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Foreign Investment in Hospitals in India: Status and Implications

Rupa Chanda Professor Indian Institute of Management Bangalore Bannerghatta Road, Bangalore-560076, India Email: rupa@iimb.ernet.in

In collaboration with WHO India Country Office, New Delhi and WTO Cell, Ministry of Health and Family Welfare, Government of India.

Foreign Investment in Hospitals in India: Status and Implications *

Rupa Chanda **

* This document is not a formal publication of the World Health Organization (WHO). The study was supported by WHO India Country Office and the WTO Cell, Ministry of Health and Family Welfare, Government of India. However, the views expressed are solely of the author and do not necessarily reflect the opinion or views of the WHO or the Ministry of Health and Family Welfare. The document may, however, be freely reviewed, abstracted, reproduced or translated, in part or whole, with due acknowledgement and citation, but is not for sale or for use in conjunction with commercial purposes. ** Professor, Economics & Social Sciences Area, Indian Institute of Management Bangalore.

Acknowledgements

The author is grateful to the many practitioners and managers from various hospitals in Delhi, Bangalore, and Kolkata, as well as industry association experts who spared their valuable time for face-to-face interviews and shared their knowledge and insights for this study. Many of them also replied to repeated queries over email and telephone to elaborate on various issues and helped to sharpen the author’s understanding of the many complexities in the healthcare sector. This study would not have been possible without their help and guidance. I would also like to thank Krishanu Rakshit, doctoral student at IIM Bangalore and Sasidaran G., research associate at IIM Bangalore, for all their help in collecting background information and data on hospitals, in tabulation and data analysis, and in the preparation of the report. Without their timely assistance, it would not have been possible to collate all the information and prepare the report on time. I also express my sincere gratitude to Sunil Nandraj and Anagha Khot of the WHO Country Office, New Delhi and Ujjwal Kumar and Rajendra Mehrotra of the WTO Cell, Ministry of Health and Family Welfare, Government of India for their support and guidance throughout the study and for helping to organize a workshop in Delhi for the presentation of the draft report. I am also thankful to them for giving me an opportunity to work on this subject and to contribute in whatever small way towards informing public policy in this area.

India’s healthcare sector needs to scale up considerably in terms of the availability and quality of its physical infrastructure as well as human resources. clinical trials. Ernst and Young (2007) and CRISIL Research (Feb 2007). telemedicine. (i) . which include hospitals. outsourcing. It also analyses the implications of such financing for the hospital segment and for the overall healthcare system.5% of GDP. 350. or US $60. This study examines the status of foreign financing (foreign direct investment-FDI as well as other forms of foreign fund inflows) in one of the key segments of the healthcare sector. Total national healthcare spending reached 5.. The sector comprises of many segments. medical infrastructure. and banks to explore investment opportunities across a wide range of segments.000 physicians are required over the next 10 years. 2 Thus. There is also growing interest among domestic and international financial institutions. India’s healthcare sector. medical devices. to name some. making it one of the largest service sectors in the economy today. however.2% of GDP. and the huge investment needs in the healthcare sector. Given the growing demand.e. in recent years. available at www. and health insurance. falls well below international benchmarks for physical infrastructure and manpower. or US $34. the industry will account for 6. which translates into a total investment of $78 billion (Rs. The industry has grown at about 13 per cent annually in recent years and is expected to grow at 15 per cent per year over the next four to five years. An additional 800.9 billion by 2009. venture capitalists. there has been growing interest among foreign players and non resident Indians to enter the Indian healthcare market. According to a recent study.1 percent of GDP by 2012 and is projected to provide employment to around 9 million people. i. Public health expenditure accounts for less than 1 percent of GDP compared to 3 percent of GDP for developing countries and 5 percent for high income countries. The private healthcare sector in India accounts for over 75 percent of total healthcare expenditure in the country and is one of the largest in the world. in hospitals.85 ratio. private equity funds. and even falls below the standards existing in comparable developing countries.7 billion and employs over four million people. the sector will require an estimated investment of $20-30 billion.ibef. The specific objectives of the study include: 1 2 These statistics are taken from IBEF.9 billion in 2004 and is expected to rise to 5.Executive Summary Background and Objectives The Indian healthcare delivery market is estimated at US$ 18. the emergence of reputed private players.org See.830 crores) in health infrastructure. 1 A striking feature of India’s healthcare system is the significant and growing role of the private sector in healthcare delivery and total healthcare expenditures. which translates into huge investments in training facilities and equipment. In order to reach even 50-75 percent of the present levels of other developing countries. It is estimated that over a million beds have to be added to attain this 1.

One part was outsourced AC Nielsen. subject to limits of 10 percent and 5 percent. FDI is permitted up to 100 percent under the automatic route in hospitals in India. The first phase of the primary research consisted of administering a structured questionnaire to administrators and finance sections of 19 hospitals in 6 cities around the country. nurses. etc. through open offers or private placement. infrastructure development. health insurance companies. FIPB approval is only required for foreign investors with prior technical collaboration. which are treated as FDI. Current regulations also permit other forms of capital mobilization. upto 49 percent. The second part of the primary research was undertaken by the author.(a) Understanding the nature of foreign funding in hospitals in India.) In addition to the aforementioned objectives. (b) Understanding the institutional and other factors facilitating and impeding foreign funding in hospitals in India. diagnostics. Methodology and scope The study is based on primary as well as secondary research. which carried out its survey work in two phases. 3 Controlling stake is also permitted in hospitals for foreign investors. Since January 2000. 2007). prices. Foreign venture capital investments (FVCIs) are also permitted. or through the stock exchange. such as through ADRs and GDRs. FII as well as private equity funding over a certain stake are also permitted under FDI route. RBI note on Foreign Investments in India (April 1. foreign individuals and foreign corporates can register as a sub-account and invest through the FII. doctors. It also aims to inform policy makers with regard to India’s commitments in health services for the mode of commercial presence (mode 3) under the General Agreement on Trade in Services (GATS) negotiations in the WTO. No major regulatory 3 See. accessibility. but allowed upto 100 percent. The second phase of the survey work by Nielsen consisted of 15 semi-structured interviews with various stakeholders (doctors. financiers. and public sector practitioners across three cities. Proprietary funds. industry associations. respectively for these sub-accounts. and included a mix of for profit private hospitals with and without foreign financing and not for profit private hospitals categorized as charitable/trust hospitals. though subject to certain restrictions. The primary research has been conducted in two parts. FIIs and private equity funds can individually purchase upto 10 percent and collectively upto 24 percent of the paid-up share capital of the company. Status and prospects for foreign investment in hospitals in India The study indicates that the foreign investment policy is very liberal for hospitals. and (c) Understanding the realized or likely impact of foreign investment in hospitals in India on various aspects of the healthcare sector and the wider economy (quality. owners or managers of hospitals and nursing homes (large and mid size) health consultants. This consisted of 30 in-depth discussions with senior management in major corporate hospitals and with other stakeholders such as civil society organizations. All the hospitals were of a minimum size of 100 beds. (ii) . affordability. multi-specialty. as well as other forms of foreign involvement (not necessarily financing related) in the hospitals segment in India. this study aims to provide policy inputs that would facilitate such investments and enable the realization of the greatest possible benefit from such inflows. In addition. technology. and medical equipment suppliers and patients.

and may not have brought in capital. Much of the recent capital inflows have been through private equity funds and IPOs and this trend is expected to continue. qualify as FDI hospitals in India. the predominant mode of financing is domestic borrowing and foreign financing constitutes roughly 20 percent of funding in hospitals. These constraints include the fact that the number of such foreign players may be limited. expectations of returns.hurdles seem to exist with regard to the setting up of hospitals. Thus clearly. and improved capacity in healthcare delivery. • • Such hospitals are likely to focus on more advanced procedures and specialty areas. unless such constraints are addressed. The rest are FDI approved on paper. They are more likely to focus on curative and intervention oriented treatment than on preventive and long-term kind of treatment. There are only three or hospitals which according to industry persons. there are difficulties for foreign players in entering independently and in maintaining joint ventures that the gestation period in hospital projects is long and that investors may not be willing to make such a long term commitment. proper governance. a liberal investment Impact of foreign investment in hospitals in India Overall. benefits to patients. industry experts distinguish between these various modes as they have different implications for the absorption of costs. it is perceived that there will be increased inflow of foreign funds into India’s hospital segment in the near future given major expansion plans by existing and prospective corporate players. low health insurance penetration in the country which reduces the consumer base for corporate hospitals. if one were to take the survey results as reflecting the way in which foreign funded hospitals function compare to non foreign funded hospitals. then several insights emerge. FDI presence in Indian hospitals is very limited at present. the high cost of importing medical devices and the limited domestic manufacturing capacity in this area. Although various forms of financing may be classified as FDI. restrictions on medical education and training providers which create a supply bottleneck and adversely affects the quality of medical personnel at all levels. However. These include high initial establishment costs and in particular the prohibitive cost of procuring land. and thus the kind of impact they are likely to have on the healthcare sector. Constraints to foreign investment in hospitals in India While there are clearly many drivers to foreign investment in hospitals in India. An examination of the list of approved hospital projects obtained from the Department for Industrial Policy and Promotion and the primary survey indicates that despite the liberal regulatory environment. which explain the limited presence of foreign investment in India’s hospital segment. there are competing investment destinations. other regulatory deficiencies which result in lack of standardization. various domestic factors adversely affect the returns to investment in hospitals in India. More importantly. These include huge Medicities with large superspeciality and multi-speciality hospitals and integrated healthcare services as well as scaling up of existing operations and setting up of new hospitals around the country. and quality assurance in the healthcare sector. (iii) . the study finds that there are external as well as domestic constraints. However. and lack of policy clarity and priority to the healthcare sector. There are also players who have routed funds through other countries but do not see themselves as FDI hospitals as this routing is only for tax purposes and not really FDI type inflows.

affordability. and new kinds of arrangements could emerge between larger and smaller players as the healthcare sector evolves There could be greater segmentation between the public and private sector with resource flows towards the latter. which provide affordable access to healthcare for all and not in restricting foreign investment. The benefits of foreign investment in hospitals are likely to outweigh these adverse effects. The insights obtained from the discussions with stakeholders suggest that the solution lies in strengthening the public healthcare system. They are likely to invest much more in medical equipment and devices and also in specialized and experienced medical personnel. Foreign investment and greater corporate presence in hospitals could aggravate such structural problems. and in introducing schemes. Their costs are likely to be comparable to or slightly higher than those of non foreign funded large hospitals Their costs will tend to be higher than for small and medium size nursing homes and hospitals but this is mainly due to greater capital intensity and focus on quality systems and processes and focus on hygiene There could be positive externalities in other areas. greater wage disparity. thus involving a focus on high-end human resources and high-end technology. in amending certain regulations that affect all players. unless innovative arrangements emerge between the two segments and reforms are undertaken in the public sector hospitals • • • • • • • • • • While there are clearly concerns about the equity. some consolidation of the hospital segment. Foreign funded hospitals pay higher rates to staff at all levels and particularly to senior medical personnel. which creates a more efficient and professional work environment. such as lack of affordable health insurance schemes or inappropriate regulations on medical education providers. Such hospitals tend to have better systems and processes and usage of IT. They are more likely to attract overseas doctors and specialists than other hospitals They are more likely to be accredited domestically and/or internationally. and market segmentation implications of growing foreign investor presence in India’s hospital segment. some of which could further drive foreign investment in hospitals Foreign funded hospitals could draw away medical personnel at all levels from other hospitals (both large non-foreign-funded and medium and small size hospitals/nursing homes. it is evident that the root cause lies in structural problems that are already present in the healthcare sector. and public sector hospitals) and could adversely impact the quality of medical manpower available to competing institutions There is likely to be closure of substandard institutions.• • They are likely to employ a higher ratio of technology to personnel in their healthcare delivery and thus involve a substitution of human resources with technology and equipment. (iv) .

there are several likely benefits that could accrue while the negatives that could arise will not really be a direct result of foreign investment but of existing structural distortions and inadequacies in India’s health care sector. a binding commitment would signal that the liberal foreign investment policy for hospitals is there to stay and that the government is committed to facilitating investments in India’s hospital segment. the medical equipment and devices segment.. joint development with real estate developers and arrangements with public sector units owning land and hospital facilities and government facilitation of such arrangements. and pooling of resources. Thus. improve standards. at their commitments in other modes and sub sectors of health services. Second. education and training of personnel. The existing revised offer puts a technology transfer related condition. transfer of older equipment.e. as investors see a lack of clarity and roadmap for the health sector. Freeing up medical education and encouraging private hospitals to enter into medical education and training to expand the supply of medical personnel at all levels • • (v) . among others. and infrastructure facilitation. But the study notes that a liberal binding commitment on FDI in hospitals may not translate into greater foreign investment in India’s hospitals unless the various constraints affecting hospital projects are addressed. Consider other forms of obtaining land.some subsidization of initial project costs or PPP arrangements with possible cost discounting or cross subsidization arrangements built into the valuation of land. and make healthcare affordable and accessible to a wider segment. a more reform oriented approach and a shift in attitude would be required in various areas. such as in health insurance and higher education. The study also suggests possible conditions that could be inscribed in India’s commitments to ensure that certain objectives are realized. i. Some of these measures include: • Facilitating land acquisition.Implications for GATS commitments in hospital services The study examined whether India should further liberalize its offer on hospital services to 100 percent with no prior approval requirement.through leasing arrangements. it may not be advisable to impose too many conditions as these could adversely affect incentives for investors and their bottomlines. and keep in mind the impact of cross cutting regulations. Also. the study throws up several policy measures required by government and initiatives required by private players to make the hospital segment more attractive to both domestic and foreign investors if the ultimate aim is to expand capacity. including in public sector institutions. such as requiring tie ups with local players in terms of referral services. First. negotiators need to look at India’s commitments and domestic policies in other sectors. The justifications for such a strategy relate to two facts. such as outreach and extension services and reinvestment of part of profits in medical research and education or in telemedicine to serve a wider population base if any subsidies or concessions have been granted in related areas. in medical education. Another possible condition could pertain to corporate social responsibility measures. While other conditions could be inscribed. Such supporting measures and reforms would help ensure the benefits while mitigating the possible negatives. to the extent that additional FDI does flow into hospitals. health insurance. Policy recommendations Overall. bind in its existing FDI regulations in this area? The findings of this study suggest that India could bind in its existing FDI policy in hospitals and permit 100 percent on automatic route.

and enable consolidation in healthcare delivery. as well as introduction of a national or community based health insurance scheme to increase affordability of healthcare and mitigate potential adverse effects of corporatisation on equity.• • Incentivising domestic manufacturing of medical devices and technologies through increased investment in this sector and tie ups with foreign companies and efforts to standardize output Opening up the health insurance sector to enable greater scrutiny of processes and standards of hospitals. (vi) . will have limited effectiveness. research facilities) between public and private hospitals and between larger private hospitals and smaller local players Establishing a regulatory framework and an independent regulator in the healthcare sector to address issues of standardization. and Improved regulation and monitoring of mid and small size establishments to improve standards and quality. Foreign investment can yield many benefits but if structural and regulatory deficiencies are not addressed. Improving the regulatory framework for health insurance by standardizing norms for payouts. which would also help attract foreign funds. weed out substandard establishments.. classification. information disclosure. • • • • • Perhaps the most important point illustrated by this study is that mere liberalization of the foreign investment regime without putting in place supporting institutional and regulatory frameworks and domestic reforms. Hence. these benefits may not materialize and existing structural distortions may be aggravated. reduce malpractice. with private sector hospitals entering into limited period management contracts with public hospitals. etc. coverage. under well-defined revenue sharing arrangement. along with CSR responsibilities through cross subsidization mechanisms Greater sharing of resources (equipment. government needs to take a proactive role by initiating domestic reforms and creating an enabling environment so that the benefits of liberalization do ensue and any adverse effects are mitigated. Facilitating public private partnerships in hospitals. knowledge.

.........1...1 Scope and objectives.................................................. 7 2..................1 Key findings from the survey............................ 41 5..............1 Initial establishment issues: land and set up issues ..........................2 India’s autonomous and multilateral liberalization in hospital services .............................................................1 6...........................2 Prospects for FDI in hospitals ..................................................................................................................................................................... 7 2............................................. 5 Overview of the study .............2.2.... 10 2..................1.......................5 Other features ................ 60 ...........................................1 External factors ................................. 19 Pattern of financing in major corporate hospitals ............... 59 7 Summary of findings............................................................................1 Details of the Quantitative Survey................................................. 57 6.... 29 4.. 50 5................... 33 5 Impact of foreign investment in hospitals .............. 23 4...2... 38 5...................................................................................................... 20 4 Constraints to foreign investment in hospitals in India .................................................1 Services and procedures .....................2. 35 5............................ 11 Foreign Presence in Hospitals in India ................................................... 22 4.......... 31 4.............................................................................................................................................................2 Methodology for the study........................................................................................2.............................. 50 5............. 13 3.................................................2 Medical equipment and technology .................................2 3.......1......................................................1............................2..............................................................................................................................................5 Other regulatory issues and policy directions................................2 Physical infrastructure and medical staff ...1 Status of FDI in hospitals.............. 56 6 Implications for GATS commitments in hospital services ..........................1....................................3 Other sources of foreign investment in hospitals ........... 34 5.........................................................................2 Qualitative survey ...Table of Contents 1 2 Overview of the Indian Healthcare Sector .................... 23 4........................2 Areas of concern ..2..........................................1 Positive implications................................... 14 3.............3 Human resources: Remuneration and quality issues .......3 Manpower availability and quality issues ...... 57 Strategy for multilateral liberalization in hospital services..3 Summarizing the implications and further inferences....................................................................................................................2................ 27 4.............. 8 2.........1.................. 35 5.....................................................2................................................................. 47 5... 43 5................................................................ 26 4................2 Perceived impact of foreign investment in hospitals .................................................................................... 9 2........................................................................... 12 3...........................................................................................................4 Costs of services . 17 3...................................................................1..........................................................................................................1 Foreign direct investment in hospitals..................................................... 53 5....3 3 Limitations of the primary research...................................................................................................................................................4 Health Insurance........................................2 Domestic factors ......................................................................................................................................

