Narayana Hrudayalaya Ltd

I have tried to summarize key points based on what I have seen in the hospital sector. These are broad points which includes some softer aspect to give insights:

1.First established multispecialty hospital in a city will have significant moat in attracting patients. Main reason being the trust of that particular hospital gained over decades of service and is difficult for the new competitor to replace it. Many patients and relatives keep coming to the particular hospital because someone known to them was treated and recovered in that hospital even if it’s more than a decade back. This happens despite the same specialty being available in some other hospital near to them which was not existent earlier. Even for the same level of service and specialty doctor the existing one is preferred even at slightly higher cost. The feeling that someone known to them recovered in a particular hospital and trust has an ever lasting impact on people and probably the greatest moat.

2. Longer the hospital is functioning, the better will be its revenue and margins as they can keep on expanding their capabilities like , oncology, higher radiology services, specific surgical capabilties like organ transplants, robotic surgeries etc. As the hospital expands these superspeciality services, the revenue per patients and margins improve with limited additional investment.

3. Mix of patients in terms of paying: Best is to have a private insurance patients pool as the money is guaranteed on time and there are standard payment terms with the insured. Also standard hospital rates are defined and the patient knows what will be their share in paying. Hospital charges are highest for cash patients but the problem is at least 5% of cash patients do not pay the full amount and the hospital has to let go a reasonable amount for such cases under various circumstances like death/influential calls from local leaders/politicians.

4. Mix of surgical vs medical patients. In general higher the number of surgical mix better the profitability of hospitals. As cost of operation and associated charges like OT charges, radiology imaging before surgery etc… are much higher per bed compared to patients undergoing only medical treatment. If the occupancy of such a hospital improves the operating leverage is significantly higher as fixed cost of operation theater/pre and post op care is better absorbed.

5. Typically hospitals agree for most of the Govt schemes like ECHS,CGHS etc in the beginning as it helps them to cover certain basic costs. It also helps to gain good will among patients over the years as the family members/friends of such scheme patients will start availing the particular hospital services and increasing occupancy. Govt schemes come with their own risk of increasing receivables, significantly less consultation fee/operation fee impacting margins. As occupancy of a particular hospital reaches around 70%, typically hospitals will start to withdraw from Govt schemes. This helps in freeing up sufficient beds for other patients and increases average revenue per patient. The consultation fee and other charges for a private patient is 10-20 times higher compared to Govt schemes. This may lead to some drop in occupancy for particular hospitals in the short term but the ARPOB are much much higher for a pvt patient compared to Govt scheme. It also helps in reducing receivables, reduction in manpower employed in Govt insurance desk, lesser requirement of healthcare workers as overall no of patients comes down but with much better profitability.

6. Hospital with optimum ALOS. In general the maximum billing for any patient happens during the first few days of hospital admission. Initial evaluation including lab tests, radiology investigations and critical therapeutic intervention happens during the first 1-4 days. After that it’s generally the ongoing maintenance therapy of the initial plan and revenue per patient per day drops after 3-4 days. It’s better to look for hospitals with ALOS of 3-4 days. It also indicates how efficient the hospital system is in terms of quick admission, evaluation, treatment and discharge process and dealing with insurance companies for quick discharge. Reducing ALOS less than 3 days in multispecialty hospitals is practically impossible as the number of sicker patients, superspeciality, and complex surgical treatment increases.

7. Presence of long serving doctors who can get more patients to hospitals on their own. Impact of it is more in particular surgeons/gynecologists. Obviously patients do prefer to go under knife with the same surgeon who has done it successfully in the past for them or relatives.
   One of the key things to look at is retention of consultants by hospitals. If the same consultant remains to work with the same hospital for a longer time of more than 5/10yrs it brings a lot of repeat patients. The time and efforts required spent in evaluating known patients with readily available past history is lesser than a new case. Probably this is one of the key but ignored question to ask in company concalls.

8. Presence of DrNB educational program in hospital.It makes the particular medical fraternity of the hospital to be updated about ongoing changes in the medical field and improve the care of patients. It also gives the hospital administration adequate junior level doctors to work during their training period. Generally if some of the junior doctors are good during their training period will be absorbed into the unit as they complete the degree.

9. International patient mix; Higher mix of international patients bring higher revenue and better profitability. Generally international patients come to India for superspeciality care like Oncosurgery, Organ transplantation etc… The cost of the same is higher by ~25% compared to domestic patients helping in better revenue and margins for hospitals.
   Disc: currently not invested in hospital stocks.