People key to govt, pvt sector boost to healthcare: Reddy

Welcome to CNBC-TV18's The Forbes India Show. The numbers don’t do India proud. Nearly 40 percent of Indians don't have access to healthcare and in the poor rural and urban regions it gets much worse with only about 15 percent of the population being able to access a family healthcare centre and about 10 percent have access to hospitals.

The Indian government spending on health is amongst the lowest in the world in per capita terms. In fact of the sector that is estimated to be about USD 66 billion today, the private sector contributes 71 percent while the government chips in only 29 percent.

Dr Prathap C Reddy, executive chairman, Apollo Hospitals Group, considered to be one of the pioneers of the modern corporate healthcare movement in India, explains the stark realities and the optimistic expectations of the future of the healthcare sector in India.

Below is the edited transcript of the show on CNBC-TV18

Reddy: I agree that the Indian healthcare today is in a dire emergency. So for dire emergencies what needs to be done? Emergencies require not just immediate action but  long-term planning and implementation. The Indian healthcare sector needs to be totally revamped to address current and future challenges. You have rightly pointed out that the private sector contributes over 70 percent to the healthcare sector with the government playing a very minor role. The government has promised increase expenditure on healthcare from the current 1.4 to 2.5 percent in the next Plan.

What is also needed is an effective integration of the public and private sector. Finally, I always feel that the participation of the people is also vital. So it should be public-private-people (PPP).

Q: The healthcare sector is growing rapidly and clearly lot more needs to be done. So what is keeping companies like you from even going faster?

A: One of the main challenges for the healthcare sector in the 21st century is the shortage of beds. Bed population- to0bed ratio is about one bed for 1050 people. In the US it is one bed for 250 people, the Japanese are luxurious with one bed for 85 people. Our challenge is to maintain a ratio of at least one bed for 300-400 people.

To meet this, the sector needs to add 100,000 beds per year for next decade at a cost of approximately USD 50 billion. In the Five-Year Plan, I had pointed this out to the Planning Commission when it announced that it needed to raise USD 500 billion for infrastructure development. But unfortunately, despite having brought the issue to the Commission’s notice several times, it has been ignored as healthcare is neither considered as infrastructure nor as a dire necessity.

Q: Of the total investment required, how much do you think should come from private sector and the government?

A: Raising funds for healthcare in India is probably not going to be a major hurdle for two reasons. One, Indian doctors and the healthcare sector have proved to be able to deliver excellence. Second, private healthcare has proven that it is reasonably a good investment. In Apollo, more than 54 percent of our investors are foreign institutional investors (FIIs). Ideally, this is where the public and private sector can effectively partner and contribute significantly.

District hospitals maintained by the government and the public sector can offer services to the private sector. The government should open more medical colleges, dental institutes and encourage widespread paramedical training. If this is done, the country will be very happy and because people will jobs they are going to be productive.

Q: Today I think about 78 percent of all spends on healthcare are out of pocket.

A: The only way it can be reversed is via health insurance and health plans. The company should have health plans for its people and the society should have health plans for its people. I had a health plan for my village. I put up a hospital in my village. I thought to myself ‘who is going to use this hospital?' The three families who could use have moved out of the village. So I introduced a scheme called 'Re 1 a day'. Believe me almost everyone became a member.

Q: How hurt were you when people told you that you were trying to make money out of the sick?

A: I have three principles - purity of thought, in this case purity of this purpose that we need to change the healthcare in our country. Second is patience and persistence. Patience allowed me to ignore these wrong comments and persist to see the things happen. It was not easy. I have always said that a million bricks in Apollo had million problems. But we got over all of that because ultimately everybody saw that there is something good that will happen when this comes in.

Q: How is getting industrial status help you in all of the problems that you discussed?

A: Hospitals don't turnaround in the first-second-third year. It has a gestation period. People need to have confidence. We need to have confidence of more and more specialists to come and join. This is why anywhere from 7 to 12-15 years loans are ideal for hospitals. We need tax exemption. The third is the long-term institutions IFCL, all of these will do and more importantly we need funding. To need funding when they see that the Government of India is looking to facilitate the growth of hospitals automatically investors will come. We have seven requests.

One is to give us the status. Second, unnecessarily I am holding the land is so expensive, why should we have land on my account. I could have a REIT, for that if they facilitate REIT automatically so much of funds will be released. For Apollo it will release couple of thousand crores. I can use these Rs 2,000 crore to build another 15 hospitals in one stretch. So there are many smaller things - it is a seven point wish-list.

For example, giving a tax holiday, five years is too little, it should be a 10 years tax holiday for hospitals then only it is meaningful. Thirdly, 21st century healthcare challenge is existing illnesses plus we have this huge burden of Non-Communicable Diseases (NCDs). We are the diabetic capital of the world, heart capital of the world, cancer capital of the world and infections. These four have become a huge set and the way they are focusing is phenomenal. So, we need to have a program, how do we bring awareness to this, how do we do preventive checkups and how do we increase the facilities for people who have this.

Q: Is the government doing enough on insurance, because that is the other key plank that we need to get people to afford to come to these hospitals?

A: There are good insurance companies today. There are nine insurance companies which have got good policies and what is needed is awareness and if they are given an exemption for this, increase relevance from Rs 15,000 to Rs 30,000 then more people will have total coverage for themselves and their families and for their elders.

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Q: Nearly 15 percent of the group is now being held by your Malaysian partner, how much more are you willing to give your strategic partner?