...................................................10 Target groups covered for the in-depth qualitative discussions .....) ...............................17 Stakeholder views on public private partnership arrangements in hospitals .......................................... Table-4.............................. Table-6......................... Structure of Borrowings..........................................1...................41 Status matrix for committed and offered liberalization in India’s hospital services ...6.......................................46 List of Boxes BOX.................................)...........9........................... Table-7.............................45 Figure..............................21 Figure..... Table-9.................................... Cost comparison for diagnostic service (ultrasound) (Rs..........................................................................8........................... Table-3...................................................46 Figure.................... Health Insurance Penetration in India ..............................7.................. Table-10..................................15 Summary of pros and cons of financing sources for hospitals....................... Table-2..................39 Average monthly remuneration for staff (Rs........................................................) ..) ....................3 Major Medical City Projects: Proposed and Newly Established.............................................. Domestic Medical Equipment Market ......................................................... Cost comparison for diagnostic service (ECG) (Rs................................ Hospitals covered by the quantitative survey.........22 Summary of key operating and other ratios of major corporate hospitals in India (March 2006 figures) ............................................39 Availability of Medical Staff .............................................................................................. Table-5............. Cost comparison for neurology procedures (Rs..............List of Tables Table-1............48 Perceived implications for affordability of healthcare................11 Approved FDI Hospitals by DIPP (January 2000-June 2006) .........44 Figure.28 Figure.......................................43 Figure.2 BOX.) .....43 Figure....................36 Availability of Medical Procedures in surveyed hospitals ......................25 Availability of Services in surveyed hospitals .).........2.......36 Availability of Infrastructure and Medical Facilities....................................................3...58 List of Figures Figure.....................) ...........................................................5.............................................................................32 Figure......................... Cost comparison for Cardio-thoracic surgery (Rs......................4....................................... Cost comparison for dialysis (Rs................ Table-11...............................1 BOX...................... Table-8....................................................................... Cost comparison for Gastroenterology procedure (Rs..................55 2 .............................................

Acronyms ADR CEO CII CMIE CRISIL CSR CT DIPP ECB ECG American Depository Receipt Chief Executive Officer Confederation of Indian Industries Centre for Monitoring Indian Economy Credit Rating Information Services of India Limited Corporate Social Responsibility Computerized Tomography Department of Industrial Policy and Promotion External Commercial Borrowing Electro Cardiogram EHIRCEscorts Heart Institute and Research Centre EMG ER FDI FICCI FII FIPB FVCI GATS GDR HR IBEF IFC ICU IPO ISO IT JCI MRI NABH Electromyography Emergency Room Foreign Direct Investment Federation of Indian Chambers of Commerce and Industry Foreign Institutional Investment Foreign Investment Promotion Board Foreign Venture Capital Investment General Agreement on Trade in Services Global Depository Receipt Human Resources India Brand Equity Foundation International Finance Corporation Intensive Care Unit Initial Public Offer International Organization for Standardization Information Technology Joint Commission International Magnetic Resonance Imaging National Accreditation Board for Hospitals 3 .

SAARC SEZ TPA UAE UK US VC WHO WTO National Accreditation Board for Laboratories National Capital Region Non Resident Indian Out Patients Department Operation Theatre Private Equity Public Private Partnership Public Sector Unit Reserve Bank of India Rupees South Asian Association for Regional Cooperation Special Economic Zone Third Party Administrators United Arab Emirates United Kingdom United States Venture Capital World Health Organization World Trade Organization 4 .NABL NCR NRI OPD OT PE PPP PSU RBI Rs.

which is driven by rising incomes. This growth and potential is due to the growing demand for healthcare services in the Indian market. Notwithstanding the sector’s rapid growth and potential. clinical trials. and health insurance. medical infrastructure. which translates into a total investment of $78 billion (Rs.3 for developing countries like China.2. According to a recent study. Total national healthcare spending reached 5.03 (well below the WHO norms) compared to an average ratio of 4. compared to a world average of 1. and Thailand. The industry has grown at about 13 per cent annually in recent years and is expected to grow at 15 per cent per year over the next four to five years.ibef.org See. which in turn translates into huge investments in training facilities and equipment. Korea. among other factors. The total number of doctors (all kinds included) per thousand persons stood at only 1. available at www. and demographics. It is estimated that over a million beds have to be added to attain this 1. medical devices. and in the best of circumstances is projected to reach 1. a growing propensity to spend on healthcare. The number of nurses per thousand persons stood at 0. An additional 800.000 physicians are required over the next 10 years. making it one of the largest service sectors in the economy today.27 in 2006 and 0. In order to reach even 50-75 percent of the present levels of other developing countries.5% of GDP. Ernst and Young (2007) and CRISIL Research (Feb 2007). 1 Hence. by all estimates. India’s healthcare sector needs to scale up considerably in terms of the availability and quality of its physical infrastructure as well as human resources so as to meet the growing demand and to compare favourably with international standards.9 billion by 2009. outsourcing. which include hospitals. to name some.85 per thousand persons by 2012. The current ratio of beds per thousand persons is a mere 1. a shift to lifestyle related diseases. 350.5. in many respects. which is growing rapidly and is seen to have considerable potential. or US $60. Added to this deficiency is the mal-distribution between rural and urban areas and shortages of specialized personnel. 1 2 These statistics are taken from IBEF.830 crores) in health infrastructure. These ratios are projected to remain below the existing world averages even in 2016. this is a sector.9 in 2006 compared to a world average of 1.7 billion and employs over four million people.85 ratio. telemedicine. or US $34.Foreign Investment in Hospitals in India: Status and Implications 1 Overview of the Indian Healthcare Sector The Indian healthcare delivery market is estimated at US$ 18. The sector comprises of many segments. the sector will require an estimated investment of $20-30 billion. and even falls below the standards existing in comparable developing countries.2% of GDP.1 percent of GDP by 2012 and is projected to provide employment to around 9 million people.9 billion in 2004 and is expected to rise to 5.5 physicians per thousand persons in India. 5 . India’s healthcare sector falls well below international benchmarks for physical infrastructure and manpower. 2 Thus. the industry will account for 6.

In the hospitals and medical devices segment alone. and delivery systems and processes along with spill over benefits in areas such as medical devices. in recent years.000 beds. Studies by the Central Bureau of Health Intelligence have shown that a majority of Indians trust private healthcare despite a higher average cost of US$ 4. There is also growing interest among domestic and international financial institutions. For example. An estimated 60 percent of hospitals. reflecting the widespread lack of confidence in the public healthcare system. according to a recent consulting firm report. there has been growing interest among foreign players and non resident Indians to enter the Indian healthcare market. The private healthcare sector in India accounts for over 75 percent of total healthcare expenditure in the country and is one of the largest in the world.12 percent of GDP and is expected to meet only 12 percent of the huge investment required in the healthcare sector. The growing presence of corporate players and foreign investors in India’s healthcare sector. Only 23. standards. venture capitalists. These players are entering mainly through joint ventures with Indian companies and also through technology and training collaborations. private healthcare delivery is highly fragmented with over 90 percent of private healthcare being serviced by the unorganised sector. Public health expenditure accounts for less than 1 percent of GDP compared to 3 percent of GDP for developing countries and 5 percent for high income countries. it may also result in higher costs of healthcare and greater segmentation between the public and private health sectors. Given the growing demand.3 compared to US$ 2. is not yet well understood in terms of its current status as well as its implications for the healthcare system at large. It is estimated that out of the 1 million beds to be added by 2012. and banks to explore investment opportunities across a wide range of segments (drugs and pharmaceuticals. technology. Thus. However. the emergence of reputed private players. Government spending on healthcare infrastructure (excluding land) is projected to rise only marginally. and the bulk 80 percent of private sector hospitals are very small. although highlighted and also documented in various reports by industry associations and consulting firms. The private sector’s role is expected to grow in the future. with the private sector providing some 88 percent of investment requirements. 6 . outsourcing. pharmaceuticals. 75 percent of dispensaries. by 0. quality of healthcare.7 in governmentowned healthcare agencies. and research and development. private equity funds. and the huge investment needs in the healthcare sector. the private sector will be a key player in driving the future growth of India’s healthcare sector.) in the Indian healthcare sector. etc. including in segments such as hospitals. less than 30 beds. such as helping to improve physical infrastructure. hospitals. some 6-7 percent are 100-200 bed size hospitals. while the emergence of corporate hospitals or foreign funding and tie ups in the hospital segment can have many positive implications.A striking feature of India’s healthcare system is the significant and growing role of the private sector in healthcare delivery and total healthcare expenditures. and 80 percent of all qualified doctors are in the private sector.6 percent of rural residents choose government facilities. the private sector will contribute 896. medical devices. there is a need to examine the state of play so as to better understand the nature and extent of foreign 3 4 Technopak (February 2007). Ernst and Young (2007) and IBEF. 3 Some 2 to 3 percent of hospitals are 200-bed plus.5 percent of urban residents and 30. there are reportedly at least 20 international players competing to have a share on the Indian healthcare market. 4 Hence.

prices. Hence. These are both influenced by the investment environment and also influence the overall investment environment. accessibility. Third. technical collaborations. and c) Understanding the realized or likely impact of foreign investment in hospitals in India on various aspects of the healthcare sector and the wider economy (quality. this study has two broader goals. as well as other forms of foreign involvement (not necessarily financing related) in the hospitals segment in India. This is because it became evident in the initial stages of the study that there are multiple modes of foreign funding in the hospitals segment in India and that these are more prevalent than FDI. First. This is because many of the factors driving or impeding foreign investment in hospitals are also pertinent to 7 . these are also considered. The specific objectives of the study include: a) Understanding the nature of foreign funding in hospitals in India. it was necessary to go beyond FDI and to examine all kinds of foreign financing. the discussion also touches on forms of foreign presence. While these are not under the direct purview of this study.. while the original scope of this study was to understand the status of FDI through automatic route and through FIPB route in hospitals in India. if the study was to derive any useful insights and policy recommendations and understand how liberalization of the investment environment in hospitals is impacting the segment. technology. investments by private equity funds.e. explicit as well as forms that are not so directly visible. as they are prevalent in India’s healthcare sector. A few points are worth noting at the outset regarding the scope of this study and the approach taken on specific issues in the course of the discussion. Diaspora investment. affordability. i. it was deemed appropriate to enlarge the scope to examine foreign financing more generally. 2 Overview of the study 2. b) Understanding the institutional and other factors facilitating and impeding foreign funding in hospitals in India.presence in selected segments of India’s healthcare sector and its realized as well as likely impact on the concerned segment and on the healthcare system at large. joint ventures. in hospitals. infrastructure development. It also analyses the implications of such financing for the hospital segment and for the overall healthcare system. and research and development and education related arrangements. The first is to provide policy inputs that would facilitate such investments and enable the realization of the greatest possible benefit from such inflows. Second. which go beyond mere financing.) In addition to the aforementioned objectives. The second is to inform policy makers with regard to India’s commitments in health services for the mode of commercial presence (mode 3) under the General Agreement on Trade in Services (GATS) negotiations in the WTO. in several sections of this study. although the study started with a focus on foreign investment. These include tie-ups.1 Scope and objectives This study examines the status of foreign financing (foreign direct investment-FDI as well as other forms of foreign fund inflows) in one of the key segments of the healthcare sector. Foreign Institutional Investment. Thus this study looks at FDI. in the course of the study it became evident that a more generalized approach to investment was appropriate. etc. and possible foreign investment in the context of placements in capital markets.

and financials and to compare across the different categories of hospitals. i. 2. industry associations. owners or managers of hospitals and nursing homes (large and mid size) health consultants. The target cities/regions for this survey were the National Capital Region. An initial list of institutions that have been approved for foreign direct investment was obtained from the Department of Industrial Policy and Promotion. they were all multi-specialty hospitals. A total of 15 in-depth discussions were carried out in this phase. and refers to corporate or private hospitals without necessarily distinguishing between them in terms of sources of funding. and medical equipment suppliers and patients. the discussion on drivers and impediments often considers investment more generally. on the hospitals segment. technology and equipment. academics. These qualitative discussions were aimed at supplementing the information obtained from the survey and getting varied perspectives on how liberalization of investments in hospitals would affect different stakeholders in the healthcare sector. Hence. including their infrastructure. This questionnaire was designed on the basis of pilots conducted in Bangalore. range of healthcare facilities. The survey aimed at collecting information on the key features of hospitals. in particular between foreign funded and non funded hospitals for these various dimensions. One part was outsourced AC Nielsen. although an attempt was made to obtain as much of the information as possible through a face-to-face interview. including the profiles and financials of major hospitals in India. including the institutional and procedural aspects of such investments. Kolkata.2 Methodology for the study The study is based on primary as well as secondary research. on related areas such as medical devices and technologies. i.. both foreign and domestic investment. Customized in-depth discussion guides were used for this purpose. No quotas were assigned to individual cities and the sample was drawn up depending on the response from the field.domestic investment in hospitals.. prices. The first phase of the primary research consisted of administering a structured questionnaire to administrators and finance sections of a small sample of hospitals around the country. diagnostics. This questionnaire was designed as a self-completion questionnaire as some sections had to be left behind with the respondent for completion. The secondary sources consist of existing reports on the health sector by national and international agencies. health insurance companies.e. Mumbai and Chennai. The second part of the primary research was undertaken by the researcher. human resources. nurses. and manpower. health insurance. The second phase of the survey work by Nielsen consisted of semi-structured interviews with various stakeholders who could provide views on the role and implications of foreign financing in hospitals. Hyderabad. The latter in turn carried out its survey work in two phases. This list was used for the initial selection of hospitals. and popular media.e. In addition. primary research has also been conducted for this study in two parts. consulting firms. all hospitals were of a minimum size of 100 beds. The latter sources have been used to gather information on the general state of India’s health sector. Bangalore. and they included a mix of for profit private hospitals with and without foreign financing and not for profit private hospitals categorized as charitable/trust hospitals. and on the investment scenario in India’s hospital segment. The criteria for selecting hospitals for the quantitative survey included size. The respondents included doctors. This consisted of a total of 30 in-depth discussions with senior management in major corporate hospitals and with other 8 .

doctors. The latter consisted of 6 major hospitals around the country. financiers. and public sector practitioners. 5 Hence. In one case. despite assurances of confidentiality of information.stakeholders such as civil society organizations.1 Details of the Quantitative Survey Quantitative data was collected for 19 hospitals around the country through the survey questionnaire administered by Nielsen. 5 In some cases. they were not willing to participate due to internal administrative reasons. 9 . for hospitals. Many large hospitals were not willing to participate in the survey and provide background information. industry associations. in the NCR. senior management did not grant approval. These secondary sources included consulting firm and research reports and annual reports of hospitals. Bangalore. which were considered necessary for inclusion in the list of surveyed hospitals and for which qualitative discussions could be used to corroborate findings. In some cases. hospitals were not willing to participate in the survey due to legal reasons. secondary sources were used to gather background information.2. such as going for an IPO. The status report for the data collection is provided in the table below. It is important to note that it proved very difficult to carry out the quantitative part of the primary survey. 2. and Kolkata.

10 . Ltd 13 Wockhardt Hospitals a/ 14 Manipal Hospitals a/ 15 Narayana Hrudayalaya 16 CSI Kalyani General Hospital 17 KHM Hospitals 18 Kumaran Hospitals (p) Ltd 19 Apollo Hospitals a/ 20 P. 2.2 Qualitative survey A total of 45 qualitative interviews were conducted between the researcher and the survey agency.D. Hospital and Research Centre 23 Sowmya Hospital 24 Pacific Medical Centre 25 St. Hospital 1 Indraprastha Apollo 2 Max Healthcare 3 Fortis a/ 4 Escorts Healthcare a/ 5 Woodlands 6 Anandlok Hospital 7 Jitendra Narayan Ray Sishu Seva Bhavan and General Hospital 8 Apollo Gleneagles a/ 9 Sarvodaya Hospital 10 Suguna Ramaiah Hospital Pvt Ltd 11 Chinmaya Mission Hospital 12 Columbia Asia Hospital Pvt. Theresa’s Hospital Note: a/ Based primarily on secondary sources. although it proved difficult to get inputs to the extent desired from certain stakeholders.2.Hinduja National Hospital and Medical Research Centre 21 Joy Hospital 22 Sir H. such as foreign investors and equity funds.Table-1. Hospitals covered by the quantitative survey City New Delhi New Delhi New Delhi New Delhi Kolkata Kolkata Kolkata Kolkata Bangalore Bangalore Bangalore Bangalore Bangalore Bangalore Bangalore Chennai Chennai Chennai Chennai Mumbai Mumbai Mumbai Hyderabad Hyderabad Hyderabad Sl No. The status matrix for these interviews conducted by the researcher and the survey agency is provided below. The attempt was to target as wide a group of stakeholders as possible. although a few were done over the telephone and via email.N. These interviews were largely done face-to-face.

although they did agree to qualitative discussions. John’s Medical College Vydehi Medical College Mid size nursing home Vydehi Hospital Mid size nursing home Mid size nursing home Small nursing home Health insurance company Medical equipment Diagnostics Health consultant Health consultant Industry associations Customer Foreign medico-legal expert Private equity fund Liberty Foundation-NGO One group that was targeted but which ultimately could not be interviewed in these in-depths was that of prospective foreign and domestic investors in India’s hospital segment. even when firms did participate in the survey. in particular. This is because despite attempts to communicate with such investors. of interviews 1 4 3 2 1 2 1 2 3 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 3 2 1 1 1 Affiliation Senior management Senior management and practitioners Senior management Senior management Senior management Senior management Senior management Senior management Senior management Senior management Senior management Practitioner and owner Senior management Practitioner Professor and practitioner Professor and practitioner Owner and practitioner Nurse Practitioner Practitioner Owner and practitioner Management Supplier Practitioner Financial advisor Advisor on global affairs Health sector specialists Patients Professional Person dealing with the health sector Civil society organization working on health sector and regulatory issues Institution/stakeholder Indraprastha Apollo Max Healthcare Fortis Escorts Columbia Asia Narayana Hrudayalaya Wockhardt Woodlands Medica Synergie AMRI Apollo Gleneagles Institute of Laparoscopic Surgery Manipal Hospital NIMHANS St. Also. the latter were not willing to share their views or to send replies via email. As noted already. on their sources of financing (domestic and foreign). 2. Thus.Table-2. and their costs for different procedures. They 11 . they were often not forthcoming on the data concerning their financials. their revenues and profits. This did affect the final composition of the sample of hospitals. this point of view had to be obtained through secondary sources and third party discussions.3 Limitations of the primary research It needs to be pointed out that several difficulties were encountered in conducting the primary survey. many hospitals that were deemed crucial for this study. Target groups covered for the in-depth qualitative discussions No. did not agree to participate.

an affiliate of Johns Hopkins International of the US. And finally. However. Bangalore.style medical centre in Hebbal. a 325-bed multi-speciality hospital at a cost of US$ 29 million. a US$ 1. Thus. research.were more forthcoming on issues of physical infrastructure and healthcare facilities. which also has a strategic association with Harvard Medical International. given that the query method was used to elicit views on the impact of liberalizing foreign investment in hospitals. the international arm of the Harvard Medical School. The Parkway group has also entered into a joint venture with a Mumbai-based Asian Heart institute and research centre to set up specialised centres of medical excellence in Mumbai.2 million is to be invested and the laboratory is likely to be operational by mid-2006. to set up a diagnostic laboratory in Hyderabad. Columbia Asia Group. Wockhardt. opening an international medical centre. plans to set up a wholly owned arm in India to sell its devices and products in the country’s booming medical device market.1 billion healthcare equipment company. 3 Foreign Presence in Hospitals in India In recent years. The Singapore based Parkway Group Healthcare PTE Ltd penetrated into the Indian health care market in 2003 through a joint venture with the Apollo group to build the Apollo Gleneagles hospital. technology tie-ups. there is growing interest among foreign players to enter India’s healthcare sector through capital investments. some of the comparative analysis that had been intended could not be done and at times had to be based on secondary sources of information which were not always uniformly available across all the hospitals covered in the study. including diagnostics. and education and training. • • • • • • • 12 . in the Indian city of Hyderabad. medical equipment. The primary research is also limited by the fact that the number of hospitals covered is small (due to funding constraints). a worldwide developer and operator of community hospitals. Steris.000 to set up the wholly owned subsidiary. the usual problems of small sample surveys do affect this study. Apollo Hospitals Enterprise Ltd has entered into a joint venture with Amcare Labs. has set up a new hospital (a tertiary service provider) in Bangalore at a cost of around Rs. hospitals. An initial amount of US$ 2. which is a joint venture with India's Vitae Healthcare. For example: • Singapore's Pacific Healthcare has made its first foray into the Indian market. a Seattle-based hospital services company. Steris plans to make an initial investment of US$ 1. and collaborative ventures across various segments. Columbia Asia is the first hospital to enter the Indian healthcare market through the Foreign Direct Investment route. has started its first American. although all efforts were made to get the views of a diverse group of stakeholders through the qualitative discussions so as to counterbalance such biases as much as possible. there are potentially biases in the responses. although attempts were made to obtain as representative a group of hospitals across the various categories as possible. training and education in healthcare services. 200 crores. Max Healthcare and Singapore General Hospital (SGH) have entered into collaboration for medical practice.00.

