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India needs between 3,333 and 7,142 hospitals in tier II cities alone.


According to consultancy firm KPMG, data from 2009 shows that India has 0.7 beds for every 1,000 people, the lowest among BRIC nations. To increase this bed capacity by one for every 1,000 people in tier II cities, at least 500,000 beds are required, says Technopak, a management consultant firm. India needs between 3,333 and 7,142 hospitals in tier II cities alone. 

The three largest hospital chains — Manipal, Apollo and Fortis — have about 33 hospitals in tier II towns such as Kangra, Raigad, Moradabad, Salem and Visakhapatnam. 

Of the $33 billion that Indians spend on healthcare, just 20 percent is spent in smaller towns. “For major surgeries and treatment of serious ailments, patients still travel from small towns to one of the seven large cities — Delhi, Mumbai, Chennai, Hyderabad, Bangalore, Kolkata and Ahmedabad,” says Dr. Rana Mehta, senior vice president, healthcare, Technopak.

Getting the Right Formula
As the health industry gets more competitive in metros, large chains are doing their variation on the ‘bottom of the pyramid’ because of the profit margins that small towns can offer. “For example, you can buy land for Rs. 3 crore in a tier II town. The same land would cost three times more (Rs. 10 crore to Rs. 12 crore) in a tier I city. This has an impact on both the break-even stage of a hospital as well as profit margins,” says Mushahid Ali Khan, analyst, Technopak. 

Traditionally, tier II towns are the strongholds of individual doctors with polyclinics that can have margins as high as 35 to 40 percent but are incapable of scaling up. “In the traditional model, you go for the latest and the best [equipment],” says Dr. Ashwin Naik, CEO and co-founder, Vaatsalya Healthcare, a hospital chain focussed on tier II cities, such as Hassan and Shimoga in Karnataka, since 2005. “But the consumer does not care. They want access to healthcare at a good price.” 

He says it is about getting the right mix of investment and maximum usage of equipment. For example, a hospital may get a less expensive ultrasound machine — for Rs. 30 lakh and not Rs. 50 lakh. This will not compromise on quality, but will boost profit margins. 

Naik says a Vaatsalya Healthcare hospital breaks even between one and three years now. This is a year or two less that what it would take for a hospital to break even in a tier I city.

http://forbesindia.com/printcontent/22582

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