When I start my discussions and interactions with promoters, investors and senior managers in the hospital industry, one of the first requests that I make is to shed some light on their strategy for the next 3 or 5 years. In case we are discussing a new project, I request for a strategy and business plan. Shockingly! In most cases they don’t have a clue. Half of them don’t even know what we are talking about and those that are aware lament the fact that they just lack the band width “to do strategy”. In case of investors I am met with a sense of frustration as they are not able to get this level of granularity from the management/ promoters of entities where they have interest.
The next question that I pose is: Who is doing the strategic thinking in your organisation? Usually the conversation now comes to an awkward pause!
What I am asking for is not rocket science, so what are the reasons that this main lynchpin of successful business growth is missing from the hospital industry? The six main reasons that I can think of are:
- Financial pressure
- Investor pressure
- Lack of awareness
- Lack of knowhow
- Lack of expertise
- “We know it all” mindset
Most people are unaware of the financials of a hospital. I will attempt to provide a “back of the envelope” calculation of financials in order for us to properly appreciate the monetary pressure that a hospital operator works under:
This is just an illustration of some very basic financials for a 100-bedded hospital in India to make a point and is by no means to be taken as a complete financial analysis.These basic calculations reveal that in the first 2 years the hospital needs to make at least 4 crores per month to be able to handle their operating expenses and service their debt. So, from day 1 the hospital CEO is looking for at least 135 to 150 admissions per month. That is serious pressure!
This serious pressure which will further increase from the third year when the moratorium from the bank will expire. The EMI to the bank would immediately double.
This financial pressure is one of the prime reasons that strategic thinking never starts in the hospital. From day 1 they are under pressure. One of my favourite cautions for people wanting to start a hospital is to plan, plan, plan-essential for survival later.
As mentioned earlier there is serious interest from the investor community in the hospital market and a considerable amount of investment has happened in the last decade. These fund managers have their own agenda which is to maximise returns on investment in the fixed time period of time that they have for the investment. Hence for them time is essential as they have a window period of usually 5 years in which they are looking at a minimum 3X return, which is highly unlikely in the hospital industry. Hence, they put tremendous pressure on the management and promoters which results in knee jerk short term thinking vis a vis long term strategic thinking. My usual advice to investors who are keen on hospital investments is to increase their window of investment to 7 years which then provides adequate time for the new “pipelines” to mature and provide the requisite value.
Lack of Awareness
As I said earlier because of the attractiveness of the sector, there are different kinds of people who are interested in starting hospitals but most are completely unaware of the nuances of the business or how it works. They look for advice from their doctor friends and Chartered accountants who themselves have no clue. It isa common but erroneous assumption that if the promoters are doctors they would have complete knowledge and knowhow of operating hospitals. Unfortunately, that is not true. Most doctors have little understanding of strategy, business growth and operations of hospitals. They acquire knowledge by learning from their mistakes over a period of time. There have been many instances when I have been approached by Chartered accountants and architects to help them plan the interiors of the hospital or run the hospital. When I ask them some basic questions: Do you have a business plan? What medical specialities will you be offering? Who are you targeting? What is your doctor acquisition plan?
They not only have no answer but also never come back!
Lack of Know How
Recently I was in a discussion with a couple of doctors who have built the infrastructure of a 300 bedded hospital in one of the metros. They were expecting to be operational in a month. Subsequent to my site visit of the hospitals I estimated that in best case scenario they were at least 6 months away from being operational. The building was not finished, building utilities were not operational, the medical equipment was not installed, there was no staff recruited, no plan.
They had hired a consulting firm who had little expertise or experience but were “cheap”. During our discussions, they realised the extent of their lack of knowledge on starting the hospital or managing it. And these were senior doctors having more than 30 years of practice. They also realised that those cheap consultants were going to prove to be very expensive in the long run.
A lot of people just don’t know enough about hospitals their operations leave alone developing strategies on developing business. So they go by the traditional way of growing business- buy it!
Lack of Expertise
Those of us who have had some experience of running hospitals realise that presently there is a severe lack of availability of competent senior management in the industry. I am talking about C suite and Medical leadership. There are a lot of middle level managers who have great potential and will gain the requisite experience in the next few years and take their rightful places as heads of institutions. But till then there is very little talent available. Some prooters and senior management look at the top consulting firms with the hope and expectation that they would be able to deliver. However, the issue with them too is the same, even they lack people who have actually run large hospitals or chains of hospitals.
“We Know It All” Mind-set
This is another bane of the industry where everybody who is anybody believes that running hospitals is a piece of cake and they know it all. I will relate an incident which probably illustrates this admirably. I was approached by a senior colleague to help a person who had setup a big hospital somewhere in North India. The hospital was closed and they were desperate to operate it somehow. So, on his request I drove down to this town to do a site visit and was pleasantly impressed by the hospital. It was a well-built facility, had decent medical equipment, even had a fully equipped kitchen, but there were no patients. The hospital was locked. All the equipment was gathering dust. I made enquiries from some friends etc. and came to know that they had tried to run the hospital on their own for more than a couple of years but had been forced to close down as the losses were too heavy.
On my return, I met with the owner and shared my high-level thoughts on how to restart the hospital by focusing on developing a few medical programmes etc. He listened to me for all of 10 minutes and then flatly stated “Doctor let us drop all that. You just provide me with a surgeon, gynaecologist and cardiologist and I will run the hospital.” Period. I expressed my inability to help and the conversation closed. The owner was a lawyer and a builder!
It is difficult to have a meaningful engagement with a mind-set that knows it all!
Having understood the reasons why long term strategic thinking is not taking place to the extent it should, we will now discuss the first component of long term strategic thinking of growing the business:
Building Clinical Programmes