Healthcare isn't a luxury: Balancing private equity growth with patient affordability in India

Synopsis

Private equity has boosted India’s healthcare capacity and efficiency, but rising costs and premiums risk limiting access. Strong regulation, pricing transparency and patient-first policies are crucial.

After the pandemic receded, India stood at a critical inflection point in healthcare. Facility modernisation, specialisation expansion and systemic upgradation were the need of the hour. In 2022-24, about $30 bn was invested by PE firms in the sector, which now own more than 50% of India's top hospitals. This is not anomalous, as the model has been successful abroad. In the US, for instance, some 488 hospitals are owned by PE firms, representing 8.5% of private hospitals.

But with capital come costs: elevated hospital expenditure, insurance premium inflation and accessibility challenges for many patients. And without sufficient government subsidies, alternative and quality public facilities, and an active litigious framework, akin to that in the US, which can keep predatory pricing in check while exacting draconian penalties for misdiagnoses, negligence, malpractice and overselling, these issues become structural rather than incidental.

Does India have the regulatory will and policy architecture to ensure that investor returns, and patient-first outcomes grow in tandem?

An analysis of two dimensions could help such an assessment.

Efficiency There is no doubt that by consolidating a fragmented network of clinics, driving high-margin speciality hospitals like cardiac, cancer and fertility units, and accelerating digital and technological solutions like diagnostics and telemedicine, PE-backed chains have raised the bar on operational excellence. At a higher cost, of course.

However, efficiency gains should not be dismissed. Diagnostic turnaround times have compressed in tech-enabled PE-owned facilities, while electronic medical records, largely absent in standalone hospitals a decade ago, are now par for the course.

Moreover, in the wake of efficiency comes expansion. For example, Max Healthcare plans to add 10,000 beds by 2027, while Apollo, with a 43.5% FII stake (versus the promoter-family share of 29%), has also targeted 4,300 new beds in the same period.

What must be more critically examined, however, is whether that value is equitably distributed: between investors, institutions and patients.

Nature of PE-funded ownership Expansion targets and high internal rates of return (18-25%) push hospitals to maximise revenues and margins. This has exacerbated medical inflation, forcing insurers to raise premiums by 10-15% in 2025 owing to higher claims costs, resulting in Indians paying 25% higher premiums. Moreover, as the landed cost of surgeries has spiked 50-70% since 2020, out-of-pocket expenses now account for 39% of all health expenditure.

In summary, PE ownership raises costs for everyone through:

Consolidation Concentration allows large hospital chains to dictate terms to insurers, obviating the need to reduce patient charges.

Emphasis on profitability Hospital chains prioritise high-margin specialties over general medicine, increasing the average revenue per bed while limiting access for routine care.

Upselling and package unbundling To improve margins, hospitals add extra diagnostic tests and non-essential services to bills, inflating costs.

Rising insurance premiums When hospital charges rise, insurers raise premiums or restrict coverage, shifting the burden to patients via co- payment or premium hikes.

Urban market concentration PE-backed chains typically cater to big cities, unlike in the US, where 27% of these chains serve rural populations.

Without safeguards, investor-driven hospitals transfer costs directly onto payers and patients. As such, claims oversight and pricing transparency are urgent operational requirements to meet public health goals. These could be achieved by:

Transparent billing Through standardised price lists for common procedures, preventing arbitrary markups and communicating clearer expectations.

Tiered pricing/ referral Incentivise chains to reserve a fixed share of beds for low-income patients at regulated rates, cross-subsidised by premium services.

Outcome-based contracts Reimburse based on quality/outcome metrics rather than procedure count, discouraging unnecessary services and rewarding efficiency.

Regulatory empowerment Strengthen bodies like IRDAI, or create a dedicated health regulator, to audit hospital pricing, handle patient grievances and award penalties.

Primary care investment Encourage PEs to fund primary care and preventive health services (through insurance-linked models or PPPs), alleviating the need for expensive hospital services.

Faster claims settlements Enforce payment rules within agreed-upon settlement timelines or use automated clearing facilities to ensure hospitals get paid on time.

Long-term investment horizons Promote longer investment timelines, which would be compatible with infrastructure-building.

Ultimately, protecting affordability is imperative. A balanced approach can ensure patients benefit from capital investment in hospitals. Without this, millions are at risk from catastrophic bills. With global uncertainty and a falling rupee, this will only deteriorate. PE involvement can be part of the solution - if coupled with policy frameworks that enforce price transparency, timely reimbursements and patient rights.

Quality healthcare should be a premium service valued by the majority, not an exclusive privilege monopolised by the price-agnostic.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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