Hyderabad’s healthcare journey began with infrastructural reforms post the devastating 1908 Musi River floods. Over the decades, the city evolved into a healthcare hub, with institutions like Osmania Hospital and Nizam’s Institute of Medical Sciences. In the 21st century, private equity investments have accelerated this growth, fueling advanced hospitals, medical research, and a burgeoning healthcare startup ecosystem.
This surge in investment is poised to transform Hyderabad’s healthcare landscape, echoing Nizam’s vision of building a robust medical infrastructure more than a century ago. However, the healthcare landscape is moving away from public to private infrastructures.
In 1908, the Musi River floods devastated Hyderabad, claiming thousands of lives and exposing the city’s inadequate healthcare system.
Moved by the suffering, Nizam Mir Osman Ali Khan took decisive action to modernise the city, prioritising healthcare.
In 1910, he laid the foundation for Osmania General Hospital, which was completed in 1921. The hospital offered advanced medical care to all, marking Nizam’s vision of improving public health and medical education, leading to the establishment of Osmania Medical College.
Fast forward to the 21st century, the world faced another devastating health crisis—the Covid-19 pandemic, which claimed millions of lives globally and once again exposed deep gaps in healthcare systems. In the aftermath, people worldwide, including in Hyderabad, began to demand better healthcare services.
However, this growing demand was met with an inadequate supply. Whenever there is a supply-demand gap, the opportunity for profit arises, and Private Equity (PE) firms quickly move to fill this gap by investing in healthcare in Hyderabad.
Today, Hyderabad’s healthcare ecosystem is rapidly expanding, making the city a prime focus for PE firms targeting India’s burgeoning healthcare market.
Private hospital chains such as Care Hospitals, KIMS, and Omega Hospitals have become key targets for these investments, driven by rising demand for healthcare, a growing middle class, and an ageing population.
This surge in investment is poised to transform Hyderabad’s healthcare landscape, echoing Nizam’s vision of building a robust medical infrastructure more than a century ago. However, the healthcare landscape is moving away from public to private infrastructures.
The news age investment by Private Equity
Hyderabad’s healthcare sector is experiencing a surge in Private Equity (PE) investments, positioning the city as a key player in India’s medical landscape. Blackstone, one of the world’s largest PE firms, is at the forefront of this trend.
In a landmark transaction in 2023, Blackstone acquired Care Hospitals for over $700 million, cementing its presence in India’s healthcare market. With 23 hospitals across 11 cities, the acquisition has transformed Care Hospitals into a leading healthcare provider.
Similarly, Morgan Stanley Private Equity Asia made a significant move by investing ₹500 crore in Omega Hospitals, securing a 23 percent stake. The investment underscores the increasing interest in specialised healthcare services, particularly in oncology, as Omega aims to become the largest oncology-focused hospital provider in India.
Further highlighting Hyderabad’s appeal as a PE investment hotspot, Asia Healthcare Holdings (AHH), backed by TPG Growth and Singapore’s sovereign wealth fund GIC, acquired a majority stake in the Asian Institute of Nephrology and Urology (AINU) for approximately ₹600 crore. This investment focuses on expanding AINU’s specialised nephrology and urology services, reflecting the region’s rising demand for speciality care.
Continental Hospitals, another key player in Hyderabad’s healthcare sector, was acquired by Parkway Group, a subsidiary of IHH Healthcare, for ₹380 crore.
These investments not only illustrate Hyderabad’s growing prominence in the healthcare industry but also point to the broader trend of PE firms seeking to capitalise on the city’s expanding healthcare infrastructure and rising demand for specialised services.
Understanding Private Equity in a broader sense
Private Equity (PE) refers to a type of investment where firms or wealthy individuals pool their money to buy ownership in private companies, or sometimes public companies, to make them more profitable.
Think of it like this: a Private Equity firm invests in a company that needs money to grow or improve. The firm provides the funding, and in return, it gets a share of the company and helps manage it to boost its value.
Once the company becomes more successful, the Private Equity firm will often sell its share at a higher price to make a profit. It’s similar to buying an old house, fixing it up, and selling it for more money. The difference is, that instead of houses, Private Equity firms do this with businesses.
For example, in healthcare, PE firms might invest in hospitals or clinics, helping them expand or improve their services, with the hope of making them more valuable.