No major regulatory hurdles were cited by any of the respondents with regard to the setting up of hospitals. There is some concern about corruption and lack of transparency in some parts of the application process. but the process is generally perceived to be quite streamlined. and other modes) in the total financing structure of private sector hospitals in India and the regulatory environment affecting these inflows. 3. the annual conclave of the Indian diaspora. Proton Health Care has made an entry into India with its range of digital health monitoring devices and has a strategic tie-up with the Delhibased S M Logistics for distributing its products in the Indian market. but is allowed up to 100 percent. private equity funds. 13 . with the government. and long processing time (around 6 months in some cases) and lack of response from authorities for particular licenses. RBI note on Foreign Investments in India (April 1. train and provide placement to registered Indian nurses in USA. Current regulations also permit other forms of capital mobilization. a Non-Resident Indian group will be launching two pilot projects in Bihar and Andhra Pradesh in July 2006 to help improve India’s healthcare in rural areas. the Heritage Hospital of Hyderabad has formed a joint venture with US-based United Church Homes to recruit. venture capitalists. 2007). • • The following section discusses the nature and extent of foreign involvement in the hospitals segment in India. FDI in hospitals was permitted under the FIPB route. FDI is permitted up to 100 percent under the automatic route in hospitals in India. The lax investment environment for hospitals is also evident from the discussions. FIPB approval is currently only required for foreign investors with prior technical collaboration. It needs to be pointed out that a distinction is made between FDI in the traditional sense of 6 See. which meant that the FIPB would consider the investment proposals and take a decision and the Indian company with the RBI would make thereafter filings. It focuses primarily on the role of foreign financing in Indian hospitals through FDI and other forms of financing (including FIIs. For instance. The discussion is based on both secondary and primary sources of information. But the hurdles are felt mostly at the operational level rather than in the regulatory framework per se. 6 Controlling stake is also permitted in hospitals for foreign investors. The US-based healthcare products major. upto 49 percent subject to specified conditions and such investments are also treated as FDI. The following discussion highlights the available evidence on hospitals that have received FDI in recent years and views on the extent to which FDI is likely to come into the hospital business in India. The AAPI has committed itself to the improvement of primary healthcare under a memorandum of understanding during the Pravasi Bharatiya Divas.• India’s first geriatric hospital. which are treated as FDI. Thus no government approval is required as long as the Indian company files with the regional office of the RBI within 30 days of receipt of inward remittances and file the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the nonresident investors. One respondent noted that there are some 20 odd licenses to procure. Prior to January 2000.1 Foreign direct investment in hospitals Since January 2000. The American Association of Physicians of Indian Origin (AAPI). including environmental and various safety clearances. Indian companies can raise foreign currency resources abroad through ADRs and GDRs under the automatic route.

ownership of physical assets on one hand and private equity and FII funding of hospitals through holdings of shares by individuals or a group of foreign investors on the other. If one goes by the current definition of FDI in India, private equity stake of over 10% by any individual investor also counts for FDI and Foreign Institutional Investors (FIIs) are permitted to invest under the FDI route in addition to the FII route. But for the purposes of this discussion, the aforementioned distinction has been made, as there are different implications in terms of return expectations, financial control, and time horizons.

3.1.1 Status of FDI in hospitals
In order to understand the extent and nature of foreign direct investment in hospitals, a list of all FDI approved projects in hospitals and diagnostic centres during the January 2000 to July 20006 period was obtained from the Department for Industrial Policy and Promotion. This list consisted of 90 projects, for a total approved FDI amount of $53 million, and covering a wide range of countries, such as Australia, Canada, UK, US, the UAE, Malaysia, and Singapore, among others. However, if one examines the list of approved projects and separates hospitals from diagnostic centres, then one finds that the majority of these approved projects are diagnostic centres. Only 21 of the approved projects are in the hospitals segment. The following table shows the approved projects for FDI in hospitals as received from the DIPP, along with the source countries, and the Rupee and US dollar values of FDI approved.

14

Table-3. Sl No.

Approved FDI Hospitals by DIPP (January 2000-June 2006) Date Indian Company Country of foreign investor Australia Canada Mauritius UK-NRI USA- NRI NRI Saudi Arabia Singapore Singapore UAE Foreign equity (Mns)

1 2 3 4 5 6 7 8 9 10

April 2002 December 2002 January 2004 January 2000 January 2000 September 2003 August 2000 January 1, 2003 July 2004 October 2001

Fernandez Maternity Hospital, Hyderabad Sir Edward Dunlop Hospitals, New Delhi Max Healthcare, New Delhi Dr. Ramayya’s Pramila Hospitals Ltd, Hyderabad. HN Hospital, Mumbai Kalinga Hospital, Bhubaneshwar Thaqdees Hospitals Ltd, Thaikkatukkara, Kerala Duncan Gleneagles, Kolkata Pacific Hospitals, Hyderabad Malabar Institute of Medical Sciences Hospital Ltd., Calicut Peoples General Hospital Ltd., Bhopal Thaqdees Hospitals Ltd, Ernakulam Trichur Heart Hospital, Thrissur Bhimavaram Hospital Ltd., Bhimavaram S&V Loga Hospital Pvt. Ltd, Peramanur, Salem Vikram Hospital, Mysore Basappa Memorial Hospital Pvt. Ltd., Mysore Parekh Hospital Pvt Ltd, Mumbai Columbia Asia Hospital Pvt. Ltd., Bangalore Add Life Medical Institute Ltd. Sterling Hospital Building, Ahmedabad RA Multispeciality Hospital Pvt. Ltd, Coimbatore

Rs. 0.42 1,282.25 316.21 15.00 0.00 54.09 0.32 59.24 5.82 133.61

US $ 0.01 26.71 6.63 0.35 0.00 0.11 0.01 1.29 0.13 2.97

11 12 13 14 15 16 17 18 19 20

July 2002 August 2001 July 2001 August 2002 December 2002 November 2003 February 2004 April 2004 July 2004 August 2004

UAE UK UK USA USA USA USA USA USA USA

73.32 0.34 49.89 0.10 3.79 29.65 22.83 0.50 0.90 326.24

1.53 0.01 1.11 0.00 0.08 0.64 0.50 0.01 0.02 7.07

21

January 2004

British Virginia

0.06

0.00

Source: DIPP (2006)

15

The above list indicates that a few countries account for the bulk of FDI in hospitals in India. These are mainly the US, UAE, Singapore, and the UK, although some other countries such as Mauritius, Australia, and Canada also feature among the source countries for investment, some most likely for tax reasons. Non-resident Indians are an important source of investment (some projects are explicitly listed as NRI based while for several others, the particulars of the investor indicate clearly that there is NRI investment though this is not explicitly classified as such). Interestingly, by and large, this list of approved FDI projects in hospitals does not include the wellknown corporate hospitals in the country, excepting Columbia Asia, Max Healthcare, and Pacific Hospitals. In the latter cases, the funding source is an investment group, such as Pacific Healthcare Holdings, S&G Investment, or the Gleneagles group. A large number of the approved projects are small individual investor type hospitals, with NRI participation and in smaller cities, indicating the importance of diaspora contacts and location specific professional and other linkages that can affect foreign investment in hospitals. The amount of investment in most cases is quite small, with several having less than US $1million in FDI and the bulk falling in the $1 to $2 million range, indicating that several of these hospitals are small or mid size and not the major corporate hospital type. There is some discrepancy between what the above list shows and what is indicated by industry experts regarding the presence of FDI in Indian hospitals. According to several senior management persons who were interviewed for this study, there are really only three or hospitals which would qualify as FDI hospitals in India. These are Columbia Asia, Apollo Gleneagles, and Max Healthcare. The rest, according to them, are FDI approved on paper, and may not have brought in capital through the FDI route but rather through other sources of foreign financing available under existing regulations, following approval of their projects. While one possible reason for the discrepancy between what is given in the DIPP list and what is perceived by players may be a result of the low visibility of several of the smaller hospitals given in the approved list, there appear to be other reasons as well. Several experts who were interviewed noted that although many investors seek and obtain approvals, they do not necessarily enter the country to set up operations subsequently as their primary motive may not be setting up the hospital. In some cases, they stated that the sanction for the project might be used as a means to mobilize funds for reasons other than setting up the hospital. This was in part corroborated by the fact that when the survey agency did an initial check on the hospitals given in the DIPP approval list for drawing up their sample frame, it was found that several of them did not exist on the ground even though they had received approval several years ago. It was also pointed out that even the well-known joint ventures are more collaborative and equipment-centric in nature than investments in a financial sense. In the course of the survey, it also became apparent that there are some corporate hospitals which do receive FDI but which do not consider themselves as FDI hospitals. This is because the foreign funds that they receive are only for routing purposes. For example, in the case of one hospital, the respondent noted that the promoter company is based out of Mauritius for tax benefits and thus is technically classified as FDI. The private investor has also routed investment through Mauritius and this would also count as FDI. But the management at the hospital did not see themselves as an FDI establishment. Hence, there is clearly a distinction between what is technically classified as FDI as per legislation and what practitioners in corporate hospitals see as FDI in terms of its intent and implications for the functioning of the hospitals. Overall, FDI presence in Indian hospitals seems to be limited at present, notwithstanding the very liberal investment policy on FDI in hospitals. According to one estimate, foreign investors have tapped only 10 percent of the Indian healthcare market and thus the scope for FDI remains large. (The possible reasons for limited FDI presence are discussed at length later in this paper). There appear to be some post-approval, transparency and follow up related issues, as there is lack of 16

and Singapore. 3. 8 Some examples include Max. despite the health sector’s huge growth potential and the liberal regulatory environment. there are some 10 projects at present with overseas funding. 8 The IFC based in Washington.g. including Medicity and Artemis. Naresh Trehan’s Medicity. 1. which has plans to set up some 100 hospitals all over the country.1. given its local experience. Although there are perceived possibilities for joint ventures. Wockhardt in Jaipur and Delhi. and Pacific Holdings from Singapore. has been approached for funding. 10. but very few are likely to venture into India.000 versus 2. Other examples of prospective FDI players cited are the EMAAR group from Dubai. Australia. It is also perceived that India would take some time before it can replicate the developed country model of very large corporate chain hospitals given the average size of hospitals in those countries is several times that of some of the largest hospitals in India (e. The examples of some major medical city projects in India are given in the box below. As one respondent noted. One of these is Gleneagles. There may also be increased foreign capital inflows into hospitals with some major corporate houses planning to enter the hospital business. spread over 93 acres will consist of a 1.clarity about whether what is approved really materializes on the ground and motives of investors. Many of the well-known domestic players are also mobilizing funds. There is also clearly a perceived difference between FDI which brings with it technology and creation of assets and FDI which is for tax benefit purposes and driven more by short-term expectations. a Rs. generally it was felt that joint ventures are difficult to establish and maintain in the hospital business due to problems in aligning expectations of the partners.2 Prospects for FDI in hospitals 7 The discussions revealed that there are several prospective players in the Indian hospital market. and Narayana Hrudalaya in Jaipur and Kolkata. which is planning to set up in Gurgaon. illustrates the growing scope for foreign funding and other collaborative opportunities in India’s hospital segment. The project is modelled along the lines of the Mayo Clinic. with the foreign partner arranging for funds and the local partner helping to manage the business. Fortis in Gurgaon. investments to the tune of US $100 million and above can only happen through investments in corporate hospitals (chains). which has started operations in a small way in Hyderabad. the prevailing view is that one would not see a huge amount of FDI in India’s hospital segment in the near future. One of the main reasons cited was the localized nature of this business and the need for in-depth knowledge of local market conditions and available resources.600 bed hospital. 17 . According to one industry expert. UK. DC. However.200 crores project in Gurgaon.000) A leading article in the Business Standard on the growing corporate medical sector. BOX. including overseas funds through FIIs and equities to finance major expansion plans in other cities. Gurgaon Dr.1 • Major Medical City Projects: Proposed and Newly Established Medicity. The main source countries for foreign investment are seen to be the US. which would make it difficult to have control over the business and returns and would thus make foreign investors reluctant to take a long term position. which had earlier come in through a joint venture with Apollo and was now interested in entering on its own. It will 7 This section is largely based on discussions with management and practitioners in various hospitals and industry associations..

oncology. The hospital campus will contain a high-end. bone and joint. In addition. It will impart undergraduate medical education. Hyderabad This project was opened in mid 2007. institute of medical informatics. Lucknow This project is worth an investment of between Rs. Gurgaon This project is worth an investment of over Rs. a medical college offering undergraduate. p. and postdoctoral courses. The 500 bed cardiac centre. apart from healthcare delivery through hospitals.000 crores. I. It contains a 500-bed hospital. Narayana Hrudayalaya is already functional and is spread over 12 acres. Foreign involvement is likely to be in the form of technical 18 . cardiac anaesthetists. The college campus will contain a medical college for undergraduate and postgraduate education. and regenerative medicine and trauma care. ophthalmology. and an institute for paramedics. 1. From the scale of the above investment projects and their integration of various aspects of healthcare. at an investment of Rs. the general view is that existing domestic players who are planning to expand their operations and new players who are entering the hospital business are more likely to obtain funding through sources other than FDI. nurses.000-bed health city will be spread over 35 acres with a project cost of Rs. various technicians. 1. July 28/29. and Texas Heart. institute of hospital administration. 800 crores and is spread over 52 acres. Source: Business Standard. a dental college. nursing college and facility for primary and applied research in medicine. Weekend Section. women and children.expresshealthcaremgmt. a college of physical medicine and rehabilitation. complete biotechnology backup. 30 operating rooms. postgraduate. There will also be a thrust on telemedicine.com/200609/bangalorediscovered01. a college of physiotherapy. cardiac surgeons. Foreign technical collaborations are permitted under the automatic route in hospitals. and healthcare specialists. and http://www. Johns Hopkins. Bangalore This 5. It will consist of 10 hospitals. and major undergraduate and postgraduate institutions for cardiology.shtml By and large. With 33 acres.200 crores. It will have two campuses. a dental college. It will also have a 600-800-bed hospital. • Fortis Medicity. The Health City will also have hospitals for specialities like orthopaedic. 2007. The second phase will have 1000 beds. • Health City. institute for emergency medicine. and a college of allied medical science. 500 crores to Rs. which will come up over several phases. industry experts feet that foreign players are more likely to come in through tie-ups and collaborations in areas such as research and training and technology ventures than through FDI as the former are less risky ventures and are easier to control. and a teaching institute to train cardiologists. cancer. It will include an 800-bed hospital. Some examples of existing collaborative ventures include tie-ups between major corporate hospitals and the international divisions of wellknown overseas hospitals. neurosurgery. neurosciences. The project is modelled on an integrated concept of healthcare. it is currently the largest health city in the country. a nursing school. such as Cleveland. Another 200 beds will be added over the next six months. multi and super-speciality hospital and research centre.000 crores. • Apollo Health City. 2. It includes a postgraduate college for doctors. Mayo.have R&D facilities. • Fortis Medicity. nursing college. it is evident that there will be some degree of foreign funding and foreign involvement in some of these projects apart from investment by the domestic corporate sector.

foreign individuals and foreign corporates can register as a subaccount and invest through the FII. Both NRI doctors and non-doctors are funding hospitals mainly through purchase of shares. which has taken a 26 percent stake in Max India and later in Max Healthcare. Despite repeated queries on the extent of foreign subscriptions in IPOs and in private equity funding. Foreign venture capital investments (FVCIs) are also permitted. The regulatory environment concerning foreign financing in hospitals is quite liberal. In addition. benefits to patients. and investment arms of foreign governments. First are NRI doctors who wish to return to India or contribute to India. many of which are discussed in the following section. respectively for these sub-accounts.2 Other sources of foreign investment in hospitals 9 There are various other forms of foreign funding. They may team up with local doctors. 3. Fortis. development agencies. the IPO option is open only to the reputed and well-established players and is not for new entrants. But it was noted by several respondents that the role of private equity funds. and Wockhardt are going for IPOs. The discussions indicate that non-debt based foreign funding has come into Indian hospitals through investment banks. although as highlighted earlier. is less than that of individual investors through the IPO route. and through others such as FIIs. It was also pointed out that there is some amount of NRI investment in healthcare. and therefore wish to invest in a venture. which involves a higher cost. More and more hospitals are expected to raise money through IPOs in the near future. including Max. The second group consists of individual NRI investors who have finances and contacts and see the health sector as a growth opportunity and feel they can get high returns. FIIs and private equity funds can individually purchase upto 10 percent and collectively upto 24 percent of the paidup share capital of the company. Foreign funding is also likely to come in various forms. 19 . FII as well as private equity funding over a certain stake are also permitted under FDI route. it was not possible to get an idea of the break-up between domestic and foreign investors under these modes. through private equity funds which have taken limited exposure positions of between 15-26 percent on various players. subject to limits of 10 percent and 5 percent. the most prevalent is private equity funding and now increasingly public offers. as this compares quite favourably with short term borrowing from banks. there is a distinction to be made between permanent and temporary FDI as these have different implications for the absorption of costs.collaborations and collaborative research and development and training activities. which are being used by hospitals in India to either expand their operations or to set up new operations. Proprietary funds. However. Among these different sources. expectations of returns. through open offers or private placement. according to one respondent and that independently listed healthcare companies prefer going directly to investors. Two classes of NRI investors were identified. Respondents made it clear that while these other forms of financing also classify as FDI. An estimated 20-25 percent of the financing is provided by private equity funds and venture capitalists in some of the corporates. Apollo is one hospital that has worked through a network of investors (domestic and foreign) who tend to be in 9 Based on discussions and secondary sources. As mentioned earlier. though subject to certain restrictions. Several established corporate hospitals. are financially comfortable. and improved capacity in healthcare delivery. though significant. there is also NRI investment through the direct FDI route. or through the stock exchange. where there is purchase of shares but without financial control and both foreign and domestic investors are subscribing to these shares. and the International Finance Corporation (IFC) based in Washington. The institutional investors that were commonly cited include Warburg Pincus.

