Sun, 02 June 2019
Financial expert Pria Masson Tanwar looks at the economics of healthcare.
The rules for an ideal business opportunity are universal. One, there must be consistent and long-term demand. Two, there must be price inelasticity i.e. a customer that will pay for a service irrespective of price changes (for whatever reason). And finally, one that has scope for scale or expansion into new areas. Almost no other industry checks as many boxes as healthcare does. But there is a complexity, health is not supposed to be a business – or is it?
World over, most governments provide some sort of healthcare. In fact, its one of the many things that we pay taxes for (or not). However, its equally true that healthcare is a fabulous business opportunity, which is why private healthcare, in its various forms, thrives alongside public healthcare almost everywhere.
The healthcare system is very complex though, with its variety of players and the depth of its penetration. If you look at a simple hospital (whether government owned or otherwise) the number of businesses and services linked in (or cost and revenue centres) are numerous. In any hospital, each item used for patient care, whether it’s sterile gauze or the MRI machine, is a revenue centre. Which means that it must be profitable. And each bit of equipment must be used as often as possible to make it financially viable.
But healthcare has a lot of ethical connotations. Thus, to make business sense, enter insurance companies. These companies take a premium from their customers. The maths of this premium is simple – they know that over a period, there is usually only a certain amount any individual spends on health care. The amount they get upfront in terms of premium, on an aggregate level, is meant to exceed those expenses. It’s like any service for which you pay upfront where the money is available for use by you if you need it, and while you do not need it, it can be used by the recipient – in this case the insurance company. Simplistically, the insurance company then invests this money to make more money and deducts the payments that it makes to hospitals. It is quite a win-win – if the insurance company manages to stay afloat.
From a pure business angle, for a healthcare provider, every patient is a customer. Like all businesses the customer needs to be retained and asked to use a maximum number of services. And this is easier in healthcare because history is important. So, if you can have a common platform where the ‘client’ and the hospital can see a history of all interaction, it’s better customer service. Enter hospital management software, hospital apps etc. Extend that to the various private clinics etc and there is a robust business opportunity in healthcare technology waiting to connect and improve patient experiences.
This also means that hospitals aim to expand the bouquet of services offered to include economically viable options that can be technically merged with healthcare. Take cosmetic surgeries as an example. Or even obesity management. These are now robust revenue lines for most healthcare providers. And they are the area of focus sometimes. Because insurance won’t pay, so it’s direct cash and no one has any risks. Cosmetic surgeries or lifestyle issues are what, in economic terms, are called luxuries or the Luis Vuitton of healthcare. High margin business – good for patients and good for business.
It all sounds very commercial, but somewhere it must be. Where do economics and social good meet? They meet at the point where life-saving activities are priced at near cost levels. They meet where there is enough money being made by commercial avenues that are not core to health care, precisely so that core healthcare can thrive. The idea behind healthcare economics is a wonderful balance between greater good and profits. It is about having a client but treating them ethically – yet remembering this: for healthcare to be state-of-the-art, it takes money. And when money is invested, it must make enough money to at least stay afloat for the various entities to stay invested and motivated. Because altruism without money to back it up, is but a theoretical concept.
You can follow Pria at her Instagram handle money_cues and know more about her experience at http://www.i2d-consulting.com