ITC’s healthcare venture may delink doctors’ pay from patient bills

ITC in February sought approval from shareholders to launch its hospitals and diagnostic facilities business


ITC’s management expects to leverage its experience in the hotels industry to run the hospitals business. Photo: Indranil Bhoumik/Mint
ITC’s management expects to leverage its experience in the hotels industry to run the hospitals business. Photo: Indranil Bhoumik/Mint

Kolkata: ITC Ltd is not looking to generate shareholder returns from the healthcare venture it announced earlier this year, even as it seeks to create “new benchmarks in service delivery”, according to a former company official who is privy to the plans.

The tobacco-to-consumer goods conglomerate last month sought approval from shareholders to launch its hospitals and diagnostic facilities business.

The company is looking to build hospitals driven by clinical protocols as opposed to individual doctors. “Our aim is to create brand new standards in healthcare from various standpoints, including integrity and ethics,” the former ITC official said, asking not to be named.

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ITC’s management expects to leverage its experience in the hospitality industry to run the hospitals business, which is still in incubation. The aim is to be a game changer, said the person mentioned above. “It will make profits, but profitability is not the main driver—profits are to be reinvested in the business,” he added.

In a note to shareholders, ITC said: “Your board believes that world class medical facilities providing patient-centric best practices that would be valued and trusted by the society will drive reform in healthcare in India.”

Unlike most other private hospitals, ITC plans to pay doctors a fixed salary and no commission linked to billing, said the former company official cited above. “ITC’s culture and value system is perfectly suited to running hospitals and we will only hire doctors who believe in our value system,” he said.

In a statement, a spokesperson for ITC said that plans for the segment were yet to be finalized, so it was premature to discuss details at this moment.

The dominant model in private hospitals in India is to link doctors’ compensation with billing. In the absence of clearly defined clinical protocols and limited scrutiny of bills by insurers, the hospitals often face allegations of malpractices such as over-billing.

A recent study by consulting firm KPMG and the Federation of Indian Chambers of Commerce and Industry (Ficci) showed that in India around 62% of people’s spending on healthcare comes from their own savings because of low insurance coverage.

The report also said that at the end of 2015, India had 1.5 million hospital beds, or 1.1 beds per 1,000 people. The World Health Organization recommends 3.5 beds per 1,000 people, and to reach that level, India must have 3.2 million hospital beds.

The model that links compensation with hospitals’ revenue and profitability seeks to create incentives for doctors to lift their own performance, said Hitesh Sharma, national head for life sciences at consulting firm EY.

In the model that ITC is proposing, everything is streamlined into a fixed pay. The problem with this is that doctors who are good at their jobs start to explore opportunities beyond their fixed-pay jobs, Sharma said. For such hospitals, the cost of retaining and attracting talent could be high, he added.

Hospitals can improve patient experience by “mapping each patient touch point”, said Surajit Banerjee, a director in the management consulting division of KPMG. Also, it is important to standardize treatment protocols in the way they are in tightly regulated markets such as the UK, he added.

Meanwhile, Stakeholders Empowerment Services, a proxy advisory firm, in a recent report pointed out a “dichotomy” in ITC’s entry into healthcare in light of the fact that cigarettes remain its most profitable venture. “The company will have to address ethical issues connected with this dichotomy,” the report said.

ITC expects state administrations to support its expansion into healthcare, said the former official cited above. The company will look to get into arrangements with state governments to secure large tracts of land at affordable costs—“say a long-term lease of 99 years”—and in return reserve a substantial part of the hospital capacity to offer free or subsidized services to weaker sections of the society, he added.

Soumya Gupta in Mumbai contributed to this story.

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