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Insurance must grow alongside the growth of the healthcare sector. Viren Prasad Shetty, Narayana Health


Viren Prasad ShettyExecutive VC, Health Narayanastates: “If the broader goal of making health care more affordable, price capping does not achieve that because what is currently happening in a dynamic pricing situation where you have several price levels for several categories of people. You have very poor people below the poverty line who are receiving treatment at the Ayushman rate. You have government employees who are treated at CGHS rates. There are people who pay out of pocket, who are treated in common, semi-private, private, luxury, super luxury wards, at all these rates. You set a package, what will happen? The poor might end up paying more. If you are rich, you pay less. The poor subsidize the rich.

So, where should we start: an overview, details about regulatory intervention or where is Narayana Health moving?
Viren Prasad Shetty: It’s always an exciting time in our business. The Supreme Court’s suggestion about rate capping is impractical, but the anger is real. The opacity of the pricing structure is real. The perception many people have that health care is expensive is real. Some of them can be solved, others simply cannot be solved. If you look at the rising costs of healthcare in this country, it’s simply because more and more treatments are available.

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The reason people find this care unaffordable is because people can’t be expected to pay out of pocket for a lot of things when it comes to health care. So there are solutions that the industry is willing to offer, but without getting into draconian things like fixing prices for everything.

In the past also, regulatory interventions have taken place and this has affected the activities of Narayana Hrudayalaya. profitability A little. I remember this happening before COVID, when there was a cap on cardiac or heart health care. If there is regulatory intervention, do you think it will be difficult to implement, but in a sense it will also have implications in terms of price caps?
Viren Prasad Shetty: See, the question is what is the purpose of the price cap? If you fix the output side and don’t address anything on the input side, with the cost remaining the same, the price to the customer will simply move into another dimension. So what is the main objective? If the broader goal is to make healthcare more affordable, price caps don’t accomplish that because what’s happening now is a dynamic pricing situation where you have multiple price points for multiple categories of people.

You have very poor people below the poverty line who are receiving treatment at the Ayushman rate. You have government employees who are treated at CGHS rates. There are people who pay out of pocket, who are treated in common, semi-private, private, luxury, super luxury wards, at all these rates. You set a package, what will happen? You will end up paying more. If you are rich, you pay less. Thus, the poor subsidize the rich, which is also not practical.

Now let’s change the subject and talk about the big picture. For the health sector, the big picture is that growth has been exponential. The expansion has been exponential. Health insurance is now the mainstay. But given that we have seen such massive expansion, especially in Tier II cities, outside metro areas, could we suddenly find ourselves facing a situation of more supply and less demand?
Viren Prasad Shetty: No, there will not be more supply or less demand because the demand for healthcare is effectively infinite. As many doctors, nurses and hospitals as there are in this country, that still represents a very small fraction. And a lot of times you get into trouble when you consider that all beds are the same. You talked about 15 beds per 10,000 inhabitants, but not all beds are the same. If you look at the organized and accredited hospitals that comply with the accepted standards and declare that you have NABH classification, these do not even constitute 10% of the total beds in any city. Most of them are not unionized and are in retirement homes. So it’s not the same at all. So, oversupply, when looking at the high numbers, may seem like enough, but that’s not really the case. We still have a long way to go. There still needs to be an incredible number, not just of beds, but also of medical equipment, doctors and nurses in places where you can get treatment, even in the biggest cities, forget Tier II and III cities. There is a long road to growth and demand, but for affordable prices, people can no longer be expected to pay out of pocket. Just like no one pays for a flat from their pocket, no one pays for their car from their pocket, they take loans and EMIs. For healthcare, you need insurance and insurance also needs to grow as the healthcare industry grows. But here, some would argue that the sector is becoming brutally comparative and with the advent of PE players now and with most hospital stocks going public or having ambitions to go public, the focus is suddenly on profitability, shortcuts, kicks. in terms of efficiency. Could this come at the cost of compromises in terms of health care?
Viren Prasad Shetty: Those are two different things. Brutal competition requires a price correction, right? The drive for profitability invariably occurs when there is a constraint on a certain number of competitions that you have allowed. So any regulation that makes it harder for people to make money in an industry will strengthen the hand of incumbents.

The people are already there, they have the buildings anyway, so they will continue to do what they are doing and they would be very happy to see that no new people come into the area. You want the price to come down, you want it to be more consumer friendly, you allow as many people who want to open hospitals to come in. Profit is a natural function of the quantity available to you. At the precise point where you make it too high, then it’s more attractive for more people to enter. If it gets too low, then no one else gets in; this is how a modern market economy is supposed to work.

So when you say that, oh, hospitals charge a lot; oh the profit is very high, remember hospitals charge a lot because deliveries are expensive. Profit is high, but it only exists on the balance sheet. The return on capital invested in our industry is very low. The payback period for every hospital bed you put in, the cost of land, the cost of equipment, the cost of all the doctors is extremely high. So you take money, but you make less money than if you just left it in the bank. These elements must therefore also be taken into account.

This is the following feeling we get when we talk to people involved in policymaking who examine hospital EBITDA margins. From Apollo Hospital to Fortis to Max Healthcare to NH, the margins have exploded and they are making more money and this needs to be checked. Is it true?
Viren Prasad Shetty: How much money is an industry allowed to make? Whatever the percentage, 40% EBITDA margin, we don’t even know what’s clear and it’s not that the money is going anywhere. All the money the health sector makes goes to build more hospitals, hire more doctors, and add more medical equipment. You want a healthy, sustainable, vibrant company that attracts a lot more investment from all the major private equity investors around the world, you want a healthy IPO market, so all doctors will say: yes, I don’t just want to work for someone. , I want to go and build my own institution and compete with existing players. All this money is reinvested. It goes straight back into the country. It is paid in taxes. This money is paid as salaries to doctors and nurses.

So it’s not just about money, it doesn’t disappear into the black hole of this industry. This money is fully reinvested in building additional beds and meeting the needs of our country. You want a solid and healthy balance sheet for all healthcare stakeholders. And as soon as too much money comes in, that’s when everyone says, “Okay, now let’s build and add more because I think I can do it for less.” So, as with Yatharth and NH, the problem is that not all healthcare groups are fully concerned with absolute value extraction. Very few of them are. Most of them are looking for the growth, volumes, treatment of more patients and mass market opportunities that exist in this country.

The perception will always be there for a few people who end up with a very complex surgery and end up paying a lot of money and feeling that it’s not something they were well prepared for. This can be resolved. Hospitals can do a lot more to give estimates up front and advise the patient and tell them that, you see, this is something, this is very complex, this procedure that you are about to undergo, here is how much it will cost. So with enough education, people feel like, fine, it’s my choice to get treatment and pay this amount of money for it or not. Otherwise, you can contact other hospital groups.


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