'We take care of our car better than our health'

Shivinder Mohan Singh, the managing director of Fortis Healthcare, is best known for his attempt to do a McDonald's in healthcare - large in scale and low in prices.

The chain started from Mohali (in Punjab) in 2001. Over the years, it has bought hospitals (Escorts Heart Institute and Wockhardt Hospitals) and put up new ones across the country. That has helped Singh to build the country's second-largest hospital chain with over 5,000 beds.

The ambition is to occupy the top slot in double quick time. The Singh family, of course, is flush with funds, having sold its stake in Ranbaxy to Daiichi Sankyo of Japan last year for almost Rs 10,000 crore (Rs 100 billion). Singh tells Vandana Gombar and Joe C Mathew about the Fortis business model as it has evolved over time and the road ahead.

What should be the healthcare mantra for India - free healthcare for all or affordable healthcare for all?

I don't think as a country we can afford to give everybody free healthcare. We don't need to pay to provide healthcare to people who can pay for it themselves. However, we should provide for the bottom 30 to 40 per cent of the population. There is another downside to free healthcare - the lack of accountability. If you are totally taken care of by the government, you have no incentive to take care of your own health. I find the least responsibility that we take as citizens is towards our health. We take care of our car better than we take care of our health.

Why is the supply of healthcare so limited?

One of the biggest impediments is the lack of doctors. I will be able to find the money, and also be able to find the competence to build the infrastructure for healthcare in remote locations. I may, however, not find the clinical competence to run the facility. We produce some 24,000 to 32,000 doctors a year, while we need 100,000.

Where does Fortis  position itself in this broad picture?

We started off by being a hospital at the higher end. Now we are trying to move towards a larger addressable market. We have to deliver service equal to what is available in the world, and we have to do it at a lower cost.

When did lower cost enter the equation, and why?

Lower cost enters the equation because we live in India. We are the lowest-cost providers of healthcare in the world. Even then, large sections of Indian population cannot afford the cost, even if it is the cheapest in the world. It is the same case as in telecom and automobile. Apart from that, healthcare is a local business so we have to provide affordable healthcare close to where people reside.

So you revamped your original business model of catering to the top end of the population? You now want to be cheaper?

Our intention has always been to provide value-for-money services. We are clear that our business centres around patients and everything we do is designed around their benefit and care.

How much has your market grown in the last eight years?

The history is interesting. When we got into the business, we did some research and came to the conclusion that about 7 per cent of the population could afford the price points that we were starting with. In India, that is a fairly large number. Our business model included an 8 to 10 per cent increase in prices on an annual basis.

However, when we started, I didn't see the top 7 per cent at Mohali. I didn't see any Mercedes getting into my driveway, but I saw a lot of people coming in rickshaws, Fiats, Ambassadors and Maruti Suzukis.

Neither did I feel the need to increase prices. If you take into account inflation, my prices in Mohali are lower than what they were eight years ago. We are very clear that we don't want to be sitting out there and saying: We are the best, we are the most expensive, please come to us.

What do you want to tell your prospective customers?

We are the best. Please come to us. Price will not be an issue.

So what is the addressable market for you today?

Our study done a couple of years ago showed that we are actually getting people in the top 30 to 40 per cent. This is a lot more than we imagined we would get, though there is a bit of a catch here.

The people who come cannot necessarily afford the treatment, though they manage by selling land or other assets. What that tells me is that one, there is a need for quality healthcare; two, we need to find funding models for people who don't have the ability to finance it themselves; and three, we have to drive down costs. If our healthcare model survives on our customer being in debt, we are not going to last very long.

What should be the financing model? Does Fortis plan to get into financing?

Financing is a different business. We are very focused on what we want to do and that is providing quality healthcare, while keeping our price points in check.

This business in itself can spin off 20 to 30 businesses. We are in healthcare, diagnostics, drug retail and insurance. To my mind, that is a complete portfolio and there is no plan for further diversification.

In the last quarter, Fortis reported a 20 per cent increase in income. What is fuelling your numbers?

Occupancy is not a number that drives business for us. What is relevant are two numbers derived from occupancy - one is average revenue per occupied bed (ARPOB), which is similar to ARPU (average revenue per user) in telecom, and the other is length of stay or LoS.

Most of the increase has come from the ARPOB going up as the LoS goes down, even though the number of beds has not gone up. Escorts at a point of time had an LoS of 7.2 days. For the last financial year, we were at 6.4 days. We are now targeting to be less than five days this year.

For the next year, we expect that with increased scale and size, we shall grow at a rate that is at least twice that of the healthcare market and expect to improve our ROCE (return on capital employed) to 15 per cent through operating and capital efficiencies as well as evolving our network.

So that is how you managed the turnaround at Escorts?

That was done through efficiencies. The departure of the earlier leadership was a blessing in disguise because it paved the way to turning around the system. It would never have been managed if it ran the same way as before.

Are you are looking at serious competition emerging in and around Delhi?

I find it difficult to believe that multiple players can come in and exist. I think it is very difficult for a new player to set up shop and survive, and that is a comment we have been making for the last couple of years. There are a lot of big established players in Delhi, so to unseat them and just come up would be challenging.

Mergers are not easy to digest. What has been your experience?

I agree that mergers and acquisitions are a challenge, but I think in the context of healthcare, acquisitions tend to be easier since we are actually taking up islands of self-contained institutions. When I pick up a hospital in Chennai and put it under the Fortis umbrella, the lives of those working there don't get impacted. They still run a hospital. There is no job insecurity in our kind of acquisitions.

Are you still looking for acquisitions?

Yes. Our target is to get to 6,000 beds by 2012.

How active is your elder brother (Malvinder Mohan Singh) in the management of the hospital? Do you have any difference of opinion?

I am the managing director of the hospital business and Malvinder is the group chairman. Obviously, we have differences of opinion and these are democratically resolved. There are some calls that by virtue of my responsibility I take, and there are some he takes.

Are investors concerned about the equation between the both of you?

When the Ambani brothers' split happened in 2005, a lot of people asked how we are different. Nobody has asked about our relationship in the last couple of years. I don't think it is an issue for investors.