any discussion of foreign investment in hospitals has mainly to do with the large private sector players who can access funds through various sources. even NRI investments may not be that forthcoming. and at around 8 or 9 percent including this risk. possibly due to capital market exposure related restrictions. foreign equity funding. however. A few other forms of foreign financing emerged from the discussions. permissions for the real estate and healthcare sector had not been given by the RBI. In terms of debt based financing. it was apparent that large amounts of foreign funding are only flowing into major corporate hospitals Reputation and brand value are key to accessing funds through private equity. external debt and more generally. new hospital projects would primarily have to rely on domestic debt and would not see much foreign capital inflows except through individual NRI investor or through groups of small investors. the investment arm of the UAE government. Other respondents noted that ECBs were permitted and had been obtained by some players. although several respondents noted that this would be the ideal source given it was cheaper than domestic borrowing and equity financing. Venture capital funding and FII funding also appear to be quite limited and discussions revealed that these are not expected to be significant sources of financing in the near future. It is domestic financing that predominates. one new hospital cited that it had accessed funds from a group of venture capitalists that had sourced the funds from small investors. both domestic and foreign. It is also felt that foreign investment is not likely to come to trust hospitals as investors are looking for returns and trust hospitals have delivery models and objectives that are not necessarily focused on the bottomline. except in some larger hospitals. Thus. 3. The latter has an equity stake of 49 percent in the hospital. but that their use remained limited mainly because of the foreign currency exposure risk as hedging costs could be quite high. Overall. The following figure shows the composition of overall financing (domestic and foreign) by 6 major corporate hospitals in India. But there was a consensus that such credit would still be cheaper than domestic borrowing at around 6 percent excluding the currency exposure risk. However. one finds that these constitute a relatively small share. 20 . especially in larger hospitals. if one looks at the current pattern of financing. but their role was rather limited. which has a tie up with Dubai World. FIIs. It is clear that there is scope for expansion in FDI as well as private equity funding. One respondent cited the fact that although rules on ECB had been relaxed. or external commercial borrowing. which was unlikely. as either such funds would need to have deep knowledge of the healthcare sector and its economics. respondents noted that FII funding was not likely to flow in large amounts into hospitals. and that FIIs would not venture into the hospital business if they were only looking at short term returns. and foreign debt based funding in hospitals. compared to 12-14 percent rates for 8-10 year loans provided by PSUs and domestic private banks.3 Pattern of financing in major corporate hospitals The preceding discussion has highlighted the possibilities for FDI. Hence. debt based financing was seen as preferable to equity financing because of the additional issues of control. However. and expectations in the case of private equity investors. Across all the sources of funding. but that it had encountered difficulties in the absence of a guarantor or facilitator. returns. external commercial borrowing (ECB) did not emerge as an important source of funding for hospitals.the medical fraternity. for some of the major corporate hospitals in India. One example was that of Hinduja hospital. In the case of VC funding. One hospital had had to preclose its external loan as it had incurred huge costs due to currency fluctuations. it was also noted that due to the difficulty in controlling processes. Similarly. in particular domestic long-term bank borrowings.

drawing upon the preceding discussion. Structure of Borrowings Source: Company balance sheets accessed from the CMIE Prowess database (2006 figures) Over half of the finances are obtained through long-term bank loans. This corroborates the earlier discussion that although the sector has a lot of potential. The following table highlights the main pros and cons of the different sources of financing for hospitals in India.1. From the other categories of financing the share of foreign sources is not readily apparent.Figure. 21 . but roughly less than 20 percent could be funded through external sources. to date. the role of foreign investment remains limited.

when growth opportunities in the sector are good. the scope for foreign investment in them automatically gets limited. But this does not address the issue of why there is limited foreign funding as a whole and why FDI.Table-4. is not forthcoming in larger numbers? What might explain the fact that the recent spurt in funds into hospitals has been more through the equity route and public placements compared to the FDI route. which according to industry experts would be the most desirable form of financing. which would suggest that investors are hesitant to make a long-term commitment to the sector? One needs to examine the factors beyond the direct regulatory environment for foreign investment and see if there are sector-specific factors. Summary of pros and cons of financing sources for hospitals Source: Based on discussions and secondary sources What might be the possible explanations for this untapped potential in terms of foreign financing. and when there is a liberal investment environment? One possible explanation given by a respondent is that since over 80 percent of hospitals are not listed in the country. which deter foreign direct investment in hospitals or if there are regulations in other areas that affect the hospital segment and its attractiveness to foreign investors. The most important driving factor is the demand-supply mismatch and the huge amount of private sector investment that is required in this sector to raise its infrastructure even marginally to meet 22 . The following section looks at the constraints to foreign investment in hospitals. as noted by industry experts and based on a reading of secondary sources. when there is a clear demand-supply mismatch which foreign investment can help address. 4 Constraints to foreign investment in hospitals in India There are certainly many factors that could drive foreign funding into hospitals in India.

this is a sector that is undergoing reform and internal problems in those economies. which affect the returns to investment. The obvious and immediate attractiveness of India is its population. difficulties in developing business. its expanding market … The main factors that make India unattractive is the uncertainty of its regulatory environment. The regulatory environment must permit certainty of revenue flows to repay debt. A third fact is that foreign investors would consider many competing destinations and would tend to go to markets which they are more familiar with and where there is clarity about policies not only regarding FDI but also regarding the healthcare sector overall. increased willingness among Indian consumers to pay for quality healthcare and to go to institutional providers. As several respondents pointed out. has not considered it as a core sector. There are those who want to invest in physical infrastructure and others who see this as a profitable development opportunity and thus want certainty of returns. These include initial establishment related factors as well as post-establishment related operational issues. “Investors can have two roles.2 Domestic factors The discussions suggested. license and red tape. the potential number of overseas institutions that can invest in emerging markets may be rather limited. this is a potentially attractive sector for both foreign and domestic investors. Hence. 4. the Indian government does not have a clear roadmap for the healthcare sector. Investing in service industries is different from that in production industries…There are two reasons why investors are waiting and watching. however. Joint ventures may be a better way of entering a foreign market when setting up hospitals. which constrain foreign investment. One is the lack of infrastructure and the second is the bureaucracy for setting up. and the healthcare packages offered by companies which are increasing affordability of healthcare for consumers. The growing presence of private healthcare in some developed countries also creates opportunities for foreign investment in the healthcare sector of developing countries such as India. A quote from one foreign health sector expert sums up the perception of India as an investment destination. the comparably lower costs of establishment in India. However. With the growing economy. especially foreign direct investment in India’s hospital segment. that it is primarily domestic factors that are specific to the hospital business that have limited the extent of FDI in India’s hospitals. there are opportunities for foreign investors to finance such projects. with the prospects for setting up hospitals in Special Economic Zones and large-scale Medicities. A second factor that was commonly noted was that the hospital business requires localized and indepth knowledge of the host country’s market and thus entry as an independent overseas institution is very difficult. 23 . all of which do deter foreign investors.” 4. there are external and domestic factors.international metrics. which was noted is that notwithstanding trends towards privatisation in healthcare in major developed countries. and corruption. its GDP growth. as there are issues of financial control and differences in expectations and management styles. Also. issues of income flow. In many countries. and is perceived to be non transparent in terms of its regulatory environment and corrupt and inefficient in its procedures for establishing business. the number of private players who can establish hospitals overseas is limited. Thus minimization of risk and a regulatory environment that permits that is important. rising incomes.1 External factors One of the external factors. But there are problems in maintaining partnerships.

Several senior persons at leading corporate hospitals stated that hospitals are a very expensive business involving huge upfront very capital-intensive investments and very high running costs. If this cost could be reduced to even Rs. 24 . which works out to Rs. The following table shows the financials for six selected hospitals. it takes some 4 to 5 years to break even and some 7 – 8 years to make reasonable profits. One senior doctor noted that an estimated Rs. albeit interrelated. Thus. which affect this segment. In addition. and the relatively low returns on investment. although depending on the model adopted and efficiencies. high capital intensity. some of which have foreign funding. then the break-even period could be quicker. This is not the most attractive combination for foreign investors when also coupled with the various external factors discussed earlier. Several hospitals noted that profit rates are around 13 percent. finance. investment in hospitals is characterized by low returns. 50 lakhs is required per bed. The figures summarize the key features of investment and returns in the hospital business and highlight some of the main factors. 100 crores for a 200-bed hospital. According to many. 40 lakhs per bed. or retail. mainly through FII and equity sources. lower than that in other high growth sectors such as IT. the long gestation period of such investment.The single most important constraint is the high cost involved in setting up hospitals. rising operating costs (due to shortages and high procurement costs of certain inputs as discussed later) further squeeze margins. it may be possible to break even and make profits in a shorter period. and long-term commitment.

Fourth. 10 Second. If one takes stock of the fact that several of these hospitals have been established for time now (as also reflected by the high cumulative depreciation rates for some of them). This substantiates the earlier point made about low returns to investment in hospitals. which is often a major chunk of a patient’s bill in hospitals. Summary of key operating and other ratios of major corporate hospitals in India (March 2006 figures) Source: CMIE Prowess database and CRISINFAC (2007). It needs to be noted that it is not clear what is included under operating income and there may be differences across the hospitals in terms of their classification of operating income and also assets. which is reflected by the low ratio of operating income to gross fixed assets. notwithstanding some of these being well-established players. then it is evident that land and buildings can constitute a significant share of total set up costs (as discussed later in this section). For most of the hospitals in the given table. One major source of difference in what constitutes operating income is the income generated from the pharmacy business. There is a lot of variability in these numbers.Table-5. one sees the significance of land and buildings in total assets. This may not be included by some of the hospitals in their operating income and could thus reduce the asset turnover ratio that is reported. The latter in turn has implications for the required scale of operations and profitability of such establishments. This ratio is less than 1 for five of the six hospitals. at around 5% per year. Several things are evident from these financials regarding the nature of investment that is required in hospitals. Operating income to total assets is less than 1 for all the hospitals. which often become obsolete. the depreciation rate varies across classes of assets and for different kinds of medical equipment. the profit after tax to operating income ratio is negative or only slightly positive for all the above hospitals. reflecting the fact that the hospital business is a localized one and returns are context and model specific. thus requiring efficient working of the assets and high utilization rates. the asset turnover ratio is below this benchmark. this asset constitutes over 20 percent of total assets. First is the high capital intensity of hospitals. Even as a share of net fixed assets. While the average depreciation rates shown above are not very high. is the depreciation of assets. Third. and especially of medical equipment (discussed at length later in this section). while the desirable benchmark ratio according to industry experts is around 2. again indicating the asset-intensive nature of the hospital business. 10 25 .

nature of assets and their depreciation. project costs. Land costs should be within 5 percent of the total investment according ton one strategy planner. which comes to ratios of 15 percent or more in most cases. operating costs.2. with the average rate at around 8 percent. it is not possible to easily raise bed prices. or if there is a public-private partnership arrangement whereby part of the procurement cost is subsidized by government. 4. which is higher than the 11-13 percent rates for cost of capital noted by many respondents. Land prices are too high and so the hospital business is unviable from day one. followed by medical equipment. If the land is leased or there is a joint venture arrangement whereby one party invests in the real estate. It does appear that domestic debt is more expensive than external commercial borrowing. the figures indicate that debt financing is important. The financial information presented in Table 5 above indicates that there are clearly issues of establishment. which constitute between 30-35 percent of total project costs. If a hospital spends a higher share of the investment cost on procuring land. What compounds this problem is that although real estate costs are rising and available land in metros is scarce. It is interesting to note the item. “sundry debtors to operating income”. and costs of financing. land and construction of buildings should constitute around 40 to 50 percent of total project costs (with around 40 percent of costs being accounted for by medical equipments and the rest 10 to 20 percent for operational expenses and human resources). then the initial costs can be significantly lowered and the main investment area then becomes medical 26 . which are clearly contracted at a higher cost.Fifth. land costs can play a critical role in the long-term sustainability of hospital projects. but it may pertain to bad or miscellaneous debts of the hospitals. Broadly. It is not clear what this item refers to. As pointed out by experts. which are likely to affect the viability of hospital projects and thus the extent to which this segment attracts foreign direct investment.” Several persons who were interviewed stated that land and buildings constitute around 45-50 percent of total project costs. A quote from one respondent well illustrates this point. and (4) regulations in related areas and the overall regulatory environment and policy direction affecting investment in hospitals. This suggests that the interest rate environment (how high or low interest rates are when debt is contracted) and the availability of other forms of financing (share of debt to equity) is important for hospitals and thus could significantly impact the finances of hospitals. this is bound to affect the pricing of services. There is variability in interest expenses as a share of total borrowings. (3) medical manpower constraints. Availability of land has become the main challenge. The following discussion examines four issues. which along with other operational and maintenance. as highlighted earlier. if land is bought. (2) required investments in and depreciation of medical equipment and devices. thus affecting margins. directly influencing pricing strategy and margins. and technology upgradation costs put further pressures on margins and affect the costing of services and thus affordability of healthcare. These are: (1) set up costs and in particular costs of procuring land. Institutional land is not available at a discount for non trust or non society modes of operation.1 Initial establishment issues: land and set up issues The most commonly cited problem was the difficulty in getting land in big cities and its prohibitive cost. “The cost of land is slowing the process.

and margins can be improved. But several problems were noted with subsidy-based arrangements. For many. then costs can be lowered significantly.000 beds. However. private equity funds.equipment. may involve corruption. that other arrangements need to be considered such that private players need not procure the land but can either get it on lease or manage and build on existing assets of public sector institutions (see later discussion on public private partnership). depending on the kind of technology acquired and some 40 percent of revenues are spent on drugs and supplies. then this should not come with conditions to serve below poverty line patients as such conditions are not enforceable and create perennial obligations on hospitals rather than making the procurement of land a one-time transaction. there are also issues concerning the supporting infrastructure (such as getting water supply and electricity) and the process of obtaining clearances for buildings (getting legal documents. if there is infrastructure of around 5. Equipment constitutes around 30 percent of all fixed assets. scale is essential to make hospital projects viable. for setting up hospitals. which may delay establishment and drive up initial costs. Further. without conditions Examples were given of hospitals that have opted for a joint venture type arrangement where a real estate developer invests in the land. Many also pointed out that if land is subsidized. one respondent noted that land accounts for 10-15 percent of a hospital’s existing fixed assets. some did note that the entire process of setting up a Greenfield investment might take as long as 3 to 5 years. However. and other development agencies. 11 In terms of the value of land and buildings in the total stock of assets. varying levels of efficiency and interest on the part of state governments. Thus land and buildings together remain an important part of the hospital’s total stock of assets and clearly for its initial establishment costs. often at high cost notwithstanding recent reductions in import duties.2 Medical equipment and technology The other major investment area that affects initial and operating costs of hospitals is that of medical equipment and technology. it was also pointed out. This. building. The problems faced by major players in getting land were evident from the suggestions put forward by the respondents on this issue. land could be earmarked in cities in specified areas. Such investments are only possible with inflows from international agencies. and engineering services account for a sizeable 30 percent or so of fixed assets. Respondents also noted that given the hard infrastructure requirements and long repayment periods. and buildings. In addition to the procurement of land. 70 percent or more of medical devices are imported. 4. It is felt that these duties could be rationalized further and flat uniform rates introduced for a wide range of medical devices. rather than assistance given to any particular player. would also permit hospitals to enter into second and third tier cities and towns and thus expand the reach of healthcare to all. thus adversely affecting investor interest. and development of surrounding areas and of hospitals that have entered into PPP arrangements.2. the cost of land is a major deterrent to setting up such large-scale establishments and the viability of hospital projects. environmental and fire clearances) which are not always transparent. Many noted that there needs to be land allocated within SEZs for hospitals as this would lower the cost of establishment and enable the setting up of large hospitals. However. not necessarily in the centre of the city but in the outskirts in designated areas. the government needs to see subsidies on land procurement as assistance to the sector at large to help it expand its capacity for all. For example. it was argued. 11 27 . Although none of the respondents had any major issues on administrative procedures and bureaucracy. IT. and vested interests.

One respondent stated. which would also have spin-off benefits in other areas such as medical value travel. Apart from a few companies. The prices paid generally exceed their true manufacturing cost. where one could foresee increased FDI and collaborative arrangements to expand domestic manufacturing capacity. Domestic Medical Equipment Market Source: Ernst and Young Analysis and FICCI (2007). there should not be any conditions for availing of lower rates. The market is expected to more than double from $2. Therefore technology transfer in this area would be key in the coming years. unless companies establish Indian subsidiaries or enter into tie-ups with local companies. this is clearly a high growth segment in the healthcare sector. Hence. Thus. There is often no alternative supply of equipment. there is no domestic production.” According to industry experts. p. However. “Opportunities in Healthcare: Destination India”. Figure. The following graph shows the growth expected in the medical equipment market in India over the 2006-2012 period.2. if we want to deliver international quality service at affordable prices.2. “We are facing a crisis because most of the international equipment manufacturers have hiked the prices of equipments and although customs duties have come down significantly. The root problem here is the limited domestic manufacturing capacity for medical equipment in India. local manufacturing of medical equipment needs to be incentivised. the overall cost of service is still very high.2 billion in 2006 to close to $5 billion in 2012. Executive Summary. One respondent noted that as long as these imports are used to meet domestic demand.on their end use or any performance requirements. Organized equipment manufacturers often engage in opportunistic pricing and make big margins when selling to hospitals. hospitals will need to continue importing and these input costs will not come down. and some of these manufacturers are hiking prices at will. the government would also need to enforce guidelines for standardization and quality certification. A catheter may be 28 . The structure of the medical equipment industry also poses problems.

