Solving for the need for specialized and superior healthcare delivery – Single Specialties
Ranjith Menon and Yash Gokhroo
NOV 21, 2024
Shift in Care delivery
We have witnessed the evolution of consumer services, from being fully offline to being significantly digital. E-commerce was just the first wave of digitalization of consumer services and now with the advent of quick commerce (collective market cap of ~$50Bn), convenience offered to customers via technology has become table stakes. This shift has allowed the delivery of several services at the consumer’s home. However, traditional healthcare services have been designed in a way that necessitates the patient’s visit to the doctor or hospital. The traditional model is also flawed at multiple levels including the distribution to consumer, the customer experience and even the adherence to treatment protocols by patients.
Single specialty, omni-channel approach
Our belief is that single specialty platforms are one way to address some of these gaps in healthcare. Healthcare delivery has been getting more and more specialized over the years both on the clinical side as well as the demand side. With growing consumerization in healthcare, people are seeking superior customer and clinical experience which single specialties are well positioned to provide. Consumers/Patients are willing to pay a premium for the same. Additionally, since the space is highly fragmented across multiple therapeutic areas, players can build a brand moat by providing an elevated level of patient experience.
While the providers are becoming increasingly specialized in their offerings, consumers are also becoming more precise and selective in what they are seeking. A look at the search trends on Google or prompts on AI bots are revealing. Approximately 7% of Google’s daily searches are health-related, which translates to around 1 billion health-related searches every day. Some key data points are listed below:
- 38% of health-related searches inquire about symptoms
- 7% of patients use Google before scheduling an appointment. A little over 50% use it to get general information about a healthcare provider, while around 30% use it to compare facilities and healthcare providers
- 21% of the patients studied used Google to find and choose a hospital
With an omni-channel approach, some healthcare services are now being delivered at home like eye check-ups by Lenskart, dentistry by Dezy, diagnostics by Redcliffe and Orange. This has made consuming these services convenient, a feature not always associated with healthcare. This, in turn, can drive better awareness and adherence. Adherence is a major challenge in healthcare with studies showing that it can fall as low as 50%. Digital interventions can go a long way in helping patients adhere to treatment protocols.
We expect to see many more companies in India focused on delivering services in domains such as skin & hair, orthopedics, nephrology, oncology, bariatrics and geriatrics.
Care-coordination will be a moat
Healthcare will have to be delivered through a combination of physical and digital means. What will drive success for companies in this space will be the development of a care-coordination layer. We are seeing the emergence of such companies in the US such as Strive Health focused on kidney care, Memora Health focused on care delivery, etc.
While what happens at the healthcare center is clear to most patients, they struggle with understanding and following the treatment protocols at home. Most hospital setups are not designed to deal with the complexities the patient may face in their treatment journey. Whether it is information on what needs to be done pre- treatment or how to manage post treatment there are always more questions than the healthcare system has time to answer. A layer of care coordination delivered digitally with some human intervention can go a long way in ensuring adherence and convenience that most patients will prefer to pay for. A software-first approach (artificial Intelligence and workflow) to care-coordination will be key to deliver these outcomes.
VC/PE activity in the single specialty space
Within healthcare delivery, single specialty has been an exciting space for investors. The economics and key operating metrics (ARPOB, ROCE, Opex & Capex breakeven time, etc.) of a single specialty are much more appealing to a PE investor in comparison to those of a multi-specialty hospital. ROCE for single specialties in some therapeutic areas can be as high as 50%1 (for Senior care, IVF, etc. ) which is significantly higher in comparison to high capex multispecialty assets2 (15 -25%) Early-stage investors are also not shying away from placing bets on omni-channel single specialty (Vitus care raised $2.7M from Tomorrow Capital, Kites Senior care raised ~$5Mn from Manipal Family Office, Dezy raised $6Mn from PeakXV, Chiratae and Alphawave) providers given the massive need for these kind of models in the country. Additionally, these assets are becoming very lucrative for acquisition by large hospital chains making the exit paths more conducive
Conclusion
Digital health companies cannot be confused with consumer companies. A digital healthcare company may need to be broader. The distribution model can be direct to consumer through employers, insurance companies, etc. A study revealed that health-conscious Indians spend INR 4,000 to 10,000 every year on their health and they are willing to spend 40%-50% more. This is a growing trend post covid. Healthcare delivery services including diagnostics in India is expected to cross $300B over the next five years. Not all of this can be reimagined from scratch, however, there is an opportunity to re-imagine some of these services where they will add a layer of great customer experience over the traditional service delivery model.
Sources:
- Senior care ROCE based on ROC fillings of AACS, Nova IVF, Milann IVF, ROCE is defined at steady state EBIT divided by center level capex.
- ROCE for Narayana Hrudayalaya, Medanta, and KIMS (Overall level as of Mar’24 based on Annual report)