When a hospital acquires another, the back room activity by private equity firms invested in these companies is often not obvious to the outside world.

Private equity (PE) firms control the purse strings, defining the limits to which a hospital group could go to bid for another, besides ensuring that the hospital management runs a tight ship. And while this may be the modus operandi in industry transactions, the concern in healthcare is that hospitals require growth plans anchored in sensitive patient-centric services and not target and profit-dictated initiatives.

Jayant Singh, All India Patient Rights Group, recounts a discussion on hospitals that opened with the line, “treating patients is not a viable business.”

It’s almost close to two years since Singh’s seven year-old daughter, who had dengue, passed away and the family was left with a hefty bill from Fortis. “Hospitals are not a business where different departments are business units with targets, it is a service,” says Singh, who has taken legal recourse to bring transparency and accountability into hospital systems. “Even a hotel is more transparent, with the services and prices publicly stated,” says Singh.

But he agrees that large secondary and tertiary care hospitals have not received much attention from the Government, which is why 80 per cent of healthcare is delivered by private institutions. There should be a centralised healthcare enforcement agency that listens to patient complaints and ensures implementation of pro-patient directives, he suggests.

Preying on potential

As acquisitions in healthcare reveal PE companies doing the back seat driving, questions arise whether hospitals indeed need PE investments to grow or are these firms flush with funds preying on the potential that hospitals hold out in the country?

The value of mergers and acquisitions (M&A) among hospitals for the financial year 2019 stood at ₹7,615 crore, up 155 per cent from the previous year, according to Icra. This is the highest value of M&A transactions in the sector in over five years, a new record, it says. Last year’s two largest transactions involved the acquisition of stakes in two listed entities, Fortis Healthcare Ltd, ₹4,000 crore, and Max Healthcare Ltd, ₹2,351 crore. In both cases, the deal was signed at a premium to the then prevailing market price, says Icra.

The Fortis acquisition was a long-drawn battle between PE firm TPG group-led Manipal Hospital and Malaysia’s IHH Healthcare Berhad group, who bagged the deal. The other large transaction gives majority control in Max Healthcare to global investment firm KKR-backed Radiant Life Care. Meanwhile, Manipal Hospitals has moved on to looking at Medanta Hospitals. And even as this goes to print, many more such deals are brewing.

Independent health researcher Ravi Duggal says the initial enthusiasm to expand hospital networks into smaller cities took a hit as financing was difficult and returns were not as expected. As insurance increasingly comes into the picture, he worries that things will be driven by price and not what is best for the patient.

The hospital industry is capital-intensive on account of high real estate and significant medical equipment costs, says Icra. Private sector players witnessed years of healthy growth in revenues and profits till FY2017. This dipped in FY2018 and FY2019 due to pressure on margins (after regulatory actions, including caps on prices of oncology drugs, cardiac stents and knee implants) and restrictions placed by the governments of the National Capital Territory of Delhi (NCTD), West Bengal and Karnataka, among others.

Financial support

Vishal Bali, Executive Chairman with Asia Healthcare Holdings, explains that growth in multi-speciality and single-speciality hospitals in the country has taken place on the back of PE funding. Virtually every healthcare delivery chain has, at some stage of its evolution, gone through PE hands, he says. AHH is founded by TPG Growth, an investment arm of PE firm TPG. In two transactions in May, AHH was involved with the sale of Cancer Treatment Services International (CTSI) for $283 million to NYSE-listed Varian Medical Systems. The other transaction involved acquiring Nova IVI Fertility, which runs a chain of In Vitro Fertilisation (IVF) centres.

“PE firms cannot merely be focussed on financial transactions without being cognisant of the clinical impact of their services”, says Bali.

As stakeholders, PE firms bring in the right protocols and transparency and are right for Indian healthcare, he says, adding that many enterprises fall off the radar for want of financial support.