining Rs 60 crore needed for expansion will be raised through debt and internal accruals. The Group may also consider going public. "Care believes the ideal equity debt ratio for healthcare is 1:1 and in the second phase of expansion we can leverage it by taking debt against it. We have not yet decided about the IPO route, however we will consider it at an appropriate time," says CVR Murthy, Financial Advisor, Care Group of Hospitals.

Eye on Tier-II

"Care will proceed as per its short and medium term business plans, based on long-term vision of creating a model healthcare delivery system across the country" - Dr B S Raju Chairman and Managing Director Care Group of Hospitals

"Surat has many scattered small nursing homes, but is devoid of any big multi-speciality hospital. They have to either shift at Ahmedabad or Mumbai" - Kasi Raju COO Care Group of Hospitals

"The hotels have rooms similar to hospitals and they also cost less as compared to renting a mall space" - Dr Krishna Reddy CEO Care Group of Hospitals

The union budget announcement of a five-year tax holiday for private players venturing into tier II cities has given an impetus to the Group's plan to tap the potential in these markets. The Group identified a huge demand and supply gap in multi-specialty care in tier II cities. "There, markets are dominated by nursing homes and small hospitals with limited range of services," says Dr Krishna Reddy, CEO, Care Group of Hospitals. As a matter of fact, there is a strong need for organised multi-specialty tertiary care services in these cities. Kasi Raju, COO, Care Group of Hospitals cites the examples of Surat, in Gujarat, which has many small nursing homes scattered all over, but is devoid of any big multi-specialty hospital "Hence, patients have no other option but to shift to the bigger hospitals situated in Ahmedabad and Mumbai, leading to inconvenience. In fact, in cases of emergency it can be a crucial matter of life and death," he points out. The Group has also taken a reality check that lifestyle disorders and cardiovascular ailments have a very poor delivery system in these markets.

Step by Step

Considering the strong growth of the middle class and a widening demand and supply gap in these markets, the Group has planned to scale up its tertiary care model across the country. "We have a strategy on the sequence of scale up, from South to North and from tier II to all cities" states Murthy. The Group has its eyes on the key tier II cities in the states of Maharashtra (Pune and Nagpur), Chhatisgarh (Raipur), Orissa (Bhubaneshwar), Gujarat (Surat) and Andhra Pradesh (Vizag with second unit opening shortly). "We have commenced five hospitals so far in these states and are in the process of opening one in Kochi. These locations will be further consolidated in future to create centers of excellence in each of the states," states Dr V Krishnamurthy, Director Care Vizag. The Group has plans to start 300-500 bed high-end multi-specialty tertiary care hospitals in tier I cities like Bangalore, Mumbai and Delhi by the year 2012. Hospitals started by the Group in tier II cities will act as referrals to these Hospitals. (For more information See Box)

Brownfield Focus

As the tier I cities already boast of good infrastructure, penetrating tier II and III cities has been a challenging proposition. Low professional availability, resource constraint, inadequate medical infrastructure, low income levels and unethical practices are big roadblocks in the path to expand in these markets. "A business model which utilises local resources, trains local manpower, corrects deficiencies and overrides constraints by constantly innovating new models will be able to service in the long run," opines Murthy. To penetrate tier II markets, the Group wants to concentrate only on brownfield projects and would not like to venture into greenfield projects in the immediate future. It is following the 'Light Asset Model' for expansion. The forte of this mode of expansion is that it runs its business in leased premises. This 'no frills' approach facilitates low project cost, shorter gestation period and also a competitive tariff fixation advantage. "We are not considering greenfield projects for expansion in these markets as it puts a lot of pressure on project implementation," states Murthy.

