Healthcare Delivery and our Investment in Ayu Health
Writing about the healthcare delivery ecosystem in India as the country comes out of its worst health crisis in modern history can be a bit daunting. However, in a way, I think it is also an opportune time to take a step back and assess how the healthcare delivery model in India has evolved and the path forward.
Let’s start with the good: at the prime price-point, healthcare delivery in India is possibly at par with the best in the world. We have some of the best medical education programs, and many more are being added. However, this quality of care is not accessible to a vast majority of Indians. Anecdotally, only ~2% of healthcare delivery capacity is at near-global standards, and consequently, they are accessible to a small part of the population.
The bad is where things start to get complicated, and several problems surface. To understand the first, a little bit of context is needed: over the past 60 years, the government has needed to play the role of provider and payer in the healthcare delivery ecosystem, especially at the lower rungs of the economic strata. The result of this is a public healthcare system that has exceptional talent and capabilities, but is inadequately funded, and suffers from poor infrastructure. This is changing today, and the government is starting a massive transition to being a payer, and looking to enable private provider networks to develop. I believe this will lead to a generational shift in the healthcare delivery ecosystem in India.
The second challenge stems from the rapidly changing expectations around experience from the expanding middle class. As we know, India is a populous country, and becoming increasingly aspirational. A vast majority of the healthcare delivery ecosystem has not been able to keep pace with the ever increasing demands of a large part of the country, and the experience is truly broken. This is largely because apart from a select few corporate private hospitals, tertiary providers have never really adopted any technology. From bookings to insurance claims and discharge, they run on paper records, and there are no systems in place to speak of.
The third key concern stems from the way private capacity has come up. Like everything in India, Metros and large cities have an abundance of capacity. For instance, hospital bed capacity in Bangalore is ~3x India’s average, and closer to the global average. As a result, in normal times, Bangalore has excess supply than needed at the mid-tier price points that make sense for middle class Indians. Most of these hospitals look similar — they are owned and managed by doctor owners who specialise in a therapy area, and have used their savings to create a 30–50 bed hospital in and around a large residential area. However, not every hospital bed is created equal. Take any three mid-segment hospitals in a given locality, and you will see vast differences in the quality of infrastructure, non-medical protocols, and medical outcomes. The key challenge is that the better hospital among the three has no way to stand out from the competition, even though they can clearly provide better care. Hospitals have no channels to communicate quality, and rely heavily on unethical practices in generating referrals from General Practitioners in local markets. As a result, a vast majority of these standalone hospitals suffer from lack of trust, an essential ingredient to succeed in the healthcare space in India.
Even more importantly, poor utilisation levels (often as low as 30–40%) result in a severe financial stress as a majority of costs remain fixed. The end result is substandard quality of care and poor experience.
Given a chance to thrive, I think these high quality mid-sized hospitals could end up creating the foundation for a solid hospital ecosystem that India needs. A sustained demand flow would enable the hospitals to generate cash flow that can be ploughed back into upgrading quality, staff, and patient experience. A thriving ecosystem like this also takes the pressure off the government and a few select marquee brands to drive capacity addition. The government’s switch to a payer can only be successful if there are enough private hospitals ready to provide quality care. Quite often, private hospitals refuse to entertain government schemes because the cash flows are delayed and they have no way of financing the immediate costs.
We can write a lot more, but these three problems form the cornerstone of the thesis for our investment in Ayu Health. Himesh, Karan and Arjit have a penchant for solving big problems, and it does not get bigger than healthcare delivery. They set out to build Ayu Health into a brand of trusted hospitals a majority of Indians can look up to for exceptional experience and quality of care. The aim is to partner with the existing high-quality supply already present on the ground, and build a pan-India network.
The network has scaled well in the early launch market of Chandigarh, and as the team scales capacity in Bangalore, we do think Ayu Health will be a national brand very soon.
Healthcare and Health-tech remain strong focus areas for Vertex Ventures Southeast Asia and India not just in India, but across the globe. We do believe that as economies prosper, a lot needs to be achieved in improving human health (as well as wellness, but that’s a story for the next time). We look forward to a lot of disruption, and look forward to partnering with many more exceptional founders looking to solve large problems.
#healthcaredelivery #healthtech #startupindia #indianstartups #healthcare #health
