HBI Deals+Insights / Healthcare Reform

Report: Successful business models in emerging markets

The IFC conference was brim full of confident operators who, despite all the obstacles, are making money and seeing huge growth in private healthcare in Emerging Markets. We report on the new business models.

From Africa, Mexico, China and India, the optimism was almost tangible. Growth rates of 10-15% in emerging markets seem to be the norm.  Cash payments typically make up 60-80% of sales. And it was striking how resilient fee for service has proven to be. Medicover CEO Fredrik Ragmark revealed that its Ukrainian lab chain with 250-300 outlets has seen no decline in sales in local currency despite the civil war to the east of the country.  That was echoed by Egyptian lab operators who said prolonged civil unrest had had no effect.

So what do the new groups look like?

In China, Chindex International has created a chain of 14 private hospitals linked to local eco systems offering medicalised homecare, elderly care and rehabilitation facilities over 18 years. CEO Roberta Lipson says ”We have demonstrated that the model is viable.”

In East Africa, HMOs such as AAR and Avenue Health have sprung up with dozens or scores of outpatient clinics referring patients on to a few central hospitals. Corporate subscription models and even insurance make these integrated players.

Big Indian groups such as Apollo and Fortis have created mass healthcare tourism revenue streams.

Further proof of this optimism is the way that many groups are planning to become multinationals in the next 1-3 years. It is the norm to find operators who are already present in three countries and who plan to soon to be in eight or nine (see separate article).

So what are the new business models that will take the sector forwards over the next decade? We spotted five.

Low price low cost models: These are operators such as India’s Narayana who have focused on reducing costs and going for much larger mass markets. Many of are coming out of Mexico, a country where the wealthy elite seek treatment north of the border forcing many operators to focus on the mid-market where half the population have household incomes ranging for $200 to $2,000 a month.

Budget dialysis, ophthalmology and diabetes clinics are being created.

Many are experimenting with price elasticity. Mexican dialysis clinic chain Medica Santa Carmen cut the price by nearly half and saw sales more than double. Clinicas de Azucar claims to have cut the cost of diabetes treatment from $1,000 to $200.  These groups illustrate just how far there is to go. Volume can often lead to massive savings. Dimitris Moulavasilis at Affidea reckons the Turkish government target of €20 for an MRI is achievable and that he can make a profit on it.

The Indian model: There was much talk of a new Eastern or Indian model which is contrasted to the Western norm. Again Narayana is perhaps the best example of this approach in which new approaches dramatically cut prices. Narayana is taking women from local villages to train as ICU nurses and it has slashed the price of disposable gowns in a joint venture with a supplier who is now set to export. It also claims to be able to build an entire hospital for $8m.

Increasingly, the big groups are turning into complete ecosystems. Over 60% of new doctors and nurses are said to be educated in the private sector today.

Mass healthcare tourism: There were plenty of signs of this at the conference. Nigerian groups said their government claims that $1bn was spent abroad in 2014 by Nigerians on medical visas. That, they say, is the tip of an iceberg likely to be 3-4 times larger as many will go abroad on normal visas.

World Bank economist Khama Rogo reckons that on many flights from Africa to India two or three out of 10 passengers are in wheelchairs. Some 30% of admissions in Tunisia’s largest private hospital chain, Amen Sante, are Libyans. And a recent Healthcare Nova survey found that Indonesians spend $11bn a year on healthcare outside their country.

Fortis boss Malvinder Singh said tourists accounted for 25-30% of the revenue in Fortis’ largest hospitals, with a third coming from Nigeria. “We know that, if we look after them, this revenue stream will continue to grow fast.” The ability to offer telehealth consultations with Indian specialists is likely to fuel this growth over the next few years. Much of this is backed up by telehealth consultations . Sangita Reddy, joint managing director at Apollo, says that it does 700 telehealth consultations a day – a figure that is set to increase “exponentially.”

Personal subscriptions for healthcare: Falck, the ambulance and fire engine rescue multinational which has built a chain of clinics in Latin America and Poland, says it has demonstrated that consumers in Latin America are willing to pay an annual subscription to access healthcare. Its scheme already covers 1m consumers in seven Latin American countries.

Falck says that this model which it built for road side assistance in the Nordic region can be transferred successfully to healthcare. Sales are growing at 10-15% a year.

New payment methods: There seems to be a general movement from cash payments to corporate subscriptions, personal subscriptions and PMI.

Assessing PMI growth is hard.  It is clearly growing but perhaps less fast than operators would have investors believe. Chindex boss Roberta Lipson says that in China the proportion of local patients paying through PMI has risen from 20% to 60%. Apollo’s Reddy says she expects 50% of the Indian population to have public insurance cover within five years.

But the really interesting sector is likely to be in payments and subscriptions over mobile phones. There are already 850m Indians with mobiles and nearly 500m Africans. As payment becomes possible over the phone so this should lead to a huge surge in demand.

We would welcome your thoughts on this story. Email your views to Ariane Jugieux or call 0207 183 3779.