How can technical advances be financed? The higher the level of technology used. Partnerships between hospitals and medical equipment manufacturers to develop indigenous technologies and greater involvement of medical faculty in research and product development at such companies could help lower input costs for hospitals. especially as they embark on expansion plans. Poaching and attrition problems are rampant.2. One leading doctor noted that there is a need to build large chains of hospitals. The depreciation rate for high-end equipment as per books can be 14 years. then one can bring down costs of devices. The high cost of procuring equipment and the cost of manpower trained in its use further escalate costs in this business. thus requiring fresh investments in certain equipment within a few years. in real terms it is around 7 to 10 years. If there can be some 8-10 hospitals with 5 to 10. One respondent noted that investment in MRIs and CT machines may be to the tune of 3. a new model may arrive. is human resources at all levels.” 4. noted one expert. the views expressed clearly indicate that the capital expenditure costs incurred for medical equipment are a major constraint on operations and returns. a revenue of Rs. Utilization ratios of 60 to 65 percent are required by the end of the second or third years to work the asset effectively and enable such fresh investments within a short time.5 to 4 crores. It was also pointed out that if there were larger hospitals. and the accounting practices and purchase policies differ across institutions. the more that needs to be paid for such doctors if they are trained in the use of that technology. As a result. the cost of talent is rising by some 20 percent per year and is even higher at around 50 to 60 percent at the junior and middle levels. It is also difficult to anticipate further advancements. While it is difficult to draw generalized conclusions as utilization rates and breakeven loads depend on the kind of equipment. front and back end support staff. For an investment of Rs. and administrators. corporate hospitals have to sweat their equipment in the initial three years so as to be able to invest in newer technologies within a few years. Hence. paramedics. nurses. the arrangement under which the equipment has been purchased. 12 29 . 4 crores in medical equipment.procured at ten times its actual manufacturing cost. managers. This gap is both in terms of quantity and quality. The input cost share has to be lowered from the current rate of some 40 percent to around 20 percent. but within 2 to 3 years. There is a dearth of qualified and trained technicians who can operate sophisticated healthcare equipments. which alone can bring down input costs through economies of scale.000 beds. 12 Yet another problem in this context is the fact that rapid technological changes often render obsolete some high cost equipment and devices that hospitals invest in. X Ray machines) although some equipment can be stretched as long as 15 years (OT tables). then economies of scale would enable the hospitals to bring down the share of medical equipment costs from the current level of 40 percent to around 20 percent. There are also breakdowns and repair costs.doctors. To quote on practitioner.3 Manpower availability and quality issues Another major operating challenge affecting all private players. Hospitals often place the equipment at 7 years and stretch it up to 10 years if it remains relevant technologically (CT machines. “The question is where hospitals should stop investing in the latest technologies. The hospital may need to invest in the new equipment so as to maintain the latest technology and ensure the best quality of service. 18 to 20 lakhs per month may be required to break even in three years time.

more flexibility could be given to practitioners in the private sector to teach and transfer their knowledge and experience to educational institutions in the public and private sector. Most noted that private hospitals need to be encouraged to be part of the training process. Many of these private institutes lack basic faculty.As one practitioner put it. as this would link the needs of the hospitals with the larger societal need for quality manpower in this sector. “One reason. As one CEO put it. Well-known medical schools abroad are only 5 acres in size. For example. why FDI in healthcare may not be happening is because of the dearth of qualified manpower in the country. It is also possible to use simulations for training. 25 acres of contiguous land. Between 1990 and 2007. Hospitals need to tie up with another organization in order to grant a PG diploma in hospital administration. The Nursing Council of India requires 50 beds minimum and large size campus but trains only 50 nurses while much smaller buildings with 10. both for doctors and paramedics. “We need private institutions to be partners in the education process. faculty in public sector institutions could be permitted to teach and practice in the private sector institutions to bring their experience. medical education needs to be decontrolled to increase the supply of manpower at all levels and to improve quality. Likewise. which create a bottleneck on the supply of doctors and nurses. the number of classrooms. The entire approach is infrastructure and volume based rather than value based and does not focus on quality and functional excellence. The healthcare education facility is required at a minimum have a 10-acre campus. while the Medical Council has not permitted corporate hospitals to set up training facilities. such as requiring a 500 seater auditorium. Likewise. which clearly highlighted the problems they face in this area. It was pointed out that if corporate hospitals are allowed to start nursing colleges. “The restriction on land size does not make sense. as experts commented. it has permitted a plethora of substandard private medical colleges. and also generates employment by recruiting the nursing graduates from these colleges. the Nursing Council of India’s regulations are also seen to be arcane. conditions which are difficult to fulfil in first tier cities. The Medical Council of India has arcane guidelines on the setting up of medical schools.” Ironically. As one respondent pointed out. One suggestion was to link the incentives given to these hospitals when setting up with their fulfilment of obligations on creating manpower. It was also suggested that the constraints on the supply of trainers and faculty could be alleviated if more flexibility were provided to professionals in this sector. Several suggestions were put forward by the respondents. Only government or trust hospitals can set up such education facilities.000 square feet for example in Singapore are training 500 nurses a year. then they could provide continuous medical education and skill upgrading that is required in this sector. There are also inappropriate guidelines for setting up medical colleges and training schools. Thus. For instance. such as on the amount of land required. there is a restriction of a 500-bed care unit on hospitals for getting permission to set up training colleges. which have political patronage and make money through huge capitation fees. enhance their skills and exposure to state of the art equipment and also their income possibilities. which would benefit them and the healthcare sector at large. equipment. and infrastructure and are unable to provide relevant and quality training. and on their size. The Nursing Council does not allow private players to enter into nursing education unless they form trusts. “Often senior medical professionals are keen to impart 30 . there are requirements on land and infrastructure.” Such an outcome is seen to be the result of restrictions placed on good private hospitals from entering medical training and education. The acreage requirements for grant medical colleges are also applied to education facilities set up by private hospitals. One respondent commented on the inflexibilities in the medical education system regarding the use of human resources. Again. there has been a marked deterioration in the nursing and paramedical sciences and the quality of medical and nursing students has fallen.” The problem of manpower is mainly attributed to existing regulations on medical education.

Current policy permits only 26 percent FDI participation in the insurance sector and through joint ventures and there are minimum capital requirements imposed on players entering the market. Max has tied up with the Indian Institute of Labour Management for training of health administrators. use of both practical and research based experience in teaching. thus incurring additional costs. However. existing training is inadequate. and efficiency in healthcare delivery and incentivising many more hospitals to go for accreditation. It was also noted that opening up the higher education sector to FDI would alleviate the manpower constraint in the healthcare sector as much of the resulting investment is expected to flow into medical education. sometimes not available in certain areas (health administration).2.consumables and medicines) rising rapidly. in short supply. Overseas universities from the UK and US are interested in entering India’s medical education sector.4 Health Insurance Several practitioners and managers who were interviewed indicated that FDI in hospitals in India would remain constrained unless the health insurance market is liberalized further and market penetration increases. frequently. The fallout of the manpower shortage is higher costs for hospitals. Narayana Hrudalaya has a tie up with Hyatt College of Technology and with Queen Mary’s Medical School for training. Hospitals are also encouraging existing technicians to upgrade through training. they are rarely offered a position befitting their stature. Some of these senior professionals are even willing to teach these courses without any honorarium. There needs to be more pooling and exchange of human and physical resources. Therefore. First is by increasing accountability. 4. which also raises manpower costs. often not relevant. a mindset change is required in medical education. or call in additional manpower from other locations for critical treatments and emergencies. the profitability of hospitals is getting adversely affected. With manpower (and materials costs . Some institutions are talking to management institutes to train their staff in various soft skills.” Overall. such as leadership development and in various functions such as HR and finance in a manner that is attuned to the healthcare sector. Many invest significantly in training their staff at all levels. which takes due cognisance of their expertise and experience. but wish that the colleges offer them a position as professor or senior professor. Some share resources across different centres. It has also tied up with the University of Ohio to train nurses and with University of Minnesota for temporary registration of its doctors to train there. Hospitals are coping with the manpower constraint in different ways. as this is currently not available from the training institutions. due to red-tapism. 31 . if the larger healthcare system is to be benefited. All the major corporate hospitals are investing in continuing medical education and tie-ups to overcome the inadequacies in medical training in India. in nursing. and some plan for 20-30% overcapacity to ensure consistent service quality delivery.education in various government-run medical colleges. Some private hospitals are tying up with overseas institutions like medical schools in the UAE for training their staff. Since manpower development is important. and incentivisation of the established private players in medical education. paramedics. these professors are not allowed to teach specialized courses. and of highly variable quality. transparency. which can improve medical education in this country. This would give more confidence to foreign investors interested in entering the hospital segment. which can be quite expensive and a major deterrent for many entrepreneurs. often the start-up period consists of extensive training programmes. There are several ways in which liberalization of health insurance and the entry of foreign as well as domestic health insurance companies could help. and general medical education. However.

less than 10% of India’s population today has a health insurance cover.000 crores. again benefiting their bottomlines. It was felt that without a critical mass of insured patients. 15. “Healthcare is expensive and needs to be made more affordable. foreign players would not enter the Indian hospital market in a big way. 13 Figure. many hospitals are affected by the nonpayment of bills. and thus improve their profitability. Government hospitals have deeper pockets and must still have payer sources. Ernst & Young expects the total medical insurance premium income in India to grow to $3. 13 The number of lives covered under health plans has improved from 4-5 million about six years ago to over 12 million today. bring down costs through economies of scale. There is also an allied problem of low awareness about medical/ health insurance. 32 .8 billion by 2012. Health insurance premium collected in 2005-06 registered a growth of 35% over 2004-05. there is considerable scope for increased market penetration. of which only 10% had been tapped as of 2004-2005. The following figure shows the low level of health insurance penetration in the country.” The root problem is that currently. As stated by one respondent. Health Insurance Penetration in India Source: IFC Health Conference (2007) As shown above. Thus. with private players registering a growth of 77% over and public players a growth of 25%. at around 10-20% of the population. especially in emergency and trauma cases. Whether or not running a hospital is profitable or non profitable. The third way in which liberalization of health insurance would help is in terms of improved cost recovery for hospitals. despite rapid growth in recent years.3.The second is by increasing the paying consumer base and thus making healthcare affordable to a larger percentage of the population. The low share of insured patients is seen as one of the main reasons that healthcare services have not grown as much as they could in India. This in turn would help hospitals expand the scale of their operations. the player must be able to operate on non-regular cash flow basis. Health insurance can provide a reliable payer source. The estimated market potential is Rs. either voluntary or as part of the Employees State Insurance. Central Government Health Scheme or Community Insurance. They have no guarantee that these bills would be paid up in future or of any government intervention or assistance in such matters.

There is clearly a two way relationship between health insurance and the growth of private sector corporate hospitals. Another problem is that there is no government regulation to ensure uniformity across the policies of different insurance companies. acceptable prices.). a proactive framework is needed in health insurance. etc.5 Other regulatory issues and policy directions A few other regulatory issues are also seen as affecting the functioning of private hospitals and thus indirectly the attractiveness of the sector to foreign investors. the entry of foreign insurance companies is also expected to help address certain regulatory and procedural problems that currently plague the existing insurance mechanisms. low insurance penetration and adverse payout ratios for insurance companies (Rs. As one respondent noted. and by the TPA (due to rejection of genuine claims for no reasons. A related issue that was raised was disclosure policy. 4. It was noted that without a uniform disclosure policy and sharing of 33 . But the FDI policy needs to be liberalized to make this happen. patients.2. Many TPAs do not pay the hospital on time and try to hold on to the money that the insurance companies have realized. Increased insurance penetration is required to lower the cost of claims and help lower premiums. as all respondents pointed out. etc. does not demand players to comply with basic norms. as the quantum of those covered by insurance increases. with or without foreign funding. acknowledged that there will need to be micro insurance programs and state and community based affordable health insurance schemes to improve insurance cover for the poorer sections as opening up of health insurance and entry of foreign insurance companies would not cater to certain sections only. The government does not set benchmarks for service delivery. Thus. however. as liberalization of health insurance will help such players while the increased presence of the latter will also help drive health insurance. 100 collected in premiums) will lead to a steep rise in the cost of medical insurance premiums. resulting in non recovery and confusion among hospitals. and insurance companies on cost limits.Increased insurance coverage would enable hospitals to handle such cases more easily (although as also noted. It was noted that the government does not have a proper framework to guide the setting up of new hospitals and nursing homes. There has been lack of due diligence of TPAs. and also does not do any kind of local or zone based marked needs assessment before allowing new facilities to register. as has been the case in life insurance to improve governance and address the aforementioned problems. Collaboration with overseas hospitals and universities is also expected to help raise the acceptability of hospitals in India to foreign insurance companies. the pharmaceutical and clinical trials business. opening up of health insurance is warranted on efficiency and transparency grounds. 120 for every Rs. in some cases insurance companies do not pay up the money).. Most respondents also argued that liberalization of health insurance and entry of foreign health insurance companies would have positive implications for medical value travel. It was noted that the Third Party Administrators (TPA) system introduced by the government in order to facilitate the healthcare disbursal system. has rendered itself to misuse by patients (through falsification of informationlimited disclosure of chronic illnesses). It was. coverage of procedures. One noted practitioner pointed out. bill deletions. In addition. This will only further hurt the growth of private medical insurance and have adverse equity implications. by hospitals (in connivance with patients to inflate bills). One of these is standards and accreditation and registration guidelines for setting up of healthcare delivery centres. whereas the normal payout cycle is about 30 days. By enabling greater transparency and clarity on insurance policies. Average payout cycles under TPAs may be as much as 70-80 days. hospitals would become more willing to open even in rural areas as premium would be available at more affordable rates for the rural population.

a mature healthcare delivery system cannot materialize. Another issue that emerged was the general lack of clarity and priority in the government’s approach to the healthcare sector. Effective regulatory frameworks and better enforcement of standards would also improve the image of India’s healthcare delivery system. Greater transparency and predictability in the policy environment is required if the existing liberal FDI regulations are to elicit greater foreign participation in this sector. potentially helping to lower costs while also improving returns for establishments. and in creating employment opportunities. The lack of a regulatory framework for setting up establishments and monitoring their standards adversely affects quality. The government has given little emphasis on organized health care. with several insisting that it should be made mandatory along with greater regulation of clinics and nursing home. clarity on the government’s position on urban. For instance. As highlighted earlier.” Hence. was welcomed by all those interviewed. “Health has never been seen as a core sector so far. one of the main ways in which foreign investment can help is through creation of physical infrastructure. which looks at issues like patient safety and processes and draws upon the best practices of other systems. The latter is not possible with domestic resources alone. Independent regulatory bodies are required to ensure standards are maintained through frequent audits and disclosure of information. Some 800. creates unwarranted competition for manpower. There is an estimated gap of $10-15 billion which foreign investment can provide to double existing infrastructure.information by hospitals. with potential benefits to the health sector and the economy at large. according to industry experts. in upgrading technology. rural. The recent initiatives to introduce NABH certification. Today. Huge reforms are required but clarity in approach is lacking. 5 Impact of foreign investment in hospitals This study also examined the realized as well as pe4rceived impact of foreign investment in hospitals in India.000 beds are required over the next five years to raise our infrastructure status in healthcare to an acceptable level and for this Greenfield investments are essential. and also results in excess supply of medical facilities in some zones. Government’s core interest is lacking which leads to hesitation from FIIs to invest in this sector. making some players unviable. thus raising overall standards making it a more credible investment destination for overseas investors. the fragmentation of the sector and variability in quality of healthcare delivery is a deterrent to foreign investment. To quote one respondent noted. In addition to helping increase physical capacity in the health care sector. Many of the respondents noted that it is necessary to have some planning about the number of hospitals required in an area and some process for certifying the need for setting up a hospital in a zone. Investments are also needed beyond the metros to expand access to healthcare. diagnostic facilities. The roadmap at the domestic and the global level is unclear. and how the government will support the sector. what is desired from foreign participation. There are many positive implications of foreign investment in hospitals. and semi-urban health care. what would be required for foreign investors to show more interest is a roadmap of where the government sees healthcare from a domestic and international perspective. despite the fact that the FDI policy in hospitals is very liberal and no major regulatory hurdles are faced in setting up hospitals. foreign investment can also help in raising the standards and quality of healthcare. the international groups have promised to usher in 34 . Government needs to insist on getting proper information from all establishments in order to ensure adherence to norms it lays down. and increasing the supply of speciality and super-speciality centres. such as increasing the number of hospital beds. Such an approach would enable greater consolidation in healthcare delivery and economies of scale. It has not been seen as a priority from the privatisation perspective and so its influence remains peripheral.

and 35 .1 Services and procedures As the sample of hospitals was selected on the basis of size (100 beds and above) and all those chosen were multi-specialty institutions. This comparative data is seen as indicative of the realized impact of foreign investment in hospitals. their costs. The source country for funds was typically the source country where the investment group was based or where the centre or overseas hospital was based. in terms of the kinds of services and procedures they offer. 5.standards. Hence. The latter could also result in internal brain drain from the public to private sector and a skewing of health provision towards the needs of the urban affluent class. and a disciplined approach towards work. the discussion draws inferences on the likely implications of foreign investment in hospitals. There could also be adverse implications in terms of increased cost and affordability of health care services for the poor.1. all the non foreign funded institutions in this sample. and the pharmaceutical market. the kind of technology and equipment they invest in. There could be increased segmentation with the growth of a well-funded private segment on one side and a resource-constrained public segment on the other. An exposure to international quality standards could result in more Indian-owned operations benchmarking their services against the international groups. The presence of foreign investors in the healthcare sector could also provide a boost to medical tourism and help India in achieving its goal of establishing itself as a medical tourism hub in the region. quality assurance. for all the foreign funded institutions in this sample. There could be negative fallout for small and mid size players. such as the growth of the health insurance sector. on these dimensions there was no basic difference between the foreign funded and non-foreign funded hospitals. The following section highlights the findings from the quantitative survey to indicate the realized impact of foreign investment in hospitals on some of the aforementioned aspects. third. The data indicate that all the hospitals provide general medical services and most provide specialized and advanced specialty services. and all the non foreign funded institutions excepting one major large trust hospital in the second. and their remuneration of medical personnel. Pacific Medical Centre in Hyderabad has most of its foreign funds coming in from Singapore. as it is originally based in Singapore. 5. On the basis of these findings. One good example is the trend of leading Indian medical care facilities increasingly complying with stringent quality standards and queuing up for international accreditations such as JCI. their utilization rates for hard and soft infrastructure. The following table shows the results for the availability of services. there are also potential adverse effects with the entry of foreign investment in hospitals and more generally with the corporatisation of hospitals.1 Key findings from the survey Of the 25 hospitals covered in the quantitative survey (through primary and secondary sources). a high level of customer care. None of the hospitals had any concerns about the existing regulations concerning foreign investment. clinical trials and other health services outsourcing. Several interesting insights emerged from the survey about how foreign funded hospitals and hospitals without foreign funding might compare. among other areas for comparison. The discussion is supplemented with the insights derived from the in-depth discussions on the likely areas and nature of impact of such investment. their focus areas. There are also spill over benefits in other areas. along with accountability into the Indian healthcare industry. 12 had foreign financing. corroborating the earlier discussion on the liberal regulatory environment. However.

