Low on Cost, High on Expansion

After building hospitals in semi-urban and rural areas, Vaatsalya Healthcare Solutions is nowaugmenting its network and exploring new business models like birthing centres and micro-insurance, says Rita Dutta

All healthcare stalwarts underscore the importance of making healthcare more affordable andaccessible, but how many of them dare to address the lack of healthcare services in semi-urban andrural areas? Not many! And that’s why two doctor friends from Karnataka Medical College (KMC),Hubli—Dr Ashwin Naik and Dr Veerendra Hiremath— have come in the limelight for setting upVaatsalya Healthcare Solutions— a chain of hospitals in tier II and tier III cities.

Explains Dr Ashwin Naik, Founder and CEO of Vaatsalya, about the aim behind setting up the socialenterprise, “While70 per cent of India stays in villages, healthcare services are concentrated only inurban areas. To bridge this gap and make quality healthcare services affordable and accessible insemi-urban and rural areas, we set up Vaatsalya.”

They idea of catering healthcare to tier II and tier III cities, did not engender immediately aftergraduating from KMC. Dr Naik went to the US for his Master's degree from the University ofHouston Texas followed by working in a leading genomics company in the US, while Dr Hiremathgraduated with a degree in Hospital Administration from PD Hinduja Hospital and was working inMalaysia. “In early 2004, when we both met after coming back to India, I proposed the plan toHiremath. He believed in it and we got started with Vaatsalya,” says Dr Naik. By the end of 2004,Vaatsalya was registered.

Rolling Out the First CentreHowever, setting up low-cost hospitals in semi-urban and rural areas entailed multiple hurdles. Initially, the challenges were financing, getting good clinical staff and establishing the proof of concept. For financing, the duo was not sure of getting access to traditional means— venture capital or bank debt. “We tapped into our network of NRI contacts, who were from small towns and believed in the potential of Vaatsalya. They provided the initial capital to set up our first unit,” informs DrNaik. Getting local doctors to join a start-up and the first private organised entity in that region was also an uphill task. The duo had to initially tap into their personal networks to slowly build the team. Based on this initial funding from NRIs, the first centre was rolled out in the outskirts of Hubli in 2005. What was the reason for choosing Hubli, a regional town and one of the fastest developing industrial hubs in Karnataka? The group felt that Hubli, which was devoid of good healthcare facilities, could be an ideal testing ground for the innovative business model. “The first centre started with gynaecology, paediatrics, surgery and general medicine along with diabetes care and physiotherapy,” informs Dr Naik.

Building an EmpireOnce the first unit was commissioned, the group charted out an ambitious plan to spread its tentacles. So, was expansion plan finalised before the first centre was rolled out? “We had put together a rough plan of establishing a network of hospitals and we did plan for growth, both within the state and outside, from the very beginning,” says Dr Naik. However, zeroing in on the business model for expansion was crucial. It explored a slew of models in the beginning, ranging from day care, OPD centre to 25-bed hospital. Eventually, it settled on the 25-40 bed hospital, which it scaled up and now focuses on 70 beds in each hospital.

To expand its network, it soon received funding from social venture capital fund—Aavishkaar. Thus, it established two more units in quick succession. Subsequently, it raised money from Seedfund and Oasis Capital. “The initial round was to expand the concept from one location to two to three locations, and later rounds were to expand within the state of Karnataka and outside it,” says Dr Naik.As of now, it has built 10 hospitals spread across Hubli, Gadag, Bijapur, Mandya, Hassan, Mysore, Gulbarga and Shimoga in Karnataka and Vizianagaram and Narasannapetta in Andhra Pradesh (AP). The centres are similar mid-sized hospitals with an average bed strength of about 70. Vizianagarama centre in AP is the largest centre with 122 beds, with 95 operational beds.

Innovative ModelOne significant aspect of Vaatsalya is its low-cost business model which aims at providing high quality medical services at an affordable price. It attains its low-cost model by controlling cost to the maximum and by optimum utilisation of resources. It uses a no frills approach and invests only in high quality medical equipment relevant to the specialties which it specialises in— obstretics, paediatrics, surgery and medicine. Moreover, it does not invest in the land and building, which is leased on long-term basis or partnership with existing nursing homes. “On the operational front, we have very high utilisation of our services which help us to further reduce the cost of providing care,” explains Dr Naik.The cost of setting up a new centre comes to Rs two crore. Vaatsalya uses two strategies for expansion—green field and brown field. The ratio of green field to brownfield is the same. Says Dr V Renganathan, Co-Founder & VP, Alliance, Vaatsalya Healthcare Solutions, “In the green field strategy, Vaatsalya rents a space suitable for a hospital, remodels it for hospital purpose, recruits the doctors, and starts operating.” In the brown field, its partners with an existing hospital, which usually has one or more star medicos having a good practice and in which the building is owned by the doctor(s). As part of partnering, the hospital is rebranded as a Vaatsalya Hospital. “It took Vaatsalya three years to attain breakeven for its first centre in Hubli primarily because it was still in the learning phase. “Today, a new centre could breakeven in about eighteen months,” says Dr Renganathan.

