Private healthcare providers are attempting to deliver effective, efficient and affordable care, and must do so in an ecosystem that is undergoing a dramatic shift in business, clinical and operating models. This shift is being propelled by an ageing population increasingly prone to non-communicable diseases (NCDs) and age related ailments like fractured limbs; the fast food fuelled sedentary lifestyles ushered in by an ever growing middle class; increased focus on quality care and customer satisfaction demanded by a more informed consumer; and innovative treatments
and technologies.
On the one hand, all of these factors lead to rising costs via higher spend on providing care, infrastructure improvements and keeping up with developments in medical technology. On the other hand, regulatory ceilings on certain charges like consultant and hospital fees and common diagnostic tests as well as increased consumer demand for value, prevent the private healthcare sector from aggressively increasing fees to recover investments and cover overheads. This is an issue because the four big private-sector healthcare providers are listed entities that need to deliver decent profits to keep shareholders happy. Nevertheless, the private healthcare sector, which already accounts for 50% of outpatient care (and about 5-10% of inpatient care) and expects no competition from its public sector counterpart, is poised to capitalize on the rise of non-communicable diseases or chronic diseases, which now account for 70% of all deaths in Sri Lanka.
The four main types of non-communicable diseases (NCDs), according to the World Health Organization, are cardiovascular diseases like heart attacks and strokes, cancers, chronic respiratory diseases like chronic obstructed pulmonary disease and asthma, and diabetes. Unlike infections, NCDs, which are more expensive to treat, cannot be passed on from person to person and are more often than not caused by lifestyle factors.
It is estimated that 25% of the adult population suffers from hypertension (abnormally high blood pressure) while 50% are likely to be ailing from diabetes by 2050. Incidences of cancer have steadily risen in the recent past and are now the second leading cause of hospital deaths in the country. Meanwhile, strokes are the fourth highest cause of death and heart disease is the leading cause of morbidity and mortality.
[pullquote]While non-communicable diseases can affect all age groups, senior citizens are often at most risk. Nine percent of the population of Sri Lanka was over the age of 60 as at end 2014, and it is estimated that this group will encapsulate 18.9% of the population by 2026[/pullquote]
Durdans, founded in 1945, is the oldest private medical institution of the top four private healthcare providers in Sri Lanka, which include the Asiri group of Hospitals, Lanka Hospitals and Nawaloka Hospitals. Durdans poised itself to meet the demand for treatment of NCDs early on, by opening Sri Lanka’s first specialized heart centre in 1998. The other players however have long since caught up and further diversified into other specializations, including renal care, liver transplants and allogeneic procedures like blood and bone marrow transplants.
“Today with advancement in medical science, people live longer. But many people are prone to strokes too,” says Ajith Tudawe, Chairman of Durdans Healthcare Group, explaining his strategy for geriatric service, a specialty that focuses on the health care of elderly people.
With the increase of the elderly population in Sri Lanka there will be a need for geriatric services in the private health sector, with a focus on orthopaedics, renal care, eye care and also special emphasis on managing neurological diseases.
While non-communicable diseases can affect all age groups, senior citizens are often at most risk. Nine percent of the population of Sri Lanka was over the age of 60 as at end 2014, and it is estimated that this group will encapsulate 18.9% of the population by 2026. Sri Lanka has one of the fastest growing ageing populations in the world and is set to be a major player in the global megatrend of geriatric healthcare.
Durdans is planning to increase the volume of orthopaedic procedures, a medical specialty that focuses on injuries and diseases affecting the musculoskeletal system which includes bones, joints, ligaments, tendons, muscles and nerves. It will also focus on urology as well as chemotherapy and oncological surgery for the treatment of cancers.
“Orthopaedics and urology (the branch of medicine that focuses on surgical and medical diseases of the male and female urinary system and the male reproductive organs) are expected to be among the top five contributors to revenue in the future,” Tudawe says.