Private Equity (PE) investments in hospitals offer both advantages and challenges.
Benefits
- Capital for expansion: PE firms fund hospitals to grow, upgrade technology, and enter new markets. For example, KIMS Hospitals expanded across South India with General Atlantic’s investment.
- Operational expertise: PE firms bring efficiency and management improvements, as seen when Blackstone helped Care Hospitals improve patient experience.
- Access to new markets: Global PE firms can enhance medical tourism potential. IHH Healthcare’s acquisition of Continental Hospitals attracted international patients.
- Financial stability: PE investments improve a hospital’s financial health, as seen with AIG Hospitals after Quadria Capital’s backing.
Challenges
- Profit vs patient care: PE firms’ focus on profits can lead to cost-cutting, sometimes at the expense of patient care, as seen in the closure of Hahnemann University Hospital in the US.
- Short-term focus: PE firms often aim for quick profits, which can affect long-term stability. UK hospitals faced financial challenges after PE firms exited.
- Increased debt: Leveraged buyouts may burden hospitals with debt, leading to financial strain, such as in the case of Vanguard Health Systems in the US.
- Loss of autonomy: Hospitals may lose decision-making control as PE firms prioritise financial returns, affecting staffing or care protocols.
Healthcare: A growing market
Hyderabad’s healthcare market is highly fragmented, creating significant opportunities for consolidation. This consolidation brings economies of scale, operational efficiencies, and stronger bargaining power with suppliers.
Dr Sudhir Kumar, a neurologist at Apollo Hospital, highlighted three sectors that benefit most from rising disposable income in India: FMCG and tourism, education, and healthcare.
He pointed out that 20 years ago, healthcare in India was largely confined to government hospitals and primary health centres. However, with the rise of private hospitals, the landscape has transformed, with a clear preference for private healthcare.
“Government hospitals don’t compare to private ones, and that’s a fact. Even top leaders, responsible for public hospital infrastructure, choose private hospitals over government ones,” Dr Kumar told South First. Reiterating the growing demand for private hospitals, Dr Kumar said that patients often opt for private hospitals, even if they cannot fully afford it, due to their trust in the system.
On private Equity (PE) investments, Dr Kumar said that the healthcare sector has been profitable for years, with nearly 20 out of India’s top 100 richest individuals belonging to healthcare, including pharmaceuticals. Listed companies like MedPlus and Dr. Lal PathLabs show steady profits, driven by growing demand.
He adds, “Private Equity firms have recognized the potential, and Indian hospitals are doing well, especially in Hyderabad. Our healthcare meets global standards, and I’m not just saying this as a patriot—I’ve seen other countries’ systems.”
Medical tourism in India
Dr Kumar also highlighted India’s role in medical tourism, with its affordable, quality healthcare attracting patients from countries like the UK and Australia, where government-funded systems face long waiting times.
“The UK hospital refers patients for hernia surgeries to India. These patients can undergo surgery, stay in five-star hotels, and even enjoy some sightseeing in places like Mahabalipuram or Goa—all at a cost lower than what the UK government would spend on treatment at home. Our healthcare system is quite good and matches the best in the world. I’m specifically referring to leading private hospitals, which excel in medical tourism,” he said.
“While we currently attract patients mainly from Africa and the Middle East, I predict that in the next five to 10 years, we will start seeing an influx of patients from the UK, Australia, and the US. Recently, Prime Minister Modi has met with heads of state for mutual recognition of medical degrees, and I believe that an agreement to recognize Indian medical qualifications will be established soon. This will facilitate the arrival of more patients seeking treatment,”
Foreign patients typically pay more than locals, with procedures like bypass surgery costing several crores in the US but only a few lakhs in India.
Preference to Hyderabad
Dr Kumar pointed out that PE looking for investment in Hyderabad links to the local affluence of being Hyderabadi.
Speaking of increasing medical tourism in Hyderabad, Dr Kumar notes, “The good thing about the city is its Islamic and Muslim culture.”
“I see many patients who come from the Middle East and Africa; they’re mainly Muslims, and they feel at home here. That’s one advantage for Hyderabad. If you go to the Toli Choki area, people from Africa stay there in rented houses for months or so for the treatment,” said Dr Kumar.
