Interview with Dilip Jose, CEO, CARE Hospitals
CARE Hospitals, the Indian chain, has just been bought by the private equity group, Abraaj, in a deal that is rumoured to value the enterprise at 1,850 crores INR (US$273m). Here we speak to CARE’s CEO, Dilip Jose, about future plans and how he expects CARE to function within Abraaj’s international network.
HN: The press release circulated in the wake of the Abraaj deal said that CARE will focus on providing accessible and affordable care in underserved cities throughout India. But when we spoke previously you said that no chain can restrict itself to one element of the pyramid. You have to address all demand segments. So will you continue with a mixed strategy?
Jose: We can work both ways. We have sharing wards in our hospitals, but we also have suites. All of our hospitals address different price points. What changes is the proportion of luxury and cheaper beds in each hospital and this depends on location. So, for example, our new hospital in Hyderabad, which will open next April, has a higher proportion of sharing rooms. That is because it’s in a micro market, which requires more affordable care. We need to tailor for that. But even in the smaller towns, there will be some patients who want a luxury suite. We are also entering into some new areas like liver transplants – at the pilot stage – and oncology for the first time in a comprehensive manner. These are more high-end procedures and both these programmes have the support of Abraaj. Having said all that, there is definitely a Tier 2 focus.
HN: We hear that revenue per bed in the smaller towns is a quarter of that in the metros at around 2m INR (US$30,000) per annum. Must it be difficult to grow your margins with those kinds of patients?
Jose: I would say that it’s closer to 2.5m INR (US$37,000) and that’s exclusively for secondary care. It’s higher for tertiary. But the cost structures in lower-tier towns are very different as well and the number of beds we have in the cheaper categories may be fewer.
HN: Do you subsidise some patients or are they all profitable?
Jose: Even the cheaper patients contribute to gross margins, so it’s not really true that we are cross-subsidising them.
HN: So when you look at your revenue streams, during the autumn you said that 67% was OOP and around 5-6% came through the social health insurance schemes. What direction do you expect these to move in?
Jose: As we grow the OOP and the SHI components may come marginally down on a proportion of revenue basis. We would expect to see more growth in the PHI component. We are also growing our outpatient segment as we do more procedures on an ambulatory basis and insurers will now pay for it.
HN: How many beds are now operational?
Jose: We have 2,500 running now and that should grow to 3,000 in April. We have 800 in Hyderabad and the rest are in tier 2 cities. With the fresh investments, we will build two more hospitals. One in Visakhapatnam and one in Nagpur. They will both be around 240-250 beds and should cost about 100 crore INR (US$14m) each.
HN: There is a lot of speculation about how CARE will fit into Abraaj’s wider network. One possibility is that CARE doctors and managers could be used across Abraaj hospitals in the Middle East and Africa. Another is that patients will be brought to India for treatment. Which strategy do you expect to pursue?
Jose: We are looking at both options. The short-term option may be medical tourism. That is the clear nearer term option. But it would have to be in quite specific clinical areas, mostly elective, like liver transplants, for example, and it would have to be in Hyderabad.
We could take patients from high disease burden markets in Africa without impacting our ability to treat Indian patients or pursue our tier 2 strategy.
HN: And with regards to bringing CARE staff out of India, you are actually one of the larger groups that have not made moves abroad yet, so do you think it would be a challenge?
Jose: It would be a challenge, yes. But we have a lot of expertise in running hospitals at a low cost and that is valuable. We would take it one hospital at a time.
HN: Analysts told us that because you don’t own many of your hospitals you could face rental increases. What do your lease contracts look like?
Jose: We have 16 hospitals. Two are asset light, ten are on a long-term lease of 20 years or more and four are owned. All of the four new hospitals we intend to open in the next few years will be owned.
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