NATHEALTH – PwC Report throws light on innovative modes of funding for healthcare sector

The Report “Funding Indian healthcare; Catalyzing the next wave of growth” by NATHEALTH in association with PwC was released in the presence of Shri Faggan Singh Kulaste, Minister of State, Ministry of Health & Family Welfare, Government of India, in New Delhi.

The Report recommends four scaling innovative modes which should be introduced for funding Indian healthcare. These include Fund of funds such as Pension funds, Investment route through PPP, long – term debt. Report bats for financing through pension funds which may provide access to a large pool of money. It also suggested funding through business trust entity like Real Estate Investment Trusts along with bilateral investment treaties.

While underlining the need of huge funding requirements, the Report says the FDI in the sector has been significantly increased in the last three years. However, healthcare expenditure’s share in GDP remains around 1.6 % in FY 16 and innovative funding modes would support the target of taking to 2.5% 2030. It also highlights the fact that Private Equity Deals are supporting the funding in the sector and value of transactions has increased from 94 million USD in 2011 to 1,275 million USD in 2016—a jump of 13.5 times.

The Report also examines the key challenges the healthcare industry is facing and the opportunities with which Indian Health Care system can overcome these challenges “With a 22% shortage of primary health centres (PHCs) and 32% shortage of community health centres (CHCs), it is estimated that 50% of beneficiaries travel more than 100 km to access quality care. India has only 1.1 beds per 1,000 populations in India compared to the world average of 2.7. Most physicians are located in urban areas, resulting in significant access issues in the rural regions.

Dr. Rana Mehta, Partner and Leader, Healthcare PwC India, said “Access to capital has been one of the biggest roadblocks to the growth of the Indian healthcare sector. Today, the Indian government spends only about 1.5% of its GDP on healthcare, which is among the lowest globally for any country. Along with building highways, firing up our power plants and ensuring there is a roof over every Indian’s head, there is a need to focus on the healthcare needs of the country.”

Commenting on the findings of the Report, Anjan Bose, Secretary General, NATHEALTH said, “While the opportunity for improvement of Health services in India as well as globally is huge, for it to fall into the right place the government and the entire healthcare ecosystem will have to work together even as they compete on other fronts so that the benefits percolate to the segment which most requires it. Promotional government policies such as New Health Policy and adequate regulatory regimes would support scaling up the healthcare sector.”

The Report sees four scaling innovative modes which should be introduced for funding Indian healthcare, as follows:

Fund of funds –

• Healthcare investment and improvement fund with a multi billion dollar corpus to accelerate the overall pace of development – similar to India Infrastructure Finance Company Limited (IIFCL)
• Management body appointed by the government to handle the portfolio, allocation and management of fund
• Sources of funding – pension funds, others
• Investment route – PPP, long-term debt, social impact bonds

Financing through pension funds –

• Have access to a large pool of money
• Intervention by the government required to use this pool based on redefined risk assessment criteria
• Can be channeled through fund of funds

REITs/business trust entity –

• Dividing the asset operations and medical operations will trigger faster actions
• Help in overcoming real estate costs
• Insulated from instability of stock and bond markets

Bilateral investment treaties –

• As an attractive investment destination, India already has 74 bilateral investment treaties
• Has a low cost of financing, e.g. India offers much higher returns compared to countries like Japan
• Potential for huge capital inflow

Long-term debt instruments –

• Tax-saving and tax-free bonds for financing healthcare infrastructure
• Source for long-term debt financing
• Potential for huge capital flow via participation from retail investors