Health And Medical Insurance

Why the Private Equity in Healthcare Services is Growing in India?

Last updated on November 13th, 2022 at 10:13 am

India’s (Private Equity) private healthcare sector is experiencing rapid growth due to the perception of relatively good quality treatment vis-à-vis largely poor public healthcare services.

Why the Private Healthcare Growing?

Healthcare is one of the largest sectors in India. The Indian healthcare sector is growing rapidly due to increasing coverage, breadth of services, expenditure by public and private players, and the growing demand for good quality healthcare.

The industry primarily comprises hospitals, health insurance, pharmaceuticals, medical devices, and diagnostics, of which the hospital sector accounts for about 70% of the total market. Top-of-the-line offerings in Indian healthcare are cost-competitive vis-à-vis its peers in developed countries and the quality of diagnosis and treatment is on par.

Public vs Private Healthcare in India

The public healthcare system largely comprises primary and secondary centres, with predominantly private high-quality tertiary care institutions in metros and big cities. India’s private healthcare sector is experiencing rapid growth due to the perception of relatively good quality treatment vis-à-vis largely poor public healthcare services, due to the government’s health expenditure being staggeringly low at 1.29% of its GDP.

The Indian population has grown by approximately 13.25% from 2011 to 2020, while the total public health expenditure of the Central and state governments combined increased by only 0.39% during the same decade.According to the National Health Profile 2019, while the per capita public expenditure on health in nominal terms has gone up from `621 in 2010-11 to the current figure of `1,657, it is still abysmally low, even when compared with that of many Asian countries.

The low spending in public healthcare has effectively made the private sector fill the resulting void. According to Industry and Talent Insights Report, 2019, India’s domestic private health expenditure per capita in Purchasing Price Parity (PPP) terms is approximately three times that of public health expenditure.

Private Equity (PE) in Indian Healthcare Services

India has less than one hospital bed for every thousand people. Its elderly population, spanning both urban and rural areas, is expected to increase from the current 96 million to around 168 million by 2026, representing a significant growth in patient base, contributing to the burgeoning demand for healthcare services (UNFPA). The current situation, coupled with huge potential demand for good quality healthcare services on a massive scale, needs significant investments.

The government, sensing the need for substantial investment in healthcare, laid down policies to facilitate foreign private equity (PE) investments.

The explosive growth in demand for healthcare and lack of funds to match it by expanding facilities, buying equipment, etc., necessitates sourcing the funds through PE investments. PE investors, most of them based overseas, are attracted to invest in Indian healthcare.

A few years after such an investment, the PE firm typically seeks to exit by finding a suitable buyer to sell its investment in attractive valuations. Factors such as the opportunity to generate higher returns while improving portfolio diversification, having a significant controlling stake, high patient footfalls in the target hospitals, potential to expand hospital networks into smaller cities, etc., contribute to PE investment interest in Indian healthcare.

Summary

In summary, private equity (PE) investments are a significant boost to the healthcare sector. It is transforming the industry in addition to providing efficiency, cost-effectiveness and well-grounded patient services. However, there are concerns that PE investors may gain at the expense of patients, doctors, and other hospital staff.

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