New Horizons in Indian Healthcare

Trends in healthcare sector investment

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Boston London Mumbai San Francisco

Agenda
Parthenon Global Healthcare Practice
Worldwide healthcare trends and investment implications Indias healthcare market

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The Indian urban healthcare consumer New business models and investment opportunities

The Parthenon Group Global Coverage

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= On The Ground Projects Completed

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Global Healthcare Practice Deep Understanding of Healthcare Value Chain

Parthenons Global Healthcare Practice:

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Built up from over 10 years of project experience Covering all major sectors of health care Advising on corporate and business unit strategies; policy and systems design; performance improvement; mergers and acquisitions

Suppliers
Laboratory
equipment

Life Sciences
Pharmaceuticals Drug distribution Nutritional
supplements

Providers
Hospitals Primary care Specialist treatment
centers

Payers
Managed care Other health
insurance

Government
Healthcare funding Health policy and
strategy

Informatics
Medical publishing
and education

Pharmacy benefit
managers

Leveraged
procurement

Revenue cycle
management

Outsourced clinical
research

Diagnostics and
imaging

Stop loss Discount cards

Public health

Temporary staffing

Medical devices Surgical implants

Home health care Cosmetic surgery Dentistry

Agenda
Parthenon Global Healthcare Practice
Worldwide healthcare trends and investment implications Indias healthcare market

T HE P ARTHENON G ROUP

The Indian urban healthcare consumer New business models and investment opportunities

Healthcare expenditure threatens to reach unsustainable levels in many developed countries

Healthcare Expenditure vs. GDP per capita, 2006
7,000
USA

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15%

Total Health Expenditure per capita (PPP Int. $, 2006)

10%
6,000
Luxembourg

5,000
Switzerland Norway

4,000

3,000

2,000

Denmark Canada France Austria Germany Netherlands Australia Sweden Greece Ireland New Zealand Italy UK Israel Japan Finland Portugal Spain Argentina Qatar Singapore UAE Kuwait Brunei

5%

Hungary S. Africa Lithuania S. Korea Brazil Slovakia Poland Estonia 1,000 Turkey Latvia China Mexico Saudi India Russia Arabia

0 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

GDP per capita (PPP Int. $)

Source: WHO, OECD, IMF

Policy trends are changing the healthcare landscape to try to bend the cost curve
Current Model Current Model
Performance

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Sustainable Model Sustainable Model

Value

Activity
Treatment Inpatient Capital

Outcomes
Prevention Outpatient Information

Specialty Focused Physician

Patient Pathway Basic Health Professionals

This is driving a shift in investment patterns and opportunities

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Divest

Hold

Invest

General and multispecialty

hospitals

Long term residential care Durable medical equipment and

devices

Branded pharma Diagnostic imaging

Retail medicine / pharmacies Clinical labs Generic pharma Biotech Outsourced pharma services Contract research Contract manufacture Single speciality hospitals Medical Tourism Mental Health

Homecare Care extenders (location,

methods, protocols)

TeleHealth

Wellness and prevention Obesity Smoking cessation Healthcare IT Decision support Revenue cycle management Outsourced Provider Services

Note: The segments in bold are of particular interest to the Indian market

Agenda
Parthenon Global Healthcare Practice
Worldwide healthcare trends and investment implications Indias healthcare market

T HE P ARTHENON G ROUP

The Indian urban healthcare consumer New business models and investment opportunities

Indias healthcare spending is growing well ahead of GDP

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Healthcare Spending in India, 2000-2008

Rs.3,000B
Total Expenditure on Healthcare (Rs. B)

CAGR 00-08 14% Rs.2,574B Rs.2,231B Public 13%

Rs.2,000B Rs.1,729B Rs.1,486B Rs.1,155B Rs.1,281B

Rs.1,943B

Rs.1,000B

Rs.893B

Rs.1,027B

Private

15%

Rs.0B

2000

2001

2002

2003

2004

2005

2006

2007

2008

% of GDP

4.3%

4.6%

4.8%

4.8%

4.9%

5.0%

4.9%

4.9%

4.9%

Source: World Health Report 2009, Primary Research

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Out of pocket payment and private provision dominate Indias healthcare system
Rs.617B Rs.57B Rs.1,732B

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Rs.168B
PMI & Other Pvt. Sources

Total = Rs.2,574B

Payer

Public
NGO & Social Security Contrib.

