The Takeover Saga
Jayata Sharma suggests how to choose a sick hospital and successfully manage it.
Study the Market
This is the first step towards any takeover bid. A thorough market research of location, paying population, paying capacity, prevalence of permanent diseases and conveyance form a part of this study. The size of the paying population will decide the level of quality a hospital can offer. Additional points to be considered are whether the market is middle-segment or upper-segment and whether people are ready to spend on value-add. The bed strength must be adjusted to the surrounding population. “Also, it is vital to find out the opportunities in the location, whether there is any deficit of good facilities, if any set-up can be improved to fit the bill,” says Vishal Bali, CEO, Wockhardt Hospitals Group.
|“It is vital to find out whether there is any deficit of good facilities in the target location”
– Vishal Bali
Wockhardt Hospitals Group
Not just people, location of other healthcare set-ups too is significant. If there are four medical colleges surrounding a corporate hospital, the hospital is bound to lose on patients, as the colleges will provide the same treatment at a much lower cost. This is precisely what is happening in Mangalore, which is why it is not a preferred location for corporates.
Both clinical and non-clinical talent of the hospital to be taken over must be looked into. Often there is a dearth of qualified doctors and support staff. Training the staff will help in such a situation. “It helps to find out the level of commitment amongst the staff, also what is their goal and mission, understand the strength and weaknesses, their synchronisation with the management and vice versa,” says Dr Alok Roy, Chairman and MD, MedicaSynergie, a hospital consultancy. At the Wockhardt Heart Hospital in Nagpur, there were already qualified cardiologists, clinicians, plus an interventional radiologist, when the group took over Ekvira Hospital. “Hence, we decided to retain them and just brought in cardiac surgeons, as there was a dearth of those,” says PK Davison, General Manager, Kamineni Wockhardt Hospital, Hyderabad, who was then the Centre Head for the Nagpur hospital.
A 120-bed hospital in the US for the previous five years had averaged a loss of $11,000 per year. “In one year we were able to generate a $1.6 million profit by recruiting more specialist physicians, implementing an aggressive and focused strategy as to insurance contracting by either terminating or re-negotiating low margin contracts and seeking new, higher margin contracts and by implementing strong financial and quality controls, thereby creating a culture of accountability and professionalism,” informs Randall D Arlett, President and Managing Director, American Hospital Management Company, a US-based hospital consultancy.
Also, self centered individuals, egos and politicians will have to be identified and quarantined.
Customer is King
Experts advise going back to the drawing board and strategising again, working on the customer base and evaluating their expectations. As it is difficult to change customer perceptions, intense marketing and branding exercises are required. Free camps can help in the initial stages to attract patients.
Understanding the culture and deficiencies of the target market is crucial. Let’s take the example of Wockhardt Hospital in Nagpur again, where the paying population is of middle-class people. This is the reason why thorough costing was done and the price was reduced for procedures like angiography to Rs 8,000 from the normal Rs 12,000 other hospitals in the vicinity were charging. “We arrived with a quality set-up and then offered a lower price, which helped us attract patients,” explains Davison. Another example can be of Fortis Healthcare Ltd, which took over Dr LH Hiranandani Hospital at Navi Mumbai recently. The paying population in that location is of upper-middle class and businessmen, which gives that extra edge to retain the prices. After upgrading the facilities, they may hike their prices too, which they feel people will readily pay.
Count the Money
A hospital must be reviewed financially as well. If it is not doing well financially, one needs to look at which period of the cycle it is in, is it an old or a new set-up? “As hospitals have longer gestational periods, the financial progress can be understood by finding out in which line it is. This helps in finding out how much time the group will take to break even and eventually profit,” says Daljit Singh, President, Strategy and Organisational Development, Fortis Healthcare.
It is also necessary to renovate the existing building infrastructure a bit, internally plus externally. It can vary from organisation to organisation. Wockhardt requires at least 1,00,000 sq ft of space to set up a multi-speciality hospital. However, when acquiring so much land in Nagpur was not possible, they settled for a smaller set-up of 65 beds and made it into a cardiac speciality at the start. This ensures that the market is captured and the people there know about the standards and quality of care. Now, when Wockhardt is launching another super-speciality hospital in Nagpur, they will face no difficulty in capturing the market further! In fact, when people cannot spend more than a stipulated amount, they can even go in for acquiring nursing homes in smaller locations. Col AK Singh, Founder, Medi Contrivers, a hospital consultancy, has taken over two-three nursing homes at different locations in Patna and has developed them into single speciality 35-40 bed hospitals, which are all reaping benefits of Rs 5-6 lakh annually. “In addition, care must be taken to select a hospital whose infrastructure and building is such that it can be renovated easily without causing much harm to the whole structure,” says Bali.
No Strings Attached
A hospital must be free from any major legal hassles, mainly regarding the land it occupies. While taking over, the group must take care that they have total control over the management. This assures a free hand and quality initiatives. Due diligence plays a major part here and care must be taken to find out all the past and present perceptions and all the financial deals the hospital has been involved in, including loans, purchase of machinery, the hospital’s policies etc. Most industry experts prefer hospitals with a glorious past. “Reputation, brand and trust of people is of utmost importance while selecting a hospital for takeover,” says Singh.
The main challenge is to change the mindset of people who have been working with the hospital for a long time. They are used to working in their own style and have made a comfort zone, which with new management style sees danger, hence the resistance to change. Also, a lack of commitment from the top management is seen in such organisations. Given the nature of the healthcare business, it is equally important for the hospital to have a work culture which is completely focused on the patient and continuously delivers clinical excellence. “To achieve this, it is important to change employee mindsets. They have to move to a culture which is transparent, ethical, objective driven, open to feedback and courageous enough to take the right decisions at all times. An empowered environment with sufficient freedom to professionals at all levels,” advices R Basil, CEO and MD, Manipal Health Systems, Bangalore.