While at lower income levels health spending is dominated by communicable diseases, as income levels improve, NCDs account for the larger share of health expenditure. As an economy transitions to high income status, ageing becomes the main driver of growth in healthcare spend. According to a report by the Carlyle Group, an American private equity corporation, when per capita incomes are kept constant, a one percentage point increase in the dependency ratio translates to a 0.19 percentage point increase in health care spending as a share of GDP. Sri Lanka’s elderly dependency ratio of 13.4% should account for 8% of GDP healthcare spend. However, as at end 2013 the total healthcare spend was only 3.3% of GDP, the public healthcare sector contributing about half.
“We feel that there is space for growth because the state sector can’t cater to the demand. The waiting lists for surgeries are long. People who can afford it or have insurance can always seek private healthcare,” Tudawe says.
He believes that 50-60% of the inpatients who walk into hospitals will be seeking surgical procedures. However, arthroscopic procedure and laparoscopic surgery are also gaining popularity. (Arthroscopy is a minimally invasive surgery performed on a joint in which an examination and sometimes treatment of damage is performed using an endoscope that is inserted into the joint through a small incision. Laparoscopy is a surgical procedure in which a fibre-optic instrument is inserted through the abdominal wall to view the organs in the abdomen or permit small-scale surgery.) This means that most patients who enter Durdans in the morning can leave the hospital in the evening after undergoing surgery.
The hospital has invested extensively on its orthopaedic, cardiac, obstetrics (the branch of medicine and surgery concerned with childbirth and midwifery), and gynaecology (the branch of physiology and medicine which deals with the functions and diseases specific to women and girls, especially those affecting the reproductive system), and paediatrics units.
[pullquote]There is space for growth because the state sector can’t cater to the demand. The waiting lists for surgeries are long. People who can afford it or have insurance can always seek private healthcare[/pullquote]
“There is potential for growth, but running a healthcare institution is not easy,” Tudawe says. “There is a lot of emotion involved and you have to understand that people come in with a lot of anxiety. The care that we provide is not 100% programmable. That is why we wanted Durdans to adhere to a certain standard. This will increasingly matter as people become better informed.”
However, Tudawe does not buy into the general market perception, which is overwhelmingly ebullient on healthcare. He says the healthcare market is very complex.
“Every year costs go up. Our profits grow at single digits. It’s a capital intensive business. Sourcing highly talented and highly skilled human capital is more difficult than securing funding. Constant innovations in procedures and technologies mean that every six to eight years, medical equipment becomes obsolete and needs to be replaced,” he says.
In 2015, listed private-sector hospitals in Sri Lanka reinvested 38% of their earnings on medical equipment. Durdans posted a turnover of Rs4.7 billion during the 2016 financial year, with net profits amounting to Rs500 million.
Sri Lanka, having a small population unlike its neighbour India, does not have the volumes that allow it to recover equipment costs quickly and invest in cutting edge technologies faster. Singapore, on the other hand, despite laying claim to a population only one-seventh of Sri Lanka’s, attracts far higher volumes – and is able to charge higher fees
– due to its positioning as the leading regional medical hub.
Tudawe’s counterstrategy is to use Durdans’ strategic location at Alfred Place, Colombo 3 in the central business district to cater to residents in a densely populated area. The new 200-slot carpark building, to be found 25metres away from the exit gate with a shuttle to ferry customers, and expected to be completed by end of January 2017, will address the severe lack of adequate parking facilities. The total investment, he says, is Rs1 billion, inclusive of current land value.
Tudawe plans on expanding Durdans hospitals across the island, creating feeder hospitals in the main regions outside Colombo, with serious cases brought in to the larger established hospital in Colombo.
“It is true that other operators have embarked on setting up of Hospitals outside Colombo, but opportunities are not there for many players to embark on a regional basis, because it requires significant capital expenditure and the payback period is much longer than in any other industry. If the pay-back period goes beyond a decade, a degree of obsolescence in medical equipment takes place, and you need to re-invest on cutting edge technology, equipment and devices, which will prolong the expected pay-back period by further years because of this re-investment in capital expenditure,” he says.