Can Insurance Plans Replicate the Pull of Reputable Doctors?
The Indian healthcare industry is a mammoth. Valued at $372 billion by the end of 2023, the sector grew with a CAGR of 19% since 2016.
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This week on Eximius Echo, we delve into a transformative shift in India’s healthcare ecosystem: the evolving role of insurance in patient acquisition. While doctors have long been the cornerstone of hospital growth, increasing patient awareness and the demand for convenience are reshaping this dynamic.
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The Indian healthcare industry is a mammoth. Valued at $372 billion by the end of 2023, the sector grew with a CAGR of 19% since 2016. In addition to being one of the largest sectors in the country, the healthcare industry also employs 7.5 million people across the country making it one of the largest employers in the country. This stature is owed to the ubiquitous need that healthcare resolves for people around the country. With just the quotient of annual out-patient appointments in India exceeding 4 billion, the industry caters to large swathes of people all year-around through its massive infrastructure.
Hospitals play a critical part in the healthcare ecosystem. Due to their unique position as the key point of contact with patients, they are a segment worth ~$99 billion that is projected to reach $193.6 billion by 2032. Today, India has nearly 70,000 hospitals with over 800,000 beds. However, as the quotient of hospitals has improved, so has the competition.
Hospitals around the country are constantly updating their infrastructure to provide the best-in-class care and differentiate themselves.
With greater choice, patients are far more prudent in finding the best institutions to avail healthcare from. To bring in patients, hospitals have always overwhelmingly turned to one key channel – doctors. For decades, doctors’ reputations have been taken as been the biggest pull factor for patients. However, as patient awareness around the country increases in conjunction with their disposable income, hospitals are exploring a new channel for pulling in patients. In this edition of Eximius Echo, we will cover how distribution for hospitals is already poised for a major change.
Why are doctors so important in the first place?
A private hospital typically expends 50% of its operational costs on just medical staff salaries, predominantly doctors. The expenditure on doctors is this high not just due to the care they dispense, but also the quotient patients they bring to the table. Quality doctors tend to become indispensable brands for hospitals which inspires patient confidence and enhances the institution’s reputation. As per a survey from BCG in India, the medical expertise offered by hospitals is the most important parameter for patients to gauge satisfaction, with a third deeming it paramount. Further, 60% of respondents considered the doctor’s reputation as the biggest factor in selecting which hospital to solicit treatment from.
Given that a hospital generates its highest margins from complicated procedures and surgeries (surgical services at most institutions represents more than 60% of total revenue), having renowned physicians in those departments tends to also increase patient inflow for those procedures. Thus, a hospital’s margins are also directly linked to the kind of doctors they boast as personnel.
Moreover, esteemed doctors, especially from large chains, tend to run their own consultation practices as well which ends up being a notable channel for referring patients to the hospital and generating in-patient leads.
Therefore, doctors play a critical part in hospitals enhancing their distribution. However, hiring esteemed personnel tends to be quite expensive. Moreover, as patient behaviour evolves, hospitals scour for new wedges to differentiate themselves and broaden their appeal.
Is Insurance the new wedge?
Hospitals are turning to insurance for two key reasons – mitigating patients’ expenditure and enhancing convenience.
Elaborating on the former first, while out-of-pocket (OOP) expenditure in India has seen a decline, 40% of the total healthcare spend is still OOP. Insurance can act as a respite in these cases to ease the financial burden on patients and increase their propensity for seeking care. Thus, institutions have begun focussing on being empanelled in as many schemes as possible to optimise their accessibility. Further, hospitals, especially larger chains, also tend to actively partner with providers to design customised plans and provide additional perks (like free check-ups) to make the package more lucrative for customers.
Insurance also tends to make seeking care a more seamless process. As the insurance industry is rapidly moving towards cashless payments and other conveniences to entice people, insurance providers and healthcare providers are looking to device new incentives to make the entire process as convenient as possible. This shift is important as pricing and process efficiency is the second most important parameter for patients for deciding their degree of satisfaction with a hospital, only marginally behind the quality of treatment.
A key example of this newfound philosophy is ADITI by Narayana Health. With this policy, the first hospital-owned insurance plan in the country, Narayana provides a Rs 1 crore coverage for surgeries and Rs 5 lakh for non-surgical treatments at any of their hospitals. In addition to the coverage, they offer a free annual health check-up and no initial and specific disease/treatment waiting period to make the package more convenient.
Thus, in addition to having the best personnel, hospitals are now focussing on being covered in as many policies as possible and creating their own customised offerings to leverage their ecosystem and provide a distinguished service to patients.
What is the way forward?
Propelled by policy tailwinds, this shift indicates a rising conscientiousness towards customer experience. With health insurance penetration actually witnessing a dip for the second successive year, there is going to be a greater push to make policies more accessible for customers.
With 400 million people in the country still not availing health insurance, these policies will be calibrated to making insurance more enticing for patients around the country. This is where hospitals can start to set themselves apart.
This trend will be particularly notable in Tier-1 regions due to relatively better insurance penetration and the presence of a younger clientele that is more abreast with technology and the convenience it brings.
Further, by granting Narayana Health Insurance the status of a standalone health insurance player, the administration has shown its intent on encouraging innovation in this segment. This will open up a new channel for hospital chains in particular to create policies centred on their bespoke ecosystems.
Therefore, insurance is set to play a key role in how patients interact with healthcare providers and avail their services. Hence, it is important for them to adapt and embrace this landscape shift.
Conclusion
India has a massive healthcare infrastructure that features 70,000 hospitals and 800,000 beds to serve a population of 1.4 billion.
While these institutions have historically emphasised on doctors and their repute to bring in patients, policy shifts and an evolving customer segment have led them to focus on insurance to differentiate themselves. As the focus on convenience and patient experience increases, we expect insurance to emerge as a new channel for hospitals to attract patients. It is important to note that while insurance is poised to emerge as a key wedge, the appeal of doctors will remain as resilient as ever. However, whenever patients are deciding between hospitals/doctors of similar repute, seamless insurance plans can emerge as a key deciding factor.
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