it is interesting to note that the share of foreign funded hospitals tends to be slightly higher and in some cases significantly higher as one moves into higher category of services. Again. endocrinology. The percentage shares refer to the share of hospitals in that category affirming the availability of the concerned service. This may suggest that foreign funded institutions tend to focus on more advanced and speciality services compared to non-foreign funded institutions. The tabulated results above show that there is little difference between the foreign funded and nonforeign funded hospitals in terms of the availability of services. for certain category II and III services. While the difference between the two groups of institutions is very slight for category I services (excepting dermatology). haematology. Table-6. Availability of Services in surveyed hospitals Source: Based on survey data. there is a significant difference. Availability of Medical Procedures in surveyed hospitals 36 .fourth columns. metabolic disorders for instance where the share is much higher for foreign funded institutions. non-foreign-funded private hospitals are quite comparable in terms of the range of healthcare delivery they provide. But if one examines the results more closely. respectively. it does reflect the fact that the large. Table-7. While this may be partly due to the relatively small sample size and the pre-selection criteria (all relatively large and multi-speciality hospitals). This inference is substantiated by the results on availability of surgical procedures as shown in the following table. well-established. This is evident in the case of pulmonology. the percentages refer to the share of hospitals in that category affirming that they provide the concerned surgical procedure.

as provided by one industry expert. this may also indicate the fact that there exist major non-foreign-funded private sector players that operate in highly advanced and niche areas.Source: Based on survey data and CRISIL (2007). oncology. as illustrated by the preceding table? One possible explanation. In contrast. Apart from reasons of small sample size. If one compares the share of institutions in each category for general surgical procedures. This confirms the fact that the latter. 37 . This was corroborated by the in-depth discussions where respondents of some of the major corporate hospitals indicated that they invest significantly in upgrading medical devices and technologies and that they use a large portion of foreign funds for developing infrastructure and importing new technology. which include cardiology. oncology. The comparatively higher shares for the advanced procedures may thus be reflecting this focus on higher revenue stream areas. the share is significantly higher for foreign funded hospitals. The tabulated results in the above table clearly show that foreign funded institutions are more inclined towards advanced and speciality areas for surgical intervention. What might explain the greater focus on advanced surgical procedures and niche areas for the foreign funded hospitals. tend to focus on niche areas. and neurology. for specialized surgical procedures such as neurosurgery. or cardio-thoracic surgery. and thus that such advanced healthcare delivery is not necessarily dominated by the foreign funded hospitals and for-profit private hospitals alone. which in turn is partly related to their huge investment in high-end technology and the need to work such capital efficiently to manage their revenue streams and to recover their investments. is that corporate hospitals tend to concentrate on high revenue generating procedures. It is also worth noting that the removal of one major Trust hospital from the non-foreign-funded institutions’ category makes a significant difference to the results. on surgical interventions as opposed to general preventive care. while providing a wide range of services. the difference is very small across the various categories.

Foreign funded hospitals and more generally. The latter in turn also suggests that the utilization mix of different classes of assets may be different between the large corporate hospitals versus trust. 5. and greater sweating of the physical capital (beds.1.e. greater use of technology as opposed to medical personnel. ICUs.2 Physical infrastructure and medical staff The following two tables clearly show this difference in approach in terms of asset utilization mix. etc. ambulances. i. and non-foreign funded hospitals. foreign funded hospitals appear to focus more on advanced technology and equipment compared to other hospitals. 38 . large corporate hospitals it appears tend to take a more curative and intervention based approach to healthcare (admission to intensive and emergency care). One might also infer from these results that there is a difference in approach to medical care.. charitable. operation theatres.Thus.) in the case of foreign funded as opposed to the non foreign funded hospitals.

Availability of Infrastructure and Medical Facilities Source: Based on primary survey data. Table-9. Availability of Medical Staff Source: Based on primary survey data.Table-8. 39 .

This may in turn suggest considerations of affordability and personalized medical care. at 3. It is important to note that these numbers also reflect consumer demand patterns. These inferences are also partly corroborated by the table on availability of medical staff. it appears that consumers distinguish between classes of hospitals/competing establishments such as nursing homes and clinics in terms of the medical care and facilities that they seek. and medical care services also suggest that the demand for medical care at large corporate hospitals is mainly in the critical. requiring state of the art technology and good critical care facilities. However.5 in the case of non-foreign-funded institutions. and in terms of the use of human capital in the foreign funded institutions. foreign funded institutions also report a higher share in the case of ambulance services and a slightly higher share in the case of post-operative care facilities. There is also a large difference for the average number of rooms. Thus. such as for intensive care units.If one compares the availability of infrastructure and medical facilities. It indicates the much larger investment in operative and ICU set-up than in the case of non-foreign-funded and other categories of hospitals. emergency. For example. Hence. issues that are not directly corroborated by the survey results but were clearly thrown up by the in-depth discussions. Compared to 6. This may again reflect their greater focus on operative and critical care services. indicating that general medical care does not tend to be the focus area for the large corporate hospitals and that there is a substitution of human capital with technology. 40 .6 doctors for emergency room services compared to 4. In terms of service infrastructure.3 for the non-foreign-funded hospitals. there is a niche orientation in terms of the care provided. and ICU infrastructure.4 compared to 2. the average size for the foreign funded hospitals is around 240 compared to 216 for the non foreign funded category and 159 when the one large trust hospital that is comparable on many scores with the foreign funded institutions.4 compared to 15. not only is the focus of medical care in the foreign funded and large corporate hospitals is mainly on critical care and surgical interventions. The utilization ratio for operation theatres is similarly much higher for the foreign funded institutions at over 3 compared to 2.5 nurses for emergency room services compared to 8. the most striking difference is in the average number of medical facilities. in terms of the technology invested. Thus. except in critical care and surgical/speciality procedures where they are much better equipped.8 when the large trust hospital in the non foreign funded category is excluded (though most hospitals have round the clock ambulance services). The higher numbers for emergency. at 133 for foreign funded as opposed to 101 for the non-foreign-funded and only 57 when the one large trust hospital is removed in the latter category. ambulances. is removed. as noted earlier. the foreign funded hospitals report an average number of 24. The data show clearly that there is greater availability of medical staff for critical care in the foreign funded hospitals at an average of 11. post-operative. The average number of ambulances for emergency services is also much higher for foreign funded institutions. and intensive care areas rather than in general out patient and chronic medical care. Thus. One is not necessarily seeing a one-stop shop approach to medical care as yet even though large corporate hospitals may provide all facilities under one roof. The investment in physical infrastructure is also significantly larger. reflecting the greater utilization of assets in such care.5 ICUs on average for the other hospitals.5 for non foreign funded institutions. in terms of beds. rooms. the number of patients per doctor or per nurse is much higher in the case of foreign funded institutions. The average number of operations conducted per day is 22. ambulance. the foreign funded corporate hospitals have invested more in scale.9 for non foreign funded institutions and an average of 30.1 for the non-foreign funded and even lower at 1.

The results above show that foreign funded hospitals pay higher remuneration to their doctors. 41 . especially specialists. However. The small and mid size hospitals and non corporate hospitals are likely to have greater difficulty in attracting and retaining medical staff and support persons. nurses.) Source: Based on primary survey data (2007). administrative.5. including larger non-foreign funded hospitals and in particular mid size nursing homes and smaller hospitals. paramedical. The aim was to understand whether there is a significant differential in remuneration between foreign funded and non foreign funded hospitals and therefore whether there may be a resource flow towards the former. They will provide scope for augmenting income and living standards at all levels. such differences in remuneration would suggest greater competition for human resources at all levels. For administrative staff. These categories are based on industry norms and a common subset of categories that were listed by the surveyed institutions.5 times higher for foreign funded institutions. they indicate that the emergence of large corporate hospitals and foreign funding will improve employment and income opportunities for medical personnel and support staff. Thus. the factor of difference is around one and a half to three times. for the non-corporate players. Average monthly remuneration for staff (Rs. Table-10. For nurses. administrative. the factor of difference is around 2 times. and even lower level staff compared to non-foreign-funded institutions. around 3 to 7. foreign funded institutions pay around two to two and a half times more and for the lower level support staff.3 Human resources: Remuneration and quality issues The survey collected information on the average remuneration given to staff. These differences in remuneration have positive and negative implications. there is also likely to be an adverse impact in terms of the quality of doctors.1. On the positive side. including doctors. paramedical. The differential is greatest for senior consultants. and other lower level staff. The very large differential in the case of senior consultant doctors also suggests that very specialized and experienced doctors are paid significantly higher rates in the foreign funded hospitals. with implications for the functioning of non-corporate and small and mid size players in the hospital business. The following table shows the average monthly remuneration for staff for different categories of medical personnel. nurses. from the perspective of other players.

and that this range is much greater when it comes to foreign funded hospitals. The fee for service is based on the procedures and surgeries done and there is a gradation of different kinds of surgeries. Overall it appears that foreign funded hospitals may be better placed at retaining and attracting good quality medical personnel. There is revenue sharing between the hospital and the consultant and the share for the hospital increases when there is more overhead cost for the hospital in terms of the equipment and support staff used. this proved difficult to compare. especially in the case of senior consultant doctors.The survey results therefore clearly indicate resource pull effects from the non-foreign-funded to the foreign funded segment. As several hospitals did not provide this information. Thus. and also take account of joint ownership or investment in assets. which make the work environment much more professional and streamlined. Discussions also revealed variability in payment arrangements for consulting doctors and for very experienced and senior personnel. An attempt was also made to assess the extent to which foreign funded hospitals and generally the growth of corporate hospitals in India is helping to attract doctors from overseas. the duration. services that are more specialized and difficult to render. This suggests that there are different kinds of fee structures that are operating in such hospitals. The data on remuneration also indicates that there is a wide variability in payments to medical staff. though several respondents did mention that they were facing an e-flux of such personnel to other countries and were generally facing problems of getting good quality nurses and paramedics. for pay rolls. given the much lower wages and poor working conditions in the public sector. 42 . etc. Discussions also made it clear that the these hospitals also rely on their investments in state of the art equipment and the good work environment and infrastructure as an important means of attracting and retaining good personnel. and especially towards the foreign funded and large corporate hospitals. the arrangements do reward experience. and inventory management. the use of equipment. consultants may charge different rates and are paid their fees for services delivered. Several of the respondents from such hospitals noted that they have efficient computerized systems for maintaining patients’ records. A much larger number of the foreign funded institutions noted that they had obtained either ISO 9001: 2000 certification or JCI certification and a few of them had also voluntarily registered for the NABH/NABL certification. These inferences are corroborated by the findings from the in-depth discussions. If one were to take this analysis further and also consider public sector hospitals (which are not a part of this survey). A majority of the surveyed hospitals also reported that they permit their doctors to keep private practice elsewhere. discussions with management of several foreign funded hospitals indicated that between 5-10 percent of their doctors have overseas work experience and that there is growing interest among overseas Indian doctors to return. As one respondent noted. depending on the degree of difficulty. then one can make the argument that internal brain drain is likely from the public sector to the private sector in general. Some of these doctors have super-specializations. Nurses and paramedical staff generally were not reported as having overseas work experience. billings. However. There may also be variability in fees depending on whether the consultant has shared in the capital cost of the hospital. net of service charges ranging between 10-20 percent that are levied by the hospital. This certainly would distinguish such hospitals from public sector and non-corporate players and thus make them more conducive to incentivising and retaining staff. although trust hospitals were more likely to indicate that they do not permit this. Again. there are likely to be quality implications for the public sector.

4 Costs of services The survey also tried to elicit information on the cost of various procedures and services in foreign funded and non-foreign-funded hospitals. Notwithstanding these limitations. Cost comparison for neurology procedures (Rs. The hospital numbers indicate the hospital in the sample. It was also difficult at times to compare a service or procedure across hospitals as the terminology used differed and was often very specific. Figure. Cost comparison for Gastroenterology procedure (Rs. they did not answer for all the services and procedures listed in the questionnaire. which responded to the concerned cost category (this number has been maintained for each of the hospitals across all the tabulated results and figures in this study).5.1. These results are shown in the following figures. the cost data was examined for a small subset of commonly known procedures and services and separated for foreign funded and non-foreign-funded hospitals.5.) 43 .) Source: Based on survey data Figure.4. However. most hospitals did not provide the information or even if they responded.

1.000 in several of the responding hospitals to as much as Rs. If one removes the very low cost hospitals (one of which is a public sector hospital and some are charitable and trust hospitals).000 while that in non foreign funded institutions it ranges from less than Rs. the cost in foreign funded hospitals varies from Rs. 9.000 in others. 7. although there is quite a bit of variability within each group. then the average cost in the non foreign funded category is around Rs. 4. 1.6.500.000 and Rs.000.Source: Based on survey data.) Source: Based on survey data If one takes the costs for specific and commonly required neurology and gastroenterology procedures and dialysis shown in the preceding graphs.000 to over Rs. for non-foreign-funded hospitals the cost is half this amount at around Rs. 750. While the cost for EMG in foreign funded hospitals is around Rs. Cost comparison for dialysis (Rs. In the case of endoscopy. still lower than that 44 . then it appears that the foreign funded hospitals tend to be more expensive than the non-foreign-funded hospitals. 5. 9. Figure.

000. however.000 while the reporting non-foreign-funded hospitals gave a cost of more than Rs.000 for the reporting non-foreignfunded hospitals. There may be issues of scale and specialization for this particular surgical procedure that may be affecting the nature of costs for the few hospitals that have responded to this question. Here.) Source: Based on survey data The cost comparisons for various diagnostic services on the other hand show that foreign and nonforeign-funded hospitals may be quite comparable for various high demand services. the two groups were broadly comparable.2 lakhs to over Rs. 1. foreign funded hospitals reported a cost of around Rs. 45 . 1.7. In the case of ECG services. Though the set of hospitals responding is very small.25 lakhs compared to a range of Rs.6 lakhs in the case of non-foreign funded hospitals. the cost in foreign funded hospitals is around Rs. 1. The picture is different.500 compared to an average cost of around Rs.1 lakh to Rs. For dialysis.000. In the case of ultrasound services.in foreign funded hospitals at around Rs. Figure. the reporting foreign funded hospitals gave a cost of less than Rs. the data do suggest that foreign funded hospitals need not always be more expensive. 1.7. 2. Cost comparison for Cardio-thoracic surgery (Rs. 1. 1. 1. though there was considerably variation in cost for one non-foreign-funded institution. if one examines costs for cardio-thoracic surgery.

taking stock of all the cost comparisons shown above. The average consultation fee for a patient visiting the hospital for the first time was around Rs.) Source: Based on survey data Figure. Cost comparison for diagnostic service (ECG) (Rs. 46 .9. Cost comparison for diagnostic service (ultrasound) (Rs.175 and the average fee for a repeat consultation was around Rs.Figure.100.8. The qualitative discussions indicated that there is no significant difference in basic consultation fees between foreign funded and non-foreign-funded hospital.) Source: Based on survey data Thus. it appears that foreign funded hospitals tend to be slightly costlier for most procedures but not uniformly so and for some procedures are in a similar cost range.

in order to assess whether there are any major differences between foreign funded and non foreign funded hospitals. This project targets 1. awareness talks. Escorts has a tie up with Kalyani Hospital and Shanti Mukund hospital where the preliminary treatment is done and additional treatment is done at Escorts. the Jonawas Pilot Project worth 12 lakhs.000 villages over a three-year period. taking the best personnel to the doorstep of rural consumers. the preliminary treatment is done at a local hospital and additional treatment is done by the larger private hospital. Discussions with various large corporate hospitals on their outreach and extension activities makes it clear that they do see such activities as necessary but they also view such such services as falling within a larger business model that must ultimately be viable. hygiene. wherein. Escorts does some 400 or so camps in North India each year. telemedicine. The idea was to understand how the two groups of hospitals might differ in their impact on the larger society and on the larger economy through technology transfer and foreign exchange earnings. and talks on prevention and early deterrence talks to help reduce costs for consumers and delay or obviate the need for surgical treatments. such as on rural outreach programmes and corporate social responsibility schemes. However. The outreach activities mostly consist of OPDs. EHIRC has launched with CII and Hero Honda. and Indore. when compared to small and medium size establishments. This may suggest that large corporate hospitals are less likely to look at programmes specifically targeted at the poor compared to trust and charitable hospitals (which are included in the non foreign funded category) although this does not mean that the former would not engage in any such activities as part of their overall operations. It involves village participation.However. For example. have different sterilization procedures and thus can have 20 percent or so lower costs on most services.5 Other features Information was also sought on various other dimensions of operations. and mobile vans for outreach services. 14 Some of the big corporate hospitals indicated that they have such initiatives with local hospitals in various parts of the country. and specialized programmes such as for maternity and child health. medical value travel. and foreign collaborations and tie ups. Some hospitals discussed about particular CSR programmes that they are currently engaged in and various models that are being adopted in this context. 5. Often telemedicine is For example. Respondents also noted that foreign funded hospitals and generally the large corporate hospitals could not be compared with the small and medium size players on major procedures as they were different in terms of quality and standards. 8 of the nonforeign-funded hospitals explicitly mentioned that they cater to poor patients and have targeted welfare programmes while only one foreign funded hospital replied to this question. (i) Rural outreach and extension activities In the case of rural outreach programmes and extension activities. and the involvement of Escorts and is a major CSR initiative. screening camps in rural areas. Echocardiography. It also has initiatives in Punjab. Bhopal. 14 47 . These include cardiac consultations like ECG. around one quarter of the hospitals in both the groups indicated that they do have such schemes. corporate sponsorship. with some variability within this range depending on the procedure concerned and the kind of equipment involved. The main differentiator is that smaller nursing homes reuse items.1. Hub and spoke models are also followed by private hospital. and the use of technology. the general view is that most medical procedures and services are likely to be 15-30 percent costlier in the larger corporate hospitals.

thus enabling greater reach to areas beyond the metros. A third form of PPP was between private and state run hospitals. as several hospitals pointed out.8 crores piece of land. a possible model for partnership is that if there is a Rs. This was seen as one of the most promising areas for partnership as many state governments are interested in collaborating with reputed private sector hospitals. One major corporate hospital noted that it provides 15 percent of its beds and procedures free to the state government for BPL patients. it would appear that only the larger and more reputed private hospitals would be in a position to initiate such schemes. including exchange of information. It is unable to upgrade or invest in the existing infrastructure. mainly the ones with foreign funding. A second area of PPP is in medical education and training. wherein the former is allowed to operate a public hospital under contract and take care of poor people. (ii) Public private partnership Another way in which the growth of the private hospitals could benefit society is through publicprivate partnership. Several respondents noted that there could be much more collaboration. One form of PPP is the reserving of beds and procedures for below poverty line patients. Hence. 5 crores. which would have been spent anyway by the government in the form of a subsidy and any surplus can be retained by the private player. The free treatment part could be paid to the private sector by the government at some agreed amount. but free treatment is not. it was suggested by several that cross subsidy mechanisms and discounted medical care are possible. As one respondent noted. while the overall quality of 48 . Seven of the hospitals. However. then Rs. covered in this small sample noted that they have some form of PPP. given the nature of some of the larger sponsored programmes. and doctors between public and private sector hospitals and training institutions. It also provides a 15 percent discount on the total bill for all state government employees. one could impose an obligation of 18% in terms of the value of healthcare to be delivered. A few of the major corporate hospitals noted that they provide training to students of a state medical college in particular programmes such as cardiology.2 Stakeholder views on public private partnership arrangements in hospitals Quotes from two respondents on this issue clearly illustrate that public private partnership in the management of public sector hospitals and innovative schemes for overcoming constraints to private players in acquiring land and creating physical assets need to be considered. research and development. The best model is a management contract where the private party does not need to own the land or facility. But this is seen as an untapped area for collaboration. For instance. “Government has the land or hospitals. Thus any subsidy for procuring land against the cost of healthcare delivery must ultimately make business sense and must be transparent. 3 crores could be waived and for the remaining Rs. CSR makes long-term business sense for all major players in this segment. So it is ideal that they build and then involve the private sector to manage these public hospitals and run them on some basis.used to facilitate the process of partnership with local nursing homes and hospitals. BOX. then they do not turn out to be effective. if such schemes are imposed as conditions for getting land at subsidized rates. Although the numbers in the sample did not indicate any major difference in the proclivity of foreign funded versus non foreign funded hospitals in undertaking such programmes.

