Analysing the common Primary Healthcare Model

Have  you ever wondered why there  is such little  investment in primary healthcare setups by established  healthcare  players. Though there have  been models like the  Apollo Clinics, or the  Manipal Cure and care. But why the  limited expansion and why only such few players.

A population of over 1.2  billion surely deserves a  better  primary healthcare setup and  honestly though individual private clinics are sprouting up  day in and day out why is it then that corporate healthcare chains are finding it so difficult in  establishing their presence .

The very evident answer to that probably would be the  bottom line the  EBITDA margins.Let us  consider what  exactly are the  revenue streams in  a Primary healthcare setup and what are the approximate gross margins associated with them.

OPD consultation – The  base of the stream  is the  Opd consultation and other than a basic one time registration charge the Consultation fee can be split with the consultant  according to various models. Though from my limited  knowledge the most common model is the  70 – 30 split, though in other cases a base rental model can also be selected specially if the  clinic  is located  in a  prime location. But consider this, this is a prime revenue  stream , the stakes can’t be changed much unless we are looking at growing consultants. The reason for this is our direct competition with hospitals, tertiary care providers , and established consultants if they do choose to visit a  primary care setup would ideally do it atleast on similar terms as with most established  corporate  hospitals. And there are a few hospitals out there who are  not looking at gaining anything from the  opd consultation component. It’s a  tough market ,  thus unless  we devise a  new model maybe even profit  sharing model could be considered, which promises larger returns once the  clinic is established  its difficult to see how this particular component can change, honestly for me  the  profit sharing model would eliminate two major problems of  community clinics ,  the  consultant  attrition and the Cash flow drying up . Another  way around it could be to review the  entire  community clinic model in terms of clinical manpower selection (growing  consultants) and have a  strategy in place there  to increase share in revenue , but of course this would come with longer break-even times, and maybe higher  marketing expenditures.

The LAB  –  i think this probably is the  king maker in the  community healthcare centre. To make the clinic setup profitable in-house investigation facilities are important.  And probably the critical factor here is reaching a  certain critical mass to make on site  batches optimal.  The  Health checkup vertical  as well as the opd will feed this. In addition it’s also important to establish the centre as a  really good competitive  path lab, and  competition just increases manifold from there. Another  problem here  is  insecurity if you are  looking  at establishing you lab as a  critical revenue earner there  will always be the  insecurity with GPs about patient poaching and this needs to be dealt  with effectively.  The  gross margins here are  around the  60 to 80% mark i think  from what  i have heard. But  then it all depends  on volumes.  I think an important  strategic decision here is  how we enter the market. We ideally  should look at reaching a  critical  number  of  clinics in a  geography / city so that a  central lab can be established and we can get some economies of scale.

The Pharmacy  – this is another very important  factor for the  primary healthcare  setup , the  in-house pharmacy the margin  here would be around the  25-32% gross. When compared to hospitals and surgical consumables  this is less. Again the  strategy ideally would be to establish the brand independent of the  clinic, as a  stand alone pharmacy. Again the  model would gain from a  centralized purchase department, to gain from economies of scale. However external factors such  as the DPCO if they are to be implemented stringently would affect our margins further  here, both in terms of negotiation abilities as well as  margins .

The referral revenue – This is specially applicable to primary setups linked  with corporate hospitals where a  certain revenue inflow  occurs from patient  referral and conversion

It makes  me wonder why other  corporate giants don’t entre this arena. It seems to be profitable, and  im certain the capital expenditure associated is comparatively negligible. I mean it’s just the  Land / property cost associated and most diagnostic machineries now are  available on the consumables model thus decreasing the  basic cap ex required.  The associated operation expenditure  is similar to hospital opds in   terms  of proportioning costs on scales. But then consider this most marketing departments  from corporate hospitals are ready to support primary care setups, for star referral doctors.  They are  willing to provide  free consultations in lieu for conversions, then must primary care setups for hospitals be considered as separate cost units. Could they be an extension of marketing activities  outreach community setups . Just a  thought need to look at  the financials of this.

Another  solution to the  primary care setup would be the  PPP model and I think this has been discussed before. However  most  corporates would be a  little  apprehensive about the pricing with PPP models and the  SE stratum they would be targeting might differ. Though the  volumes would definitely increase and the associated costs will decrease as associated  land / rent costs will be removed. But then again wont the mid ranged primary care setup models like the  Aushadhi  / med plus mode in AP gain from such an association.

Well lets see what the future holds  for us here, but primary care definitely needs some good effective players the gap between demand and supply is enormous and  not just that  ,  I personally feel that honest ,  transparent primary care  setups  could gain loads from a highly knowledgeable  and aware  middle class population who  would love to be associated with quality primary care brand , where  there  is continuity of care and honest  and transparent referral pathways  for when  secondary and tertiary care is required.


The views expressed in this  post are my own and  are  not meant to be derogatory  to any institution or organisation. These are just my thoughts and  these are open for further  discussion and  development. Please do comment and  share and  lets get some universal cognition into this. Thank you for your patience and  tolerance.