Out of Pocket

Rs.78B Rs.1,597B Rs.623B Rs.24B Rs.49B Total = Rs.2,574B

100%

Rs.203B

Public 80%

Provider

60%

Private

Private 40% Private

20% Private 0% Primary

Private

Secondary & Tertiary

Pharma & Biotech CRO Other Medical Equipment& Devices

Private

Public
Private

Source: World Health Report 2009, IBEF Healthcare Report 2009, Analyst Reports, Parthenon Analysis, Primary Research

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The private market is highly fragmented and focused on acute care and pharmaceuticals

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India Private Healthcare Service Provision by Segment, 2009

Total = Rs.1,720B Rs.22B 100% Rs.27B Rs.1,003B Rs.556B Rs.70B Rs.43B

PMI 2009
100%

Rs.66B
Other
IFFCO TOKIO Cholamandalam

Reliance
Bajaj Allianz

80%

80%

Oriental

Star Health

60% Other 40%

60%

Other
Vimta Advinus Sai Advantium GVK
Zydus Cadila healthcare Aurobindo pharma

National

United India
40%

Piramal Veeda Jubilant Biocon Siro Clinpharm

20%

ICICI Lombard

20%

Dr. Reddy Manipal Wockhardt Apollo Fortis

Sun Pharma Piramal Healthcare GSK Cipla

New India

0%

Ranbaxy

Primary Care

Secondary & Tertiary Care

Pharma & Biotech

CRO Medical Other Devices & Equipment

0%

PMI Market Share

Source: Assocham Healthcare Report 2009, Analyst Reports, Health Insurance India, IBEF Healthcare Report 2009, Primary Research

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Acute care provision is highly concentrated at the high income end of Tier I cities

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Hospital Beds per 10,000 Members of The Population Vis-a-Vis WHO Benchmarks, All-India and Tier I Cities
50

45

Hospital Beds Per 10K Population

40 WHO recommended 30

20 15 10 10 7

18

All-India

Tier I Low Income

Tier I Lower Tier I Upper Middle Middle Income Income

Tier I High Income

Price Point Single Room

<Rs 1K

Rs1-2K

Rs 2-4K

>Rs 4K
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Note: Tier I is the average of Mumbai, New Delhi, and Bangalore Source: WHO, Primary Research

Healthcare expenditure in India has many of the characteristics of a luxury good

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Healthcare Expenditure by Income Segment Indexed, Top Income Segment =1

2.0X

Healthcare Expenditure Index

1.5X

1.0X

Health Expenditure
0.5X UK India - Urban

0.0X

High Income

Low Income

Income Level

Source: Fiscal Studies, Indicus Analytics, National Bureau of Statistics of the Peoples Republic of China, ONS

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Agenda
Parthenon Global Healthcare Practice
Worldwide healthcare trends and investment implications Indias healthcare market

T HE P ARTHENON G ROUP

The Indian urban healthcare consumer New business models and investment opportunities

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In urban India, the highest income segment accounts for les than 5% of households...
Tier I, Tier II & Tier III City Household Distribution By Annual Household Income Segments, 2008
100% 13M >1000K
500-1000K

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9M
>1000K

6M
>1000K

Total = 28M *

500-1000K
300-500K

500-1000K 300-500K

80%

Percent of Households

300-500K 60%

40% <300K 20%

<300K

<300K

0%

Tier I

Tier II

Tier III

Note: *48 districts out of 135 districts in Tier I, II or III are sampled Source: Primary Research, Parthenon Analysis, Indicus Analytics

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...but more than 40% of all healthcare spending

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Tier I, Tier II & Tier III City Healthcare Spending Distribution By Annual Household Income Segments, 2008
100%

Average Spend Per Household

80%

>1000K

>1000K

>1000K

Rs.69K

60% 500-1000K 40%

500-1000K

500-1000K 300-500K

Rs.18K

300-500K 300-500K

Rs.6.4K

20% <300K 0%

<300K

<300K

Rs.4.5K

Tier 1

Tier 2

Tier 3

Note: Income is annual disposable household income Source: Primary Research and Analysis, Indicus Analytics

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Growth in spending is shifting to smaller cities and lower income categories

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Tier I, Tier II & Tier III City Healthcare Spending Distribution By Annual Household Income Segments, 2008
100%

80%

>1000K

>1000K

>1000K

Population Growth
~0% 0-10%

60% 500-1000K 40%

500-1000K

500-1000K

10-20%

>20%
300-500K 300-500K

300-500K

20% <300K

<300K

<300K

0%

Tier 1

Tier 2

Tier 3

Note: Income is annual disposable household income Source: Primary Research and Analysis, Indicus Analytics

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Urban consumers purchase a wide range of healthcare services

Percent of Respondents Who Spent Money on Different Healthcare Categories
80%
74%