Thus. There is a reasonable amount of equipment. and the running costs are paid by the hospital. such as providing 30 percent of beds free. These could be handed over and this would improve access to all. It was suggested that many public sector hospitals which are now virtually free could get into alternative revenue sharing arrangements under such contracts. telecom. The hospital will be managed and run by Wockhardt with its own administration and any excess costs will be borne by it. There is a lot of infrastructure sitting with the government. Wockhardt has. The strengths of the public and private sector need to be combined. They also noted the need to encourage tie-ups between mid sized nursing homes and clinics as well as local pharmacies of good standards and repute with larger hospitals to increase outreach and the quality of healthcare for all. If this contract only looks at CSR by the private sector it will not work as the private layer is responsible to his shareholders. PPP is a viable model but this should not be seen as charity as charity means no accountability. Private players must be given leeway in a PPP framework and no roadblocks should be put. 30% with subsidy. which is not utilized. They should certainly be made accountable for their performance and results but they should also have flexibility or else it will not work. Escorts manages the hospital. Escorts is experimenting with the PPP model in Raipur. buildings. Also. but provided the government has the right approach to such partnerships. The origin countries were limited 49 . In terms of helping the poor. as this is also compatible with the overall business model. the government owns the infrastructure and resources. The government tends to project those that are overutilized but there are many hospitals where there is little or no utilization. though there were several well-known hospitals in the non-foreign funded group that said they receive foreign patients. There is a lot of land held by the government. there is lack of confidence and thus low usage of government hospitals. could be handed over to private sector players and the huge amounts of land available to these public sector institutions be leased out to corporate players to improve their performance and to also ease existing constraints on land procurement. There is a subsidized rate for the beneficiaries while private patients pay at their capacity. the general issue of linkages within the healthcare system at various levels was flagged by several of those interviewed. and 40% at full cost for generating revenues and providing resources for upgrading the hospital.” “There are some very good public sector hospitals which remain underutilized.” It was also suggested that existing hospitals under public sector entities such as the railways. it was evident that many of the private hospitals are interested in entering into such management contract based partnership arrangements with the public sector as this is seen as an ideal way to address the infrastructure and other constraints they face. These were mostly hospitals in the foreign funded category. The government hospitals are too focused on quantity with no regard to quality and this is why even the poor do not go to these hospitals. thus providing a mechanism for cross subsidization. and decent manpower and in some areas these hospitals face no competition. Source: Based on stakeholder interviews Some of the large hospitals covered in this study indicated that they have partnerships with state governments. for example. (iii) Medical Value Travel Ten of the hospitals in the sample stated that they cater to foreign patients. postal. Such a scheme incentivizes the player to keep costs under control. signed a PPP agreement with a district hospital in Gujarat.service would improve. Consumption needs to be created as due to the low standards and quality of delivery. cross subsidy mechanisms rather than quantitative targets were considered a better model for such partnerships. The government of Gujarat will provide a specified outlay.

mainly to the SAARC region and the Middle East with some patients from the West. Employment and foreign exchange can be generated from medical value travel. As one manager noted. Discussions revealed clearly that while India has potential in expanding medical tourism. which is of course beneficial to any country. 5. professional exchange. Foreign collaboration consisted of tie-ups for research and development. however much limited. however. Moreover. When questioned about the likely impact on availability of beds for domestic patients. The numbers were very small. Cases of tie-ups and professional exchange and collaboration have been discussed earlier in the section on manpower availability and quality constraints. though some respondents did note that such an impact could arise. “ The supply chain needs to be sorted out and the entire experience made more attractive. and through greater investment in telediagnostic and other telehealth facilities. and continuing medical education. stakeholders were questioned about the perceived impact of foreign investment in hospitals. Apollo Gleneagles has a relationship with Johns Hopkins for research and training and for second opinions but there is no collaboration in terms of investment in any facilities. by facilitating tie ups with medical schools. is expected to help expand medical value travel to India by enabling tieups with foreign health insurance providers to develop customized insurance products for target groups overseas to undertake elective surgeries in India and follow ups abroad.2. at less than 10 percent for even the largest hospitals in the sample. This may in part be related to the relatively loose arrangements that are currently in place. 5. whereas a joint venture type of approach could potentially yield more benefits (though there are problems in setting up joint ventures with overseas institutions. The responses were largely positive though concerns were voiced in a few areas. technology sharing. For example. to create a positive image and to further develop the infrastructure for medical tourism. It does appear. as highlighted earlier). It was argued that medical value travel could be used to generate resources for investments in the healthcare system as hospitals today are charging medical value travelers at higher rates. from the primary and secondary sources that technology and knowledge transfer has not yet occurred in any major way.1 Positive implications Some of the areas of positive impact that were highlighted are: 50 . medical value travel can be used to make healthcare affordable to other sections as the higher fees can be used to cross subsidize domestic consumers. this is not an area that is likely to see significant growth in the near future and cannot emerge as a major business model for any private hospital. But much of the discussion on the likely impact of greater foreign investment in hospitals on medical value travel and the subsequent implications for the healthcare sector remained speculative given the currently limited scale of medical value travel for all hospitals. (iv) Technology and knowledge transfer Only a few of the surveyed hospitals indicated that they have any collaboration with overseas institutions. most respondents noted that there is unlikely to be any major squeezing out of lower paying segments as the number of medical value travelers is never expected to be large.2 Perceived impact of foreign investment in hospitals In the course of the quantitative survey and the in-depth discussions by Nielsen and the researcher.” Greater foreign investor presence in hospitals. But medical value travel will never constitute a significant percentage of all customers in Indian hospitals. More foreign funded than non-foreign funded hospitals indicated such tie-ups.

Several respondents noted that foreign investment would augment resources available for investing in new technologies and that foreign direct investment. as there would be greater accountability. insurance processing). labs. and medical equipment supply and manufacturing. So far. billings. such as reducing unnecessary tests and procedures.• • • • • • • • • • • Infrastructure development Upgrading and investment in technology Increased availability of high end and niche procedures Improved systems and processes Integration of information technology in healthcare delivery Improved standards and focus on accreditation Improved work environment Increased employment opportunities at all levels Greater emphasis on medical research and training Greater opportunities for knowledge transfer due to tie ups with overseas hospitals and collaborative ventures Spillover in related areas such as diagnostics. lower infection rates. which would improve efficiency. Greater public and corporate demand for accreditation and the opening up of health insurance were seen as essential to this process. The availability of adequate technology would be assured with good cash flows and reinvestment of profits and given the focus of such hospitals. outsourcing (clinical trials. better methods of healthcare delivery. Many felt that there would also be a demonstration effect on other hospitals with many more getting accredited and registering for NABH/NABL certification. only 6 hospitals have taken NABH certification and some 50 have applied. and tieups in particular would bring in new technologies. One doctors at a small nursing home noted that most people would like to work in corporate hospitals in order to have exposure to new technology. and standards were the most commonly cited areas of impact. The latter would include more effective and new ways of management. joint ventures. particularly in some specialties given the higher end and niche focus of some of the foreign funded hospitals. Much of course would depend on the credibility of the NABH certification scheme. increased accountability through audits of medical practices. There was also a common perception that standards would be raised as such hospitals would try to improve their bottomline and to get more business. better governance. 15 The offshoot of such improvements in standards and practices would be shorter hospital stay. medical value travel Increased insurance penetration • Infrastructure. 15 51 . benefiting both patients and doctors. It was also noted that the process of accreditation would reduce violations in medical ethics. More hospitals would turn towards international accreditation. One of the perceived implications of such investments and improvement in standards is reversal of overseas talent. technology. which is a mix of various accreditation systems.

and even establishes themselves in second tier cities and towns. which would benefit consumers potentially lowering costs and improving the affordability of quality healthcare in the country. given the need for tieups and collaborations. that the smaller players are likely to be less expensive. An important point made here was that as it would be difficult for foreign players to come and establish themselves on their own given the localized nature of the healthcare business and the difficulty in setting up one’s own customer base as an overseas institution. It was also pointed out that through such extension services and set ups outside major metros. would also get transferred to the public sector institutions through such public private partnership arrangements. The same was noted for pharmacies. and that there might be tie ups and franchising arrangements between large hospitals and local pharmacies and diagnostic centers. However. In their view. The view was that the paradigm of doing healthcare would be positively affected across all kinds of players due to improved standards. and accountability. the growth of corporate hospitals and the benefits that would accrue from foreign investment for such hospitals in terms of improved practices. better governance. many would have to close down. Hence. The emergence of major corporate hospitals with foreign 52 . making it possible to invest further in new and better technologies. Expanded volumes would also enable the corporate players to cross subsidize poor patients more effectively. whereby. greater quality consciousness among healthcare players. and a greater awareness among consumers of what quality and service mean. The latter view was based on a perception that there is enough demand and localized preference in the market to enable smaller players to continue. thus improving outreach and quality of healthcare for all. Several respondents noted that greater corporatization and inflow of FDI in the hospitals segment would also enable more healthy competition among the big corporate players and could encourage consolidation and economies of scale in the sector (and also the fact that many hospitals are in other lines of business). corporate hospitals would be able to make available their equipment (not obsolete but not the latest necessarily) and thus expand accessibility of healthcare. But another point of view was that many of the better quality small and mid size players would tie up with larger hospitals in terms of referral services and less specialized medical procedures. One view was that such nursing homes would face greater competition from the large corporate hospitals and would have difficulty retaining staff and would become less attractive as they would not be able to provide many services under one roof. Foreign funding in private hospitals was also seen as promoting opportunities in other areas of the healthcare sector. and raising standards. The latter was of course subject to government institutions coming forward to enter into such PPP arrangements. further attracting overseas doctors. diagnostics and labs. Some respondents also noted that there would be increased possibilities for partnership arrangements between government medical institutions and private players through management contracts. There were two kinds of views expressed about the implications for small and mid size players. foreign investment would certainly facilitate such arrangements and lead to technology and knowledge transfer to local players. such improvements would in turn attract better paying and more customers. to do more outreach and extension services. One such area was clinical trials outsourcing which many respondents felt was a growth area that had yet to be tapped. where one view was that smaller players would be adversely affected by the expansion of large foreign funded and more generally corporate hospitals while another view was that the better quality smaller players would be able to coexist with the large hospitals and their diagnostic facilities. Thus. there are perceived structural implications arising from greater foreign investment and growth of corporate hospitals for both private and public healthcare institutions. Some points were also made about the likely evolution of the healthcare delivery system.A virtuous cycle is thus seen.

funding was perceived to give a boost to this area as pharmaceutical companies would be more comfortable with carrying out clinical tests in such hospitals given their superior patient record (data privacy issues) and delivery systems. given their investment in IT. which is currently investing in medical.2. Telemedicine was noted as another area where foreign funded hospitals. which would ultimately benefit the sector by lowering costs of such inputs. nursing and paramedical education and training as well as in health administration. 5. with implications for knowledge and technology transfer and upgrading of standards to third parties. Some of these concerns. The growth of such hospitals is also expected to spur local manufacturing of medical devices and products. would be more comfortable in dealing with foreign funded corporate hospitals that were accredited and accountable. according to respondents. would be well placed (although some well known non foreign funded hospitals are also doing significant amount of work with remote areas through telemedicine). Africa. none of the interviewees felt that medical value travel would take off in very large numbers even with more foreign investment in hospitals. particularly in those corporate hospitals with foreign patients and tie-ups with foreign insurance companies. was cited. as corporate hospitals are expected to invest in these areas. However. The latter would be driven by the entry of multinational insurance companies. higher manpower costs. through tie-ups and licensing arrangements. The example of Apollo. Positive implications are also perceived for research and development and education. have already been touched upon in the preceding section The main areas of negative impacted highlighted in the discussions include: • • • • • • • Higher costs of medical care Unnecessary tests and procedures violating medical ethics Squeezing out of the poor from the market to low quality players Diversion of resources towards curative and high end technology and procedures and away from preventive and chronic ailments and needs of the local population Greater competition for manpower.2 Areas of concern Although the perception was largely positive. and South East Asia to patients from some of the Western countries. Thus. Foreign funded hospitals are expected to invest more in continuing medical education through tie-ups with overseas institutions or shortterm transfer of personnel. certain common issues were raised on the possible negative fallout of greater foreign investment in hospitals and the growth of corporate hospitals. attrition and poaching Pull on resources from smaller players in the private sector and from public sector hospitals Greater divide between the public and private sector in terms of availability and quality of healthcare and wages 53 . such as affordability issues and implications for mid and small size players. expanding beyond the current clientele from the SAARC countries. which. It was felt that foreign funding of hospitals could lead to an increase medical value travel to India. Related expansion of activities in other areas such as medical transcriptions and back-office medical outsourcing was also noted. Another spill over area that was cited was medical value travel. insurance penetration would both drive foreign investment and be driven by greater foreign investment in hospitals. Telemedicine was seen as an ideal way of expanding healthcare delivery beyond the metros to rural and remote areas and enabling tieups between local healthcare centers and large hospitals and specialists.

a practitioner in a small nursing home also stated that such establishments expect to face similar pressures on their medical personnel from foreign funded hospitals. encouraging public private partnership arrangements to improve governance and management practices in public sector hospitals. both in terms of the resource pull effects on some players and the increased costs and difficulty in getting quality manpower with greater foreign investment in hospitals. Some of the required policy measures would include letting the corporate hospitals set up medical colleges and training institutes. permitting investment in health education by foreign universities to ease the supply bottlenecks on medical manpower. educators. exacerbating the problem of high and rapidly growing salaries. and other policies highlighted earlier.• • Crowding out of local patients for high value foreign patients Tilting of healthcare delivery towards higher paying private segments One of the main sources of concern relates to human resources and the internal brain drain that could arise with the expansion of foreign investment in hospitals and the emergence of larger corporate hospitals. and that there is little investment in continuing medical education and latest technologies which could help retain staff in the public sector Thus. expansion of scale with uniform quality would become difficult for large players. He noted that this would affect the plans of private players to scale their operations as all players would be competing for the limited pool of managers. in both cases. which are high paying. The shortage of medical educators in specific domains such as neurology. and the front and back end staff. In turn. and creating a more attractive work environment (through opportunities for development of skills and continuing medical education. As one practitioner in a public sector hospital noted. Although there were differing views on the implications for costs. it is clear that the root problem is not foreign investment but it is the shortage of medical manpower and support personnel due to bottlenecks in the education system and related regulatory issues (highlighted earlier). foreign investment would aggravate existing structural problems but the root cause lies elsewhere and thus the solutions to such problems also lie elsewhere and not in foreign investment regulations. The second major area of concern is about reduced affordability and relevance of healthcare if there is more foreign investment in hospitals and the adverse impact on the poor who might be squeezed out of the system. If one looks objectively at the issue of manpower. a private sector respondent from one corporate hospital also noted the problem of manpower in that the competition for talent would increase if more foreign investment comes into Indian hospitals. it would become harder for the public sector to retain doctors as well as teachers in their affiliated medical colleges. Foreign investment would put further pressure on wages and salaries of medical personnel. which are already increasing rapidly at all levels. for both foreign funded and non-foreignfunded hospitals. was pointed out. Thus. Interestingly. aggravating the already existing trend of doctors moving out of government hospitals and from training towards private practice and the e-flux of paramedics and nurses. Similarly. improved wages) for staff in public sector hospitals. He also noted that the increased focus on earning money would mean less focus on teaching and research especially on issues relevant to local conditions. Likewise. the fact that foreign investment would lead to internal brain drain from the public to the private sector is more to do with the fact that public sector professionals are paid too little. future specialists coming from the public sector would be poorly qualified which would further affect the quality of training and service available in public sector institutions. most respondents expressed concern that foreign investment in hospitals and the focus on profits and 54 . that the working environment and infrastructure in public sector hospitals is not good.

