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.