What is the future of small and local hospitals in India?

Date: 08-05-2025 at 14:46 

Last month, I was sitting with the MD and the CEO of one of the largest hospitals in Bihar. The hospital's FY23 revenue was 183 Cr, so I was hoping they would be crossing 200 Cr, but the MD told me they have closed FY24 at 230 Cr and highlighted that with stiff competition. The Hospital’s YoY growth has been 20%, but I was expecting it to be a bit lower because of the same reason highlighted by the MD. This left me thinking about the future of small and local hospitals in India because Small and local hospitals, classified as Small and Medium Enterprise (SME) hospitals with fewer than 200 beds, deliver approximately 60% of healthcare services in India and account for over 90% of the country’s total hospital beds. 

Before I answer, let’s take a look at the activity in India’s healthcare market. The first phase of capital deployment was on healthtech, mostly teleconsultation. Between 2014-2019, more than $300 million were deployed across dozens of tele-consultation startups, but today, all of them failed to make any dent in Indian healthcare. 

On paper, teleconsultation holds the highest value. India is a supply-constrained market; the uneven distribution of healthcare facilities and providers limits the accessibility of quality healthcare, therefore, technology will solve the above problem. But neither the founder nor the investors were from the healthcare domain - most of the stakeholders building and deploying capital were techbros and failed to understand the core patient’s motivation.  

Things might not have changed, but COVID-19 painted the real picture of India’s Healthcare - broken physical and digital healthcare infrastructure, uneven distribution of health facilities/providers, shortage of medical equipment, hospital beds, nurses, doctors, training facilities, etc.  

COVID-19 brought a halt to the economy, depletion of paper valuation, and brought a slowdown in almost all industries, except Healthcare, which taught a valuable lesson - healthcare is a volatile proof market. Healthcare becomes a preferred choice for large capital deployers - Private Equity and Family Office - to hedge the risk. The unprecedented investment in India’s Healthcare after 2022 proves the above theory. 

There are multiple reports on the capital deployment, but if we follow “The Financial Express”, 27,000 Cr has been deployed by PE in the past two years in Indian Hospitals.  

As per Grant Thornton Bharat's annual deal tracker, between 2022 and 2024, healthcare and pharma recorded 594 mergers and acquisitions (M&A) and private equity (PE) transactions, with over USD 30 billion in deal values. Hospitals accounted for nearly 40% of the total deal value, underscoring the focus on infrastructure expansion and operational efficiency.

Among all the deals, I would like to highlight a few 

1. Adani’s 10,000 Cr commitment to develop health infrastructure in partnership with the Mayo Clinic. 

2. $218 million seed round in listed startup Policy Bazaar’s new venture, PB Healthcare, to build a 1000-bed hospital in Delhi NCR. 

3. Pristyn Care has announced plans to open 50 hospitals across 25 cities in the next three years. The startup claimed to turn their hospital profitable in just 2 months. 

4. $30 million Series A round in a Healthtech startup, Even Healthcare, to build hospitals.   

Adani would like to make healthcare affordable, PB Healthcare would like to eliminate pre-authorisation and simplify Health Insurance claims, and “Even Healthcare” would like to improve patients’ experience by eliminating pre-authorisation.  

There are a few common dots among all these deals: 

1. 80% of the capital deployment is still in the metro (India’s top 10%), amplifying the uneven distribution of healthcare facilities and providers. 

2. The capital deployment is with a focus on improving patients’ experience by owning the end-to-end journey. 

3. The integrations of insurance with core healthcare to eliminate the trust deficit among healthcare stakeholders - Patients, Hospitals, and Insurance companies. 

The fact is obvious: the expensive healthcare is only affordable for India’s top urban quintile, and even then, the experience is broken. Unlike Urban bottom and non-metro quintiles, where supply is limited and patients' expectations are limited to treatment, India’s metro patients have options, and the differentiators for healthcare providers are the experience. 

If we follow the healthcare evolution of developed countries, pre-authorisation, claim simplification, and managed care are the last set of experiences to improve through operation. Their next frontier would be the rest of India, and that would be a real challenge for the local and small hospitals. 

At present, the billions of dollars in Healthcare are redirected towards the experience for high-value patients, and therefore, the small and local hospitals from non-metro areas are safe for now - the growth of Patna’s hospital at the start of the essay is a clear indication. This is not gonna be in perpetuity. In the next 5 years, billions of dollars will be deployed aggressively on the non-metro part of the healthcare infrastructure. 

If small and local hospitals do not start preparing for the next wave, it will be difficult to survive. Of course, they will have the option to join forces with the national players. Let me share an insight: in the past 4 years, Paras, Medanta, and Apollo have started their hospitals in Patna, but the demand for local hospitals has increased because of two factors - trust and affordability. 

The small and local hospitals can’t take the current growth as a proxy for future growth because when patients will have multiple options, the deciding factor would be affordability, quality, and experience. Therefore, every small and local hospital should ask this basic question: how can we make healthcare affordable without compromising quality? 

I can generate this part of the essay from ChatGPT, since we work with hospitals, let me list a few key focus areas that can help small and local hospitals build a moat. 

1. Technology: Most of these small and local hospitals should start adopting technology in their operational and non-operational work so they could convert most of the manual work into automation and non-measurable work into measurable work.   

2. Data: It is high time, small and local hospitals start respecting data generated at the facilities because that can help them to improve the patient's experience, negotiate with insurance companies, and open new revenue sources. 

3. Vertically integrated: Instead of spreading with multiple services, the focus should be on adding the components that could reduce the net treatment expenses. For example, I know a hospital getting into pharma manufacturing to make healthcare affordable. 

4. Large funnel: The treatment is the last part of the healthcare continuum, and conversion from OPD to IPD is in single digits. Therefore, the small and local hospitals must invest money in building capabilities that could give them a large funnel. 

5. Trust and Brand building: Healthcare is a trust-driven business, and in that case, the relationship with the patient should not be only till treatment - it must be before and after, so LTV could be higher, and brand recall can’t be eliminated. 

6. Collaboration: Strategic collaboration with startups, clinics, insurance companies, local doctors, incubation centres, research labs etc. is important to have leverage in the long-term. 

In conclusion, there is no immediate threat to small and local hospitals in India, but if they fail to learn, adapt, and improve, most probably they will be completely overpowered by national players, PE, and conglomerates.  

Thanks for reading, please share this in your network, I shall see you all the next week.