“They feel at home here, with the Islamic culture, the food, especially biryani, and the location, weather not that harsh, as well as less pollution than other cities, they prioritise Hyderabad,” said Dr Kumar.
Currently, Hyderabad lacks many direct international flights, relying on connecting ones, but this could change in the next four to five years if the airport improves its connectivity. For instance, Afghans now fly to Delhi before travelling to Hyderabad, but a direct Kabul-Hyderabad flight would simplify this process. However, the presence of direct flights from Dubai, Doha, and Saudi Arabia positions Hyderabad well for medical tourism.
“The Islamic culture is stronger in Hyderabad compared to Delhi, making it a preferred destination for patients from Afghanistan and other Islamic countries,” said Dr Sudhir Kumar.
While Mumbai currently attracts more international patients due to its better flight connections, Hyderabad’s central location, favourable climate, and the potential for direct flights makes it an increasingly attractive hub for medical tourism in the future.
Disposable income
Bain & Company, a management consulting firm in its report noted: “India’s fast-growing middle class is spending more on healthcare. With disposable incomes rising and an explosion of insurance technology platforms and private payers, private healthcare has become more accessible.” It added that government health expenditure has risen significantly (from 29 percent of total health expenditure in 2014–15 to 39 percent in 2021–22).
Dr Kumar also said that thirty years ago, only 5 percent of India’s population could afford private healthcare, but today, that figure has risen to 25-30 percent. With a population of 1.4 billion, this means 400 to 450 million people—more than the combined populations of the US, UK, and Australia—can now pay for treatment.
He also pointed out that the expansion of insurance schemes in the country will further enhance access to healthcare.
“Currently, coverage in India is significantly lower than in developed countries like the US or UK, where 70% to 90% of the population has insurance. In India, it may be as low as 10 percent. Imagine the potential for growth as more people obtain health insurance, leading to increased hospital visits and revenue for healthcare providers.”
Government medical claims and NCD
Government medical schemes like Telangana’s “Arogya Shree” and the Central government’s “Ayushman Bharat” are expanding rapidly. Initially covering only people with a certain age limit, these schemes now include coverage for individuals above 60 years, capped at ₹5-10 lakh. This expansion has brought over 18 crore people into this bracket.
Apart from the insurance coverage, with increase in spending capacity, there is an increase of Non Communicable disease.
Recent studies show that while stroke cases are stabilising globally, they are rising in low- and middle-income countries, including India.
Air pollution and household pollution from cooking gas are contributing factors, and India is on the verge of a significant surge in non-communicable diseases (NCDs) like diabetes, hypertension, heart attacks, strokes, and cancers over the next 10-20 years.
Additionally, rising consumption of soft drinks, alcohol, and tobacco, is exacerbating these risks.
“As more people fall ill, and with increasing insurance coverage and the growth of medical tourism, hospitals are set to see substantial revenue growth. Private Equity investors stand to benefit greatly, with potential returns doubling within three years,” he said.
What about small nursing homes?
Nursing homes still play a crucial role in India’s healthcare landscape, particularly for individuals with limited paying capacity, as nearly 90 percent of the population lacks medical insurance.
“Faced with major illnesses, many without insurance are forced to sell assets like houses or land to afford treatment at high-end hospitals. This reality drives patients to more affordable, smaller nursing homes,” Dr Kumar said.
He also said that geographic proximity is another key factor. In emergencies like heart attacks or accidents, people may not have the time to travel long distances through traffic to larger hospitals, reinforcing the importance of nearby, smaller healthcare facilities.
However, these nursing homes operate on thin margins and must keep costs low. For instance, while Apollo might charge ₹3 lakh for a procedure, smaller nursing homes could offer it for ₹1 lakh, making it more accessible to patients.
India’s healthcare system is marked by stark contrasts; we have some of the wealthiest individuals in the world living alongside vast populations in slums. This duality creates a space for both high-end facilities and smaller nursing homes.
Dr Kumar added: “Nursing homes will likely continue to thrive because many individuals cannot afford treatment elsewhere. Government schemes may cover only up to five lakhs, which is often insufficient for extended hospital stays, particularly in cases requiring ICU care. As a result, many patients end up transferring from larger hospitals to nursing homes when they exhaust their insurance coverage.” #hydkhabar
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