Service providers must seize the opportunity Indian hospitals are creating

Indian healthcare has been undergoing a significant transformation due to the Ayushman Bharat Digital Mission (ABDM), which we have discussed in our previous viewpoints. The ABDM has been pressing the healthcare sector to update itself with better infrastructure, use digital technologies like telehealth, standardize pricing, and integrate insurance. One effect has been mergers and acquisitions (M&A) across different hospitals. The surge in M&A activity is a response to the opportunities and challenges ABDM presents, such as accessibility, efficiency, and interoperability. The current M&A trend has increased opportunities for IT service providers within the healthcare services domain, emphasizing the strategic integration of technology to drive efficiency, innovation, and patient-centric care.

Hospitals have been following a dual strategy to cement market dominance

The hospital sector is experiencing the need for high capital expenditure (capex) for expansion and diversification. Due to high costs and space constraints in metros, there’s a shift toward smaller facilities in Tier 2 and 3 cities. Hospital chains in India use a dual strategy by combining regional consolidation and expansion across Tier 2 and 3 cities. This approach enables them to solidify their market presence in areas where they already have a strong foothold while tapping into smaller urban centers’ untapped potential, saving capex and allowing slow expansion to other regions.

These Tier 2 and 3 cities, including Nashik, Indore, Visakhapatnam, Ranchi, Jaipur, Mohali, Surat, and Dehradun, offer unique advantages such as the intensity of competition and real estate costs are considerably lower than those of the metros. For instance, the Manipal hospital chain has a stronghold in the Bangalore region and intends to replicate it with expansion across Tier 2 cities. The news recently reported that it plans to buy Medica to expand its footprint in eastern India and across Tier 2 and 3 cities. Exhibit 1 describes a few other examples.

Exhibit 1: A sample of hospital chains with strong regional presence in different areas of India that have been trying to acquire hospitals in Tier 2 and 3 cities

Source: HFS Research, 2024

The strategic shift toward having a regional stronghold serves multiple purposes:

• Focus on core markets: By consolidating operations in regions with a strong presence of established healthcare infrastructure or high patient demand, hospitals can optimize resources and enhance care quality.
• Localized healthcare delivery: By acquiring smaller hospitals, the hospitals can tailor their services to meet the local population’s health needs and cultural preferences, enhancing patient care and satisfaction.
• Operational efficiency: Reducing presence in less profitable or competitive regions allows hospital chains to streamline operations and reduce overhead costs.

India’s healthcare system has a long way to go toward equitable and efficient care

India has nearly 70,000 operational hospitals, 63% privately owned; the remaining 37% are government owned. The World Health Organization (WHO) recommends three beds per 1,000 people. India’s bed-to-population ratio is 1.3/1,000 (private and public hospitals included), with a 1.7/1,000 population deficit. Exhibit 2 compares the metric across different geographies. India has the lowest number of beds and doctors per person and the highest out-of-pocket expenditure, as depicted in Exhibit 2.

Exhibit 2: India’s healthcare metrics lag significantly behind other countries

Data: WHO, Niti Aayog, Knight Frank research
Source: HFS Research, 2024

India needs a public-private partnership (PPP) model to achieve the desired outcome, with public and private hospitals working together to solve its healthcare problems. The private sector, which accounts for a significant portion of India’s healthcare landscape, is crucial considering its access to better innovative labs, equipment, and technologies to support patient care. For example, the All India Institute of Medical Sciences (AIIMS), the best hospital in the government sector, has been guiding another state hospital on digitalization.

Additionally, IT healthcare service provider firms need to partner with this chain of hospitals. Through planning, investment, and the adoption of innovative healthcare delivery models, India’s healthcare system can become accessible across the population, affordable, and equitable for its entire population.

Technology is a critical element of enhanced healthcare delivery

Adopting more technology is vital for transforming India’s healthcare ecosystem. With India being so big, accessing people across the entire country is impossible with older technologies. Newer digital health technology is addressing this problem. Digital health technologies like telemedicine and mobile health platforms are reaching remote and underserved populations, solving the issue. Many private hospital chains have started digitalizing the hospital process, such as appointments, diagnostic services, and inpatient and outpatient services. Exhibit 3 provides a few examples.

Exhibit 3: Most private hospital chains have begun using digital technology, but they can do much more

Source: HFS Research, 2024

Most hospitals in India are small and have limited facilities for inpatient care, emergency rooms, and patient beds. Only 140 Indian hospitals have robotic surgery systems. Bigger hospital chains have adopted newer trends and a platform-centric approach for all their needs.

With all the transformation happening across Indian hospitals, there are many opportunities for IT and BPO service providers. India’s healthcare market is growing exponentially. The Indian healthcare industry reached over $370 billion in 2022 and is expected to reach over $610 billion by 2026. The Indian population is growing at a rate of 1.6% annually, with an elderly population of more than 100 million. India has been experiencing rapid economic growth, and middle-class incomes are rising. Market penetration for health insurance providers has been increasing, supporting growth. Changing demographics and diseases linked to lifestyle choices are becoming more common. All this has led to a boom in government healthcare spending nationwide.

This growth brings many opportunities and challenges, which could be business opportunities for these providers. Even if many private hospital chains have started digitalizing the hospital process and systems, a considerable opportunity exists for information tech service providers to enter the market in partnership before others grab the growth pie in the sector.

Exhibit 4 shows the breadth of services that IT and BPO healthcare services firms can provide in the evolving healthcare landscape for the digital transformation of hospitals or M&A of hospitals. IT service providers can have a crucial role in the successful transition and growth of hospitals taking part in different parts of the value chain.

Exhibit 4: Opportunities for healthcare service providers exist across the value chain

Source: HFS Research, 2024

The Bottom Line: India’s healthcare system is on a transformative journey driven by strategic partnerships between healthcare service providers and hospitals to digitalize, innovate, and revolutionize the ecosystem.

Collaboration between hospital systems and IT service providers is crucial to supporting India’s growing healthcare needs. Improving the Indian healthcare system requires pursuing three aims: improving the patient experience, improving the health of populations, and reducing per capita healthcare costs. Alliances between Indian hospital systems and information technology providers can offer tangible benefits to all participants while driving progress toward the triple aim of care. By working together closely, stakeholders stand to reap rewards such as improved patient experiences, better outcomes, sustained advancement, and financial benefits.