To nurse Fortis back to health, CEO plans to cut costs by 20%

The new CEO at Fortis Healthcare Ltd, Ashutosh Raghuvanshi, plans to cut a fifth of costs to resuscitate India’s second-largest hospital chain after a regulator found it was defrauded of tens of millions of dollars by its former owners.

Fortis is now looking to squeeze spending in everything from energy-efficient light fixtures to automating its business analysis unit and even renegotiating doctors salaries. The goal is to reduce expenses by $31 million over the next two years, Raghuvanshi, the CEO who took over in March, said in an interview. Fresh capital expenditure of $84 million is also in the offing.

“This is the new Fortis,” he said, pointing to his own office as an example, where all the furniture have been replaced with a conference table so the space can double as a meeting room. Simple, uncluttered and transparent.

These are just the first steps by Raghuvanshi to nurse Fortis back to health after a tumultuous year where its former owners, Malvinder Singh and Shivinder Singh, were found to have fraudulently taken $56 million out of the company. That led to a protracted bidding war for the cash-strapped Fortis, which Malaysias IHH Healthcare Bhd won.

The first thing IHH did was inject ₹4,000 crore to stabilise the business, then it hired Raghuvanshi. The CEO held the same position before at the Narayana Hrudayalaya Ltd hospital chain, which is famous for achieving some of the lowest costs in the world through its hyper-efficient processes, and is bringing to Fortis his old playbook.

Bloated cost structure

“The problem with Fortis is its bloated cost structure,” Deepak Malik, a Mumbai-based analyst with Edelweiss Financial Advisors Ltd, with a buy rating on the firm, said in a telephone interview. “The new CEO knows how to run a lean cost structure.”

That’s why the bulk of the money IHH provided was quickly deployed to buy out a Singapore-based real estate trust which acted as a landlord to Fortis. Eliminating rental payments is expected to improve profitability.

Raghuvanshi is now planning to negotiate pay with doctors to be mutually beneficial. He is also replacing a team of people who collated and analysed how long patients stayed in the hospital with software that can do the same thing.

There are plans to divest or shutter under-performing facilities, and terminate contracts for managing other people’s hospitals, which he calls distractions. The company is also exploring the sale of non-essential assets such as its stake in a Sri Lankan hospital.

Another trick from his Narayana days: applying a cost-saving technique called task-shifting under which nurses only perform patient-care tasks that they alone are qualified to do. Other work such as feeding patients or making beds is left to less qualified, and lower paid, employees.

Expanding capacity

Fortis will invest as much as $84 million in capital expenditure over the next three years in expanding capacity and adding new technologies and therapies to its existing hospitals in Kolkata, Bengaluru and around New Delhi. It will also commission a new 200-bed facility in Chennai that has been delayed for lack of funds.

Upgrading and replacing Fortis’ existing equipment and keeping the overall shine is essential for the brand, according to Raghuvanshi.

“What Fortis needs to reaffirm is its quality healthcare positioning. We need to bring it back to where it was,” he said. “When you dilute yourself like that, you’re not doing a service to yourself or anyone else.”

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