Low cost healthcare for the great Indian middle class

Dr. Ashwin Naik co-founded a low cost chain of clinics in India to serve the healthcare needs of the semi-urban middle class

While 70% of India’s population lives in semi-urban and rural areas, 80% of India’s healthcare facilities are located in urban/metro areas. To help bridge this gap, Dr. Ashwin Naik co-founded Vaatsalya, a chain of low-cost clinics in semi-urban and rural areas designed to bring healthcare services where it is needed most. Vaatsalya is India’s first hospital network focused on Tier II (population less than 1 million) and Tier III (population less than 0.5 million) towns.  Ashwin explains the model.

A different model for healthcare delivery in India

If you look at the distribution of population, 30% of India’s population resides in urban/semi-urban areas. In that group, 10% of the population will qualify under the upper class economically and the bottom 30% will be classified as below the poverty line. We started out with a plan to cater to the middle 60% of the population and eventually reach out to the bottom 30%. Most of our customers come from the mid 60% and over the years with support from the government and other agencies we have been able to reach out to the below poverty line segment as well. We realized that this market will not be able to afford our services if we had a high priced model.

When we started the company in 2002 we did not start with a clear-cut vision but we knew that we wanted to address this particular segment of the market – tier 2 and tier 3 towns in India. From a personal point of view, we had family in these areas and knew there was demand for affordable healthcare and from a professional standpoint we knew there were doctors interested to go back and cater to these small towns but did not have the necessary support to do so. 

We looked at all the opportunities, for example, getting involved in tertiary healthcare by positioning ourselves as consultants. As it turned out, we decided that we would focus on developing a network from the ground up. But our original network model was different from what it is today. Initially our idea was to focus on preventive healthcare and day care settings. After running the pilot project for about 9 months we realized that from an employment and scaling up point of view this model needed changing. Around the same time we got Aavishkar as our angel investor and they helped us think through some of these challenges. The model we finalized was that we will focus on tier 2 and 3 towns – any town which has a population of more than 250,000 and where there is gap in the delivery of critical healthcare. We established our first hospitals in North Karnataka (a south Indian state) in 2005 and 2006. During this time we studied the model and saw it grow. In 2007-8 we expanded to other parts of Karnataka and now we are looking to expand to 3 more Indian states.

Business model

On the investment side we only invest in services which have high utilization capacity.  These are services that are routinely required by the local population.  We don’t invest in highly specialized services like neurosurgery and cardiology. The services have to be relevant to at least 60% of the population, such as maternity, pediatrics, general surgery, and general medicine so on. We also keep our investments very focused in the sense that we’ll invest in the best equipment for critical care needs but for non-critical aspects we take a no frills approach, for example, not using air conditioning.

On the operations side we focus on high utilization, keeping a lean cost structure and working closely with the local doctors.  To illustrate, large metro hospitals on average invest about 5 million INR per bed. There also is a new trend where big hospital chains have clinics in smaller towns where they invest 1.5-2 million INR per bed. But our ticket size is 300,000-400,000 INR per bed. More importantly we have to see how it translates as a cost to the customer. For example if we are able to charge 5,000-6,000 rupees for a normal delivery the same service might cost 15,000-20,000 rupees in a bigger hospital.

Risks and challenges

The challenges we faced included market risk, employment issues and financial risk.  In terms of market risk we were not sure if there was an opportunity for branded healthcare as most private healthcare in India was run locally. Regarding employment we were not certain if doctors were prepared to work with us. Traditionally in small towns doctors are not used to working with a third party; they tend to have their own clinics.  Finally there was financial risk: we weren’t certain if people were prepared to pay for these types of services.  Those were the main risk factors we faced initially.  In addition, we had to find funding.  Firstly we raised money from non-resident Indian professionals who have their roots in small towns. They related to the business on an emotional level. They gave us seed money for the pilot. Subsequently we got funded by investors and right now we are close to another round of funding.

Healthcare in India – emerging trends

I think that there are inherent challenges in the way healthcare in India is structured. The traditional model of creating hospitals at every level is not possible simply because of the size of the country. So we have to depend on alternatives like telemedicine and m-health. We hope to see these technologies emerge in the next 5 to 10 years. But the larger question is who will pay for these services.  Insurance providers will need to be involved because they have an interest in avoiding the cost of hospital stays.  

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