BOX. In this view. Part of the solution may also lie in incentivizing and enabling corporate players to do go beyond metros and to do outreach and extension activities serving a wider section of society. the management of a major corporate hospital with foreign funding stated regarding costs following increased foreign investment in hospitals in India. that a few respondents did point out that there would not be any major escalation in costs as hospitals would need to keep prices within a reasonable range and that ultimately pricing would be determined by what the market could afford to pay. Overall. The common view was that the costs would be higher than in smaller nursing homes and hospitals and that given the lack of health insurance coverage for lower income groups. Low strata people will have to go to government hospitals and have to take the service they get. Source: Based on stakeholder interviews Thus. “Affordability depends on the socio-economic strata of patients. foreign investment would possibly aggravate the already existing divide between those who can and those who cannot afford healthcare. economies of scale and scope. which makes the poorer segments more vulnerable to higher costs of healthcare. they can at least fall back on this insurance.returns for shareholders would lead to increased costs of healthcare. they have to sell their land and get money for treatment. If some eventuality comes in their lives. It must be noted.3 Perceived implications for affordability of healthcare Quotes from several respondents illustrate this common concern about increased costs of healthcare with foreign investment and the growth of corporate hospitals. and so tariffs will go up. Middle class people who have insurance go to corporate hospitals. however. which could include micro insurance and community based insurance packages which are perhaps managed by community health insurance trusts with government support. Then basic healthcare can be improved. It was also suggested by many that expanded scale and presence of higher paying 55 . which would be facilitated by the expansion of foreign funded hospitals. “It will go up because the return expectation is also huge. but the other people go to government hospitals or small nursing homes…” Another practitioner stated. would help keep costs within reasonable and affordable levels. the growth of foreign funded and corporate hospitals would only aggravate the existing income and geographic divide in healthcare delivery. Thus the solution does not lie with regulations pertaining to foreign investment per se but with the introduction of innovative and affordable health insurance packages. If it’s something serious. Foreign funded hospitals are perceived to be skewed towards rich people as they would never be in reach of the common man and this is seen to be made worse by the lack of affordable health packages. The priorities of middle-income people are changing and some are taking medical insurance. Private hospitals are not affordable for middle class people unless the company pays for it. They expect a minimum return and to give that return you have to relook at your tariffs. The root problem is the lack of affordable health insurance schemes. you have to relook at your efficiency. “Lower middle class people cannot afford corporate hospitals. the concern over higher costs is closely related to the affordability and availability of health insurance schemes for a wider section of society. But as with manpower issues.” Likewise. A doctor at a small nursing home noted. the common perception is that the entry of foreign players would tilt the balance towards higher paying private segments of the population and towards the higher end and niche services which may not be relevant to the poor.

however. the only other major concern was that the growing presence of foreign investor hospitals and of corporate hospitals would force small and mid size hospitals and nursing homes to close down or would lead to their acquisition by larger players.segments in corporate and foreign funded hospitals could be used to cross-subsidize poorer segments and thus expand the accessibility of healthcare delivery to all. Apart from these two issues. that smaller players would continue to coexist as “Everybody needs smaller clinics too. then several insights emerge. if one were to take the survey results as reflecting the way in which foreign funded hospitals function compared to non-foreign-funded hospitals. we have a huge population and there is no dearth of patients.” This view was also based on a common perception that large corporate and foreign funded hospitals are likely to be impersonal and would not provide the personalized care available at smaller establishments. Overall. Such hospitals tend to have better systems and processes and usage of IT. the prevailing view was that poor quality and substandard players are likely to be weeded out with greater foreign investment in hospitals. which creates a more efficient and professional work environment. while there were differing views on the likely implications for the structure of healthcare delivery and on the possible arrangements that could emerge between the smaller and the larger players. They are likely to invest much more in medical equipment and devices and also in specialized and experienced medical personnel. and thus the kind of impact they are likely to have on the healthcare sector. Their costs are likely to be comparable to or slightly higher than those of non foreign funded large hospitals Their costs will tend to be higher than for small and medium size nursing homes and hospitals but this is mainly due to greater capital intensity and focus on quality systems and processes and focus on hygiene There could be positive externalities in other areas of the healthcare sector and some of these could further drive foreign investment in hospitals Foreign funded hospitals could draw away medical personnel at all levels from other hospitals (both large non-foreign-funded and medium and small size hospitals/nursing homes. They are likely to employ a higher ratio of technology to personnel in their healthcare delivery and thus involve a substitution of human resources with technology and equipment. and 56 • • • • • • • • . They are more likely to attract overseas doctors and specialists than other hospitals They are more likely to be accredited domestically and/or internationally. They are more likely to focus on curative and intervention oriented treatment than on preventive and long-term kind of treatment.3 Summarizing the implications and further inferences Overall. thus involving a focus on high-end human resources and high-end technology. • • • • Such hospitals are likely to focus on more advanced procedures and specialty areas. 5. There was another view. Foreign funded hospitals pay higher rates to staff at all levels and particularly to senior medical personnel.

is one sector where India has not received many requests. 57 . though this offer is subject to a local incorporation requirement. and in introducing schemes. and how the commitment could be shaped with additional limitations or conditions. in amending certain regulations that affect all players. as outlined earlier. replacing its unbound commitment in modes 1 and 2 with an offer for a full commitment in these modes. to make this liberalization offer as beneficial to the country’s healthcare objectives as possible. FIPB approval. and market segmentation implications of growing foreign investor presence in India’s hospital segment.e. affordability.public sector hospitals) and could adversely impact the quality of medical manpower available to competing institutions • There is likely to be closure of substandard institutions. which scheduled this sector in the Uruguay Round. particularly with regard to mode 3 or commercial presence in one part of the sector. and not in restricting foreign investment. The insights obtained from the discussions with stakeholders suggest that the solution lies in strengthening the public healthcare system. and increasing the FDI ceiling in hospitals from 51 percent in its Uruguay Round commitment to 74 percent in its initial and revised offers. The following discussion outlines the evolution of India’s approach to the health services sector and requests made to India in this sector under the GATS. and new kinds of arrangements could emerge between larger and smaller players as the healthcare sector evolves There could be greater segmentation between the public and private sector with resource flows towards the latter.1 India’s autonomous and multilateral liberalization in hospital services Health related social services. hospitals. and inflow of latest technology. The benefits of foreign investment in hospitals are likely to outweigh these adverse effects and policies can be taken to mitigate these costs. if so required. As shown in the following table. India has nevertheless unilaterally and multilaterally liberalized the hospital services subsector to a great extent in mode 3. The latter is of course more restrictive than the existing FDI policy for hospitals as the revised offer permits 74 percent and is subject to FIPB approval while existing FDI regulations allow 100 percent on automatic route and also permit other kinds of foreign capital inflows (FII and equity funds) to be classified under FDI subject to some limitations. greater wage disparity. 6 Implications for GATS commitments in hospital services One of the objectives of this study was to determine what India’s stand should be in its commitment on health services. Then based on the findings regarding the prospects for foreign investment in hospitals and the likely implications of such investment. India improved significantly upon its Uruguay Round commitment in its initial conditional offer. Foreign investment and greater corporate presence in hospitals could aggravate such structural problems. unless innovative arrangements emerge between the two segments and reforms are undertaken in the public sector hospitals • While there are clearly concerns about the equity. 6. India was among the few countries.. the root cause lies in structural problems that are already present in the healthcare sector. which provide affordable access to healthcare for all. some consolidation of the hospital segment. this study suggests what shape any binding commitments in this area should take. The main issue under consideration was whether India should make a liberal commitment in this area. i.

Only through local incorporation. provided transaction is between two established medical institutions. The health insurance market was opened to private competition in 2000. 100 percent FDI permitted on automatic route since 2000. initial conditional and revised offers. Subject to inflow of latest technology for treatment. Sector / Sub sector Hospital services 1) No change 2) “Unbound” 3) Foreign equity ceiling is 51%. Status matrix for committed and offered liberalization in India’s hospital services Uruguay Round Commitments on market access (1994) 1) “Unbound” Conditional Initial Offer (Dec 2003) 1) “None”.Table-11. the shift in the multilateral stance from the 58 . While the table indicates that the level of domestic liberalization still exceeds that placed in the offers. private equity funds allowed to register as FDI subject to limitations on equity share. only through local incorporation 2) No change 3) No change FII. which permitted both general and life insurance companies to offer health insurance. 4) No change except restrictions removed for charitable purposes Source: Based on India’s schedule of commitments. and various policy documents on the health services sector. Different conditions for publicly funded services 4) No change Revised Offer (Aug 2005) Domestic Reforms Between 19942006 100 per cent FDI subject to FIPB approval. 4) “Unbound” except as given in the horizontal commitments The liberalization of India’s multilateral offer on hospital services reflects the autonomous liberalization that India has undertaken in health services since 2000. covering areas of second opinion for diagnostics or research 2) “None” 3) Foreign equity limit increased to 74%. with the opening up the hospital segment to 100 percent FDI participation and the entry of domestic corporate hospitals and MNCs in India’s health care industry. FIPB approval required for foreign investors with prior collaboration.

Uruguay Round to the stage of revised offers is large. to the extent that additional FDI does flow into hospitals. The nature of the offers also indicates that India has tried to retain policy space to address considerations such as technology transfer. There is also a need to look at India’s commitments and domestic policies in other sectors. Commitments in the 59 . with possible negative effects on equity and on the public sector. as investors see a lack of clarity and roadmap for the health sector. a more reform oriented approach and a shift in attitude would be required in various areas. including in public sector institutions. and the pattern of financing. But as is clearly highlighted by the study.. a binding commitment would signal that the liberal foreign investment policy for hospitals is there to stay and that the government is committed to facilitating investments in India’s hospital segment. particularly from the emergence of hospitals of international standards and the spin off benefits in other areas. consumer protection. such as requiring tie ups with local players in terms of referral services. and infrastructure facilitation. A binding commitment would be irreversible and thus caution may be required in taking such a step towards further multilateral liberalization. and pooling of resources. The study also suggests possible conditions that could be inscribed in India’s commitments to ensure that certain objectives are realized. depending on their profile. it may not be advisable to impose too many conditions as these could adversely affect incentives for investors and their bottomlines. bind in its existing FDI regulations in this area? The concern in policy circles is that such a binding would lead to entry by foreign players and increased FDI in this segment.e. Another possible condition could pertain to corporate social responsibility measures. such as in health insurance (which would come under the financial services schedule) and in higher education (which would come under the education services schedule). and social concerns by inscribing certain conditions on the technology brought in and the kinds of players involved. local franchises.. As investors would adopt different investment models (hub and spoke. While other conditions could be inscribed. suggest that India could bind in its existing FDI policy in hospitals and permit 100 percent on automatic route. the medical equipment and devices segment. quality and reliability of health care providers. Thus. among others. The findings of this study. transfer of older equipment. i. 6. health insurance.2 Strategy for multilateral liberalization in hospital services Should India further liberalize its offer on hospital services to 100 percent with no prior approval requirement. The existing revised offer puts a technology transfer related condition. among other factors. It indicates the Indian government’s recognition of the changing scenario in the health sector and the potential gains to be realized from the infusion of capital and technology in this sector. the location of the investment. education and training of personnel. however. The justifications for such a strategy relate to two facts: First. Second. attaching too many conditions on the commitment may reduce the flexibility of investors to enter into what is a very location specific business. etc. there are several likely benefits that could accrue while the negatives that could arise will not really be a direct result of foreign investment but of existing structural distortions and inadequacies in India’s health care sector.). such as outreach and extension services and reinvestment of part of profits in medical research and education or in telemedicine to serve a wider population base if any subsidies or concessions have been granted in related areas. a liberal binding commitment on FDI in hospitals is not going to translate into a surge in foreign investment in India’s hospitals unless the various constraints affecting hospital projects that are discussed in this study are addressed. Such supporting measures and reforms would help ensure the benefits while mitigating the possible negatives. medicity. in medical education.

Within health services. • • 60 . or to promote opportunities for clinical trials outsourcing. private equity. when finalizing India’s commitment in health services. and Lack of policy clarity and thrust on healthcare as a priority area. which include FII. Manpower constraints in terms of quantity and quality arising from inappropriate regulations on medical education suppliers and inadequacies in medical education. Other regulatory inadequacies affecting standards and practices in healthcare establishment. and outside the service sector. there are very few such hospitals in reality. external commercial borrowing. Thus. and in particular private equity funding is more prevalent than FDI funding (although domestic debt remains an important source of financing for most hospitals). Likewise. which make it less attractive for long term FDI kind of investment as opposed to other forms of foreign financing. the implications of commitments need to be considered across modes. the structure of this industry. The study also finds that the long gestation period of investment in hospitals. The impact of cross cutting regulations needs to be kept in mind. to encourage telemedicine links with overseas institutions. the relatively low rates of return compared to that in many other high growth sectors impede FDI in this area. the main factors that influence overall profitability of hospitals pertain to domestic factors. and venture capital.insurance and higher education services sectors need to be considered in conjunction with commitments in hospital services as liberalized entry for foreign insurance companies and for foreign higher education providers may help in deriving benefits from further liberalization of mode 3 in hospitals. IPOs. 7 Summary of findings This study has attempted to understand the extent to which there is FDI presence in the hospitals segment of India’s healthcare sector and how this presence is affecting the sector at large. The low level of insurance penetration resulting from limited opening up of the insurance sector and lack of a universal health insurance scheme to make healthcare affordable to a larger number of people. For instance. if one takes a expanded view of foreign financing to include other modes of funding (partly in keeping with regulatory treatment of these other modes under FDI). in particular: • • • • High upfront costs due to physical infrastructure (land) constraints. a broad view needs to be taken across modes within the health services sector. and lack of local manufacturing capacity. across related service sectors. This preference suggests that there are issues affecting the hospital segment. One of the main findings of this study is that despite the opening up of hospitals to 100 percent FDI participation under automatic route and despite quite a few approved FDI hospitals. However. High input costs for medical devices and technology resulting from reliance on imports. While external factors influence foreign investors in their decision to invest in this segment. supporting policies in the manufacturing sector to increase local production capacity in medical devices and to standardize such production would also be required. according to some experts there are at most three or four such hospitals. then one finds that these alternate modes. multilateral development agency funding. a full commitment in mode 1 would be relevant if one of the objectives is to encourage tie ups and collaboration in medical education and training. While it is difficult to give exact numbers on the ground.

Some of these measures include: • Facilitating land acquisition. improved standards and available technology. In terms of negative implications. the usual concern areas such as higher costs and greater segmentation between the public and private players and greater geographic segmentation are highlighted. Consider other forms of obtaining land. The survey results also reveal that such hospitals are likely to create higher paying jobs and thus are likely to attract good quality persons from existing institutions.some subsidization of initial project costs or PPP arrangements with possible cost discounting or cross subsidization arrangements built into the valuation of land. the divide between rural and urban areas and between regions across the country.In terms of the impact of foreign investment. improve standards. But on the negative side. no major difference is apparent on the cost front while differences emerge in terms of the nature of treatment and orientation of the for profit corporate hospitals. albeit limited by the small number of hospitals covered. it is evident that such hospitals do not address the geographic divide that exists in healthcare delivery in India. especially in the public sector and the smaller and mid size establishments. However.e. It also emerges that such hospitals tend to provide less personalized care and substitute such care with technology. Moreover. the study also highlights the fact that making a binding commitment would not automatically lead to huge additional investment given the many constraints plaguing this sector. The survey results. and improved quality of persons. notwithstanding some efforts at corporate social responsibility and telemedicine. the main reason being that such a commitment would give predictability to the policy environment. which is currently lacking. Policy space can be reserved through such additional conditions and by continuing to exclude publicly funded institutions from the ambit of the commitments. Such hospitals also lead to further competition for quality manpower.. greater availability of high end and specialized procedures. which is already in short supply. increased capacity. with possible negative impact in terms of resource diversion and greater competition for smaller and public sector establishments. and thus are likely to drive up wages and possibly costs of services. and utilizing their working capital more intensively. and make healthcare affordable and accessible to a wider segment. Thus some inferences can be drawn about the likely positive impact of greater foreign investor presence in terms of technology investments. Freeing up medical education and encouraging private hospitals to enter into medical education and training to expand the supply of medical personnel at all levels • • 61 . This is because all players want to locate where supporting infrastructure already exists and there is a paying population. i. in terms of being more technology and intervention oriented. the usual positive implications such as infrastructure development. joint development with real estate developers and arrangements with public sector units owning land and hospital facilities and government facilitation of such arrangements. The study also throws up several policy measures required by government and initiatives required by private players to make the hospital segment more attractive to both domestic and foreign investors if the ultimate aim is to expand capacity.through leasing arrangements. The analysis suggests that India should make a full commitment on mode 3 in hospitals. and various spillover benefits emerge from the discussions. additional investment with perhaps some conditions in terms of technology transfer and corporate social responsibility or outreach activities is likely to be beneficial overall. more dependent on high end and specialized equipment and personnel.

which would also help attract foreign funds. the very model of healthcare delivery as perceived by consumers needs to change and this can in part be facilitated by increased insurance penetration and greater affordability of healthcare. reduce malpractice. it is hoped that the findings of this study and its conclusions will help the government to formulate its strategy under the GATS and also provide the requisite enabling environment to take advantage of liberalization in the healthcare sector. the benefits of liberalization may not materialize. ports. 62 . The main problem is that the sector lacks a supra-regulatory body. Improved regulation and monitoring of mid and small size establishments to improve standards and quality. as well as introduction of a national or community based health insurance scheme to increase affordability of healthcare and mitigate potential adverse effects of corporatization on equity. research facilities) between public and private hospitals and between larger private hospitals and smaller local players Establishing a regulatory framework and an independent regulator in the healthcare sector to address issues of standardization. As put by one expert. even without infrastructure status. The feasibility of setting up such a body may be questioned given there are incumbents such as the Medical Council of India and there are likely to be conflicts of interest with regard to regulatory jurisdiction. along with CSR responsibilities through cross subsidization mechanisms Greater sharing of resources (equipment. • • • • • It needs to be pointed out that there have been repeated demands to grant infrastructure status to the healthcare sector so as to facilitate access to viability gap financing and improve cash flows for private players. information disclosure. both of which are possible on a case-to-case basis. etc. the study finds that there are practical difficulties in implementing this proposal. Improving the regulatory framework for health insurance by standardizing norms for payouts. Facilitating public private partnerships in hospitals. In order to get infrastructure status. classification. with private sector hospitals entering into limited period management contracts with public hospitals. The study shows clearly that without a proactive role by government in terms of initiating domestic reforms in the healthcare sector and creating an enabling environment.• • Incentivising domestic manufacturing of medical devices and technologies through increased investment in this sector and tie-ups with foreign companies and efforts to standardize output Opening up the health insurance sector to enable greater scrutiny of processes and standards of hospitals. and.” Thus.. “Healthcare business is still doctor driven in many parts and has not achieved the brand status the other services have. under well-defined revenue sharing arrangement. weed out substandard establishments. unlike sectors such as transport. knowledge. and enable consolidation in healthcare delivery. The real issue as highlighted by this study is not whether the industry gets infrastructure status but the availability of cheaper domestic financing and tax benefits in view of the long gestation of hospital projects. This could be a major impediment for companies to come in and do business. To conclude. Corporate hospitals need to be seen as delivering to not only surgical and critical care but also for chronic and preventive care in the consumer mindset. and telecom. coverage. The study also reveals that the maturity of the healthcare market is an important determinant of how successful a country is in attracting foreign investment into hospitals. the existence of such a regulatory body is required.

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