Marketing StrategiesSince it is frugal with its budget for marketing, it does not engage in print or TV media. “In fact, we don’t have a separate marketing department. The business development team assumes the role of marketing when needed. We rely on the word of mouth and we spend our money wisely on health camps in and outside of the hospital. We think of innovative ways to serving the community, even if we have no direct gains for us. Basically all our marketing activities are about gaining or reinforcing the trust customers have in us,” says Dr Renganathan. It has partnered with Deshpande Foundation in their quest to improve healthcare in and around Dharwad district of Karnataka. It is also partnering with nursing homes wherein the doctors practicing in the nursing home join Vaatsalya’s team and help expand the services offered. “This helps the doctors to focus on their clinical practice, while we take care of the administration part,” says Dr Naik.The ImpactThe hospitals have made tremendous impact. Vaatsalya opened its first NICU unit in Gadag with just two beds some four years back. Today, the hospital in Gadag has 10 NICU beds, while there are about 70 NICU beds in the entire network, which are nearly full all the time. “Prior to Vaatsalya, only a mission hospital in Gadag had a few NICU beds and that’s for the entire district with a population of one million population. People had to take their ailing newborns to Hubli for treatment. The NICU charges in Hubli were high in addition to cost of transportation and more importantly the time lost is a critical one. The first 24 hours of a neonate are critical particularly, when they are pre-mature. Vaatsalya’s NICU in Gadag has saved many newborns,” informs Dr Renganathan. Similarly in Bijapur, the group started the first multi-specialty hospital of the district with a dialysis centre. Prior to it, people had to travel to Solapur, which is 120 km from Bijapur. “Our charged are 25 per cent less than Solapur and in addition, the patients save other incidental expenses when seeking care in Solapur,” says Dr Renganathan.

The EdgeVaatsalya’s largest hospital with 122 beds is located at Vizianagarama in APVaatsalya’sefforts to take healthcare to the rural hinterland has received acclaim and it has been bestowed with a slew of awards, ranging from Frost & Sullivan India, Excellence In Healthcare Award, 2010, Rashtriya Samman Puraskar in 2010 for outstanding contribution in healthcare sector, Sankalp Award for Social Entrepreneurship in 2009 for healthcare inclusion, LRAMP award for grassroots innovation in 2008 and Business In Development Challenge India, 2007.According to the founders, the reason Vaatsalya has been a resounding success is not because of the range of services that it offers. In fact, in many centres it offers similar core services that other hospitals in that area provide. “The differentiator is that we are assuredly customer centric compared to other hospitals. We overlay these services with a few specialised services such as Neonatal ICU (NICU), ICU, and dialysis centres,” says Dr Renganathan. Also, it keeps its prices affordable and transparent. “We don’t overcharge because we have captive customers and they have nowhere else to go,” adds Dr Renganathan.

Planning for 60 HospitalsSpurred by success, this Bangaluru-based company has devised an ambitious plan of taking the count of hospitals from 10 at present to 60 spread across five states in the next three years. “However, our current target is in the range of 30-40 units across three to four states. This is partly due to increasing size of our hospitals and due to our capability to expand into services other than the core services,” says Rocky Philip, Co-founder and VP-Business Development and Marketing, Vaatsalya. It has started two units in AP and has plans for eight more in the state. “Our foray into Maharashtra would be from the next financial year. We would first start with Nagpur,” says Philip.At this moment, it is involved in one more round of funding for spreading its tentacles outside AP and Karnataka. However funding, unlike before, is not a hurdle anymore. In May, 2009, Vaatsalya announced funding from Oasis Fund and Seedfund to expand hospital network across India. The investment was led by Oasis Fund, a Luxemburg-based investment fund with a successful track record of investing in emerging enterprises across the world. Existing investor, Seedfund also participated in this round of funding. To a great extent, it has also surpassed the other obstacle of getting good clinical acumen. “We identify doctors who are from the region or town in which we are setting up hospitals, who might have relocated to bigger towns for professional reasons. Young doctors across the country want to go back to their communities, rather than compete in a crowded space in the metros,” says Dr Naik.

Exploring Newer Business ModelsWith an endeavour to reduce maternal mortality and at the same time decrease the overall cost of pregnancy care in villages, the group is foraying into birthing centres. As of now, two centres are in the pipeline, costing Rs 10 lakh to Rs 12 lakh per centre. The first birthing centre is coming up at Kotumachigein Gadag district and is located around 20 km from the Gadag town. The birthing centre is spread over about 1,500 square feet and will have a labour room for two deliveries. The delivery will be attended by a midwife. There is also an antenatal programme consisting of consultations, diagnostics, and medicines. The first centre is slated to be operational in the next two months.Vaatsalya has also devised a micro-insurance scheme, for which it was seeking grant from the Microinsurance Innovation facility, ILO, Switzerland. This insurance scheme leverages Government's affordable scheme (Rs 450 for an APL family of five members and Rs 150 in the case of BPL family), but adding discounted out-patient services such as doctor consultations, diagnostics and drugs. “This proposal was one of 10 finalists (only one of two from India) out of 100 proposals submitted internationally to MicroinsuranceInnovation Facility, ILO,” informs Dr Renganathan. With Vaatsalya failing to get the grant from ILO, it plans to find other resources to launch this product.The courage to reform coupled with ambitious plans and innovative ideas could surely change the healthcare landscape of rural India.healthcare@expressindia.com