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62%
Percent of Respondents

60%
Percent Spent Money
51% 51% 48% 44%

40%

25%

22%

20%

21% 14% 10%

0%

Blood/ Urine Test

X-ray/ Specialist Antibiotics Ayurdevic Vaccination Small Hospital Ultrasound Visit Medicine Surgical Stay for Procedure Infection

GP Visit

Planned Emergency Large Large Surgical Surgical Procedure Procedure

Q: Have you or your family spent money in the last three years on the following healthcare categories? Source: Parthenon Healthcare Survey (n=105)

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Dissatisfaction levels with hospital care are high, particularly with smaller and government hospitals

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Percent Dissatisfied with Hospital Experience by Hospital Type

50% 45% 40%
Percent of Respondents

50%

30% Percent Unsatisfied 20% 24% 21%

10%

0%

Government Hospital

Private Small Hospital (<200 Beds)

Private Large Hospital (>200 Beds)

Corporate/Trust Hospital

Q: On a scale of 1-7 where 1 = Not at all satisfied and 7 = Extremely satisfied; how satisfied were you with your hospital stay? Source: Percent lower than 4, Parthenon Healthcare Survey (n=105)

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Hygiene and staff quality dominate concerns at the low end; pricing and admin at the high end

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Most Important Reasons for Not Being Satisfied by Hospital Type

100%

n=6 Waiting Times

n=19 Quality of the Food

Price of the Room per Night

n=20 Other Quality of the Food Price of the Room per Night Billing and Admin. Process

n=10 Quality of the Food Price of the Room per Night

80%

Billing and Admin. Process

Waiting Times

60% Hygiene in the Hospital 40%

Hygiene in the Hospital

Billing and Admin. Process

Waiting Times Waiting Times 20% Quality of the Nursing Staff 0% Government Hospital Private Small Hospital (<200 beds) Quality of the Nursing Staff Hygiene in the Hospital

Hygiene in the Hospital

Quality of the Physician

Private Large Hospital (>200 beds)

Corporate/ Trust Hospital

Q: What were the three most important reasons for not being satisfied with your hospital stay? Source: Parthenon Healthcare Survey (n=105)

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Tier 2 and middle income markets offer attractive opportunities alongside the traditional high end focus
Opportunity Attractiveness High Low

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Tier 1

Tier II

Tier III

High Income

Middle Income

Lower Income

Expanding from High Income Tier 1 provision and to include Middle Income across other major urban areas, provides ~2.2X market opportunity also allowing a move away from highly competitive Tier 1 dynamics

Source: Parthenon Analysis

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Agenda
Parthenon Global Healthcare Practice
Worldwide healthcare trends and investment implications Indias healthcare market

T HE P ARTHENON G ROUP

The Indian urban healthcare consumer New business models and investment opportunities

23

Several business models offer attractive growth and lower capital intensity
Business Model Investment Thesis

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India Examples

Specialist hospitals

Lower capital and operating costs than general

hospital models

Superior outcomes due to experience curve

effects

Patient acquisition can be an issue in Indian

context

Day surgeries

Lower capital and operating costs than general

hospital models

Superior outcomes due to patient selection and

lower risk for hospital acquired infection

Financial model can be designed to create

superior incentives for all stakeholders

Hub & Spoke

Potential for better leverage of

CapEx and star physicians by effectively extending the catchment area of the hospital In addition referrals pattern to hub is locked in

Satellite hospitals have a lower CapEx structure;

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Several business models offer attractive growth and lower capital intensity
Business Model Investment Thesis

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India Examples

Diagnostic clinics

Potential for consolidation for highly fragmented

market with top 5 organized chains constituting between 7-10% of the market

Chains are growing at 3x the pace of the rest of

market through acquisitive expansion

Patient acquisition can be an issue in Indian

context

Primary care
networks

Broader offering and potential for cross-selling

through integration of primary care, diagnostic, pharmacy and wellness services

Potential for franchise model resulting in a

lower capital base and leveraging existing referral networks

Global CRO
services

Low cost trial capacity Cross-country capacity Access to patients and speed of recruitment High quality physicians and administrators Strong regulatory capabilities
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Conclusion
India healthcare is an attractive growth market

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It shares many of the characteristics of a luxury good, driven strongly by increases in disposable income
While its traditional focus has been on the high income segment in the metro areas,

competition there is becoming more fierce

In Tier II / III, high end and mid market offer attractive potential but challenges

around scale / price points make traditional high capital solutions difficult
Business models providing lower cost, improved CapEx leverage, greater operating

efficiency and / or addressing untapped markets are potential new horizons for
attractive healthcare investments

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