An oyo model for hospital beds!April 9, 2019
The healthcare industry has entered a phase which will be characterised by unprecedented opportunities for the growth for affordable healthcare service offerings. Even while the government aspires to strengthen the public delivery system, it is certain that much of the emerging demand will have to be met by the private sector. At the same time, it will not be wrong to say that, barring a few exceptions, quality affordable care models do not exist in India. One of the key reasons for this has been the intrinsic belief by the incumbent class that we are highly cost-effective compared to the global context, which, in my view, has little relevance as a justification. However, things are poised to change, given the irreversibility of public demand, policy direction and a shift in payer profile to the institutional from the individual. Given this context, the following could emerge as the key imperatives and responses from industry in the times to come:
1. Adopting design to cost method: In my observation, one key reason for despair among providers with the emerging price expectations of mass healthcare schemes is rooted in their approach to find a solution through what I call a performance-plus model, i.e., an incremental improvement over the current state. However, what they need is a holistic approach that aims to redesign the capex and opex model to achieve the target cost of delivery. This is called the Design-to-Cost approach, which has been prevalent for long in the manufacturing and automotive industries. This will entail fixing the total cost of delivery first and then evolving an optimal cost structure of fixed and variable costs. It will be based on first-principle analysis (not accepted industry norms) to rationalise layout design, human resource, material consumption and medical technology, formulary design, backed by an unrelenting focus on buying efficiency and commercial excellence, and clinical excellence.
2. Volume will be King: Economies of scale and asset sweating will be a critical enabler for managing efficiency. Capacity planning and dynamic pricing models (driven by available capacities), akin to the hospitality industry, will become increasingly relevant for healthcare industry. The economic unit size for a multi-speciality tertiary care hospital will move closer to 1,000 beds from the current levels of 250-300 beds, even though capacity phasing during ramp up will have to be planned with much greater care than is typically done at present.
3. OYO model for hospital beds: The kind of efficiency that will be needed in the future will not lend itself to the high quantum of unutilised capacities that exists on an average, even for well-managed hospitals, owing to demand variability. It is quite likely that we will witness in the not-so-distant future a capacity aggregator model like OYO, which will possibly be an intermediary between patients and providers and payers to best leverage the capacity utilisation agenda of the providers for optimum benefit to patients and payers. This is not as impractical as it may seem at first glance. Barring a small percentage (less than 10 percent) of procedures, clinician stickiness will come down further within the mass healthcare space as the credibility of empanelled hospitals gain ground with time.
The author has long-standing association with EY India but the views are strictly personal.