Following the United States and Europe, the Indian healthcare sector is now under the watchful eye of Private Equity (PE) investment firms.
In fact, private equity and venture capital investments in India’s health and pharmaceutical sector reached $5.5 billion in 2023, marking a 25% increase from the previous year. This number is likely to grow in the coming years.
Some notable PE investments include ChrysCapital’s $100 million stake in the eyecare chain Centre for Sight and Blackstone’s acquisition of Care Hospitals and KIMS in Kerala in October 2023, which has led to the formation of a significant hospital chain in India.
But what is driving this sudden interest in the Indian healthcare sector, and how will it impact patients? Read on to discover all the details.
The reason behind PE investment surge in Indian healthcare
Four main factors drive India’s rise as a hub for private equity investments in healthcare:
#1 Increased spending on healthcare
India’s growing middle class is spending more on healthcare. Rising disposable incomes and the rise of insurtech platforms, like Digit and Acko, have made private healthcare more accessible.
Government spending on healthcare has also increased, rising from about 29% of total health expenditure in 2014-15 to around 48% in 2021-22. This trend is expected to continue.
#2 Booming pharma manufacturing and services
India has become a leading manufacturer of pharmaceuticals, supported by government policies and a skilled workforce.
The country is now a top global producer of generics and vaccines, supplying 50% of global vaccine demand during the pandemic.
#3 Evolving healthcare technology ecosystem
India has historically supported healthcare data and analytics for foreign markets. However, now digital health companies are focusing on the Indian market.
Companies in fitness, telemedicine, and insurtech have gained traction, although digital health deal-making has slowed.
A young, tech-savvy population eager to engage with digital health solutions presents strong long-term potential.
#4 High demand for healthcare services
Access to healthcare can be measured by the number of hospital beds per 1,000 people. According to the National Health Profile 2021, India has only 0.54 hospital beds for every 1,000 individuals, meaning nearly 1 bed for every 2,000 people.
Experts suggest that about 3 hospital beds per 1,000 people is ideal, highlighting a significant gap in healthcare access.
This issue became evident during the COVID-19 pandemic when the healthcare system was overwhelmed, showcasing the urgent need for more healthcare facilities.
Opportunities and challenges that come with PE investments
Like many things, PE investments have two sides. Let’s understand both aspects one by one:
Opportunities: How can PE investments revamp Indian Healthcare?
In the next few years, we can expect a lot of growth in hospital chains across India.
When a PE firm takes over a hospital or healthcare group, it works to strengthen the leadership team and the board of directors. This means bringing in experienced executives and ensuring good management practices.
PE investors aim to improve financial results by controlling costs, increasing the quality of services, and adopting new technologies. All these changes can help improve the hospital’s financial performance.
CVC’s takeover of Healthcare Global is an example of it. It shows how PE investment can lead to better operations and patient care.
Challenges: What are the pitfalls of PE investments in Indian Healthcare?
While private equity investments can drive growth, they also raise serious concerns. PE firms generally focus on short-term profits and seek quick returns on investment.
A study published in JAMA analysed over 4 million Medicare claims from 2009 to 2019. It compared 51 hospitals acquired by PE firms with 249 non-acquired hospitals.
The most concerning finding was the 25% increase in adverse events at PE-acquired hospitals. There was a 27% rise in falls and a 38% increase in central line-associated bloodstream infections. Surgical site infections also doubled. These findings raise serious questions about patient safety.
Similar patterns have been observed in the U.S. healthcare sector. Private equity firms have acquired various hospitals, including Hanneman University Hospitals, Steward Healthcare, Manor Care, and Genesis Healthcare. However, instead of improving their operations, many of these firms left these facilities in serious financial trouble.
How do PE investments affect patients?
With the increased involvement of private equity firms in India’s healthcare sector, we can expect improved facilities and enhanced services in the short term. The influx of funds will likely lead to modernised hospitals, better technology, and expanded treatment options.
However, this growth may come at a cost. As these firms prioritise profitability, there is a risk that patient care could become secondary to financial gains. This could also lead to higher costs for patients.
Bottomline
With the Indian health sector bound to grow, the increasing interest of investors is inevitable. This will in turn benefit both patients and providers. However, some challenges need to be addressed to ensure that growth is balanced and risks are minimised.
Eventually, the government has to step in and ensure that the benefits of PE investments do not come at the expense of quality and accessibility in healthcare.
By Rinkle Dudhani and the AHT Team