Care Hospitals, Nagpur

Care Hospitals, Surat

Thus, the Group is considering a dynamically evolving model in sync with local partners who are willing to carefully construct the delivery model in terms of capital efficiency, IT enabled remote services and monitoring, efficient operational and clinical protocols and minimum frills. What makes the Care model stand apart is its low-investment per bed compared to normal industry standards and that too without compromising on medical equipment, infrastructure and other investments which affect clinical outcomes. "Considering that the units also have to adhere to Group's philosophy and value systems, we are assessing the initial response and challenges before we further consolidate in these markets," states Dr Reddy. The Group has specifically chosen all cash positive companies as its partners in all cities where it has established care facilities. Additional bed capacity will be added in these units as per bed occupancy. The market assessment by the Group suggests that each location will require about 500 to 750 beds for over a 10 year period. "Considering India's expected GDP growth of 7-10 per cent in the medium to long run, these cities will definitely grow bigger and bigger and will require these capacities to cater to healthcare needs of people in and around," opines Dr Krishnamurthy.

As per its expansion plans the Group has concentrated on growing organically for its existing units. Last year, it increased the bed strength of its main Banjara Hills Hospital from 325 to 430.

Hub and Spoke Model

Tier II centers of the Group will act as a hub for its secondary and primary care initiatives. It is cautiously piloting rural health delivery model in Maharashtra and Andhra Pradesh where it has strong presence (Nagpur) thanks to the availability of suitable partners like ITC's e-Choupal. The Care Foundation supporting the Care Hospital chain has developed a self-sustaining model to reach out to patients in peripheral towns and villages in those states, providing them primary, secondary and tertiary care. This initiative is known as 'Care Arogya - Rural Health Initiative.' "Based on pilot results, the same can be rolled out across the country. We would like to assess the operational feasibility and viability before we plan to scale up the system," says Dr B Soma Raju.

The Model that 'Cares'

While expanding at a rapid pace across various locations, the Group has also preserved its own unique business model involving all practicing doctors as owners of the company. A physician led model akin to Mayo Clinic and Cleveland Clinic, this model encourages medical staff to invest and participate in strategic plans. However, it is not a condition to have practice privileges. Also, it does not preclude private investment. "We have adopted a flexible business model while ensuring that the Care philosophy is not compromised. We have been partnering with people who believe in it and the Care model," states Dr B Soma Raju.

The hallmarks of the Care model is that it encourages teamwork, collective patient responsibility (not passing the buck), ensures quality by constant engagement with patient by team members and sharing of skills (no one becomes indispensable) and encourages further specialisation and research in area of interest (increasing depth of specialty). The limitation is that this model is not for every player but is suitable for only academic, research and service oriented professionals. Secondly, it does not encourage participation in prevalent referral practices in the market, thereby slowing the inflow of referred cases. "While expanding, this concept has helped build on a reputation of excellence in clinical care with clean ethical image. The model also held the team together despite market temptations, pulled in like-minded professionals who were waiting for us to start in their cities. In short, this model helped us survive and grow, given our unique business strategy," states Dr Reddy.

Hotels and Healthcare

A hospital that looks like a hotel is not news, but a hotel that becomes a hospital creates a buzz. In this regard, the Care Group can be considered a trendsetter of sorts for it is actually buying out and converting hotels into hospitals. To date, it has converted four five star hotels - Bhaskara Palace, a five star hotel in Banjara Hills and Sampurna hotel Nampally in Hyderabad, Radhika hotel in Nagpur and Kalyan hotel in Surat. "When one looks for prime locations for expansion, they either bump into the option of a mall or a hotel. The lease rates of a mall are always sky-rocketing. However, for hotels they are relatively low. Also, the hotels have rooms like we have in hospitals," explains Dr Reddy. One would applaud this expansion route as a well thought out strategy, but ironically he dismisses this assumption. "It was not a strategy! It just happened that way. Our experience helped us to adopt the infrastructural constraints of a hotel building. There is a huge potential just to reinvigorate existing infrastructure in India, before we pour capital into new infrastructure," states Dr Reddy. The Group is also keen on partnering with various trust, teaching and public hospitals.

This is one evolving organisation which despite its conservative approach, has witnessed rapid growth in terms of size and business, growing from a mere 100 bed single specialty facility to a nearly 2000 bed multispecialty, multi-location and multi-state entity within the span of a decade. "We would like to create a healthcare institution which will encompass delivery, education and training, and research and development through a network delivery model across the country with a mission of providing high quality care at affordable costs and a core ideology of ethical and correct medical practices," concludes Dr B Soma Raju.

sonal.shukla@expressindia.com