A: Integrated Healthcare Holdings (IHH) formed out of the Parkway Group, today, acquired 20 odd hospitals out of Turkey , so it is a large group. We have good relations with Parkway. I was on their board and at that time we started Calcutta Hospital on a 50-50 and the hospital is doing extremely well. First Positron Emission Tomography - Computed Tomography (PET-CT) in the country was bought by us in Hyderabad . So we have good relationships.

Q: You have two hospitals in partnership with Khazanah?

A: One hospital and this equipment. We are looking at seeing what could be done together.

Q: Does it mean you are only going to look at them or will you be looking at other domains?

A: Now we are open. First reason if you ask, do you need another partner? There is no need for other partner because on clinical processes and their delivery we have achieved that. So, if we want to join somebody what are we looking at? We are not sure and are not looking at anyone to come in at the moment.

Q: Has real estate been a problem for you as well as other hospital groups?

A: No, this is where we need to address. The land cost is so high and I am investing a huge amount on land and building. Suppose, I could take it away from a property company and have an operating company which will have medical equipments which is constantly needed to be upgraded.

Q: Are you permitted to do that now?

A: No, there are taxes and so many other things. The real estate investment trust (REIT) formula is not applicable in India and we are asking the government. Last year, Commonwealth of Independent States (CIS) and Federation of Indian Chambers of Commerce and Industry (FICCI) presented saying that they should look at REIT. Hopefully this year again if it comes, then it will be a huge kicker for all the hospitals.

Q: Is that the main reason for delays with your Bombay Hospital ?

A: No, Bombay Hospital is proceeding now. We had our problem with sanctions, so on and so forth. Now it is going on full swing. By 2015, the hospital should be ready. We are also hoping to do two other hospitals which are getting permission, one is Masina and the other one is Thane, but they are waiting for their permissions to be cleared.

Q: Are the 20 new hospitals that you are planning, going to be spread out across the country?

A: Most of the things outside, we are trying to do more and more of what is called the Reach Hospitals. There are three advantages of a Reach Hospital . First, my cost of hospital is about 25 percent less. Second, manpower cost is also less. This could be passed down to the patient. So patient’s first medical expense is less. Third, there is a big trauma for a person coming from village or a town into a metro and then its expenses. So it is a win-win for all.

Q: What about moving out of the country? You already want to manage hospitals outside rather than acquire?

A: Almost every single day I have a request. Will Apollo come to our country? Will Apollo join as our partner to establish a hospital in Africa and Middle East, now we are talking about Indonesia , in all of these places. There is so much need in India for investments. We are trying to give them our speciality in commissioning and operating and people for seven year turnover.

In seven years, first 70 percent of the probationers will be from India . At the end of seven years we will train the locals. So at the moment we are not concerned. Yes, we will invest into some amount of technology, telemedicine, information centers.

Q: You are still examining the need for a foreign partner in your hospital business, but are you looking out at the pharmacy business?

A: Pharmacies now grow close to 1500. Their EBITDA is positive. For Apollo to fund them is not a big money. Their plan is to reach to 2000 in next few months. If we do, we are not looking at an equity investor to come into it, but at someone who can play the game and improve the pharmacy value chain.

Q: What parameters would you use to value the pharmacy chain, how do they unlock for your investors?

A: As of now, we are reporting as a standalone pharmacy. The turnover is there and the books are very clear. If you want to we can in the next three months or so but we did not look at it because we were not looking at equity investors. We are looking at somebody who has experience, who can add value to the system and will have some exchange programs, buys things out of India .

Q: Are you talking to anybody?

A: It is happening, but nothing is crystallised, it is a long journey and we are in no hurry.

Q: How much time do you spend on succession planning because Indian groups sometimes don’t spend enough time on them and then sometimes it gets messy?

A: Four of my daughters have been with me for 30 years and are so passionate about what they are doing. They have divided the four areas in which they are functioning so there is no conflict and they are well connected. We are also talking to people to give us advice. One of our directors is helping us to do this, but it is not something that if you leave the four daughters the layers of proficiency that we have is absolutely marvelous people. They are filling in more and more ways as we are doing more verticals and are getting more people to fill those verticals.

Q: How hopeful are you of industry state in this Budget?

A: The government has always been considerate to whatever we have done and appreciated. However, the Ministry of health, Ministry of finance will meet and say these are things which we need to do on an urgent basis because the problems were there but if you see the challenges in this decade are huge. We are also planning to accelerate the way we use technology but the government needs to act and say how do we create a public private people partnership so that people will get the care that we are talking about saying that individual has a fundamental right to health.

Q: The industry is estimated to be about USD 66 billion and is estimated to grow to USD 280 billion by 2020. Do you agree with these numbers or can it be much faster?

A: It is much faster and bigger. If you just take one figure which World Health Organisation (WHO) published that the non-communicable diseases (NCDs) is going to place a medical burden of USD 270 billion and a GDP loss of 0.5 percent, that is heart, cancer, diabetes and infections. If that is going to be the figures, they are going to be much bigger. Second, we have never calculated that if India becomes a global healthcare destination the figures are going to be much bigger.

Why I am saying that we must include it because we have got the capability and all we need is to turn the screw. Government should form facilitatory moves like what Thailand , Singapore did, what Malaysia does and do a little more than what they have done. If they do that is going to be huge so the industry will show a great momentum and also their appetite for people to invest, to lend, will improve.

Ultimately it is a gain for the nation because when we had 2 percent GDP, that year they said you facilitate healthcare, the five things we are asking and you see the GDP growth will surely move up to double digit – 10 percent because this is when you will provide huge employment and huge growth and give healthcare to people from our country and people from overseas it is going to add to the GDP of the country.