Columbia Asia hospital group is cruising, but not for long

Browsing through my Google alerts this morning I was drawn to an article about Columbia-Asia, a Malaysia based company funded by Seattle firm Columbia Pacific to the tune of 325 million USD.  The initial read made me very dubious about the operating model that Columbia Asia had designed for a massive hospital expansion in India.  I was worried about the small size of the hospitals described (five hospitals that average around 115 beds if you do the math) and their claim to be “multi-specialty”.

Malaysia-based Columbia Asia, a consortium of healthcare providers, is chalking out an ambitious expansion strategy for its Indian market, with 15 new multi-specialty hospitals in the pipeline.

Columbia had announced that it was ready to invest nearly US$100 million (RM350 million) over the next three years to create over 2,000 beds from the current 570 beds in its five hospitals that it owns in India.

“Since we prefer to go alone and invest through the 100 percent FDI (foreign direct investment) route, the slowdown has not impacted our India expansion plans.

“Our parent company in Kuala Lumpur is financially strong. In fact, funds for the 15 new hospitals are already in place. We are just finalising the real estate deals,” Columbia Asia (India) chief executive officer T. Ghosh told the Economic Times.

Curious to find out more, my subsequent Google search yielded an article written by David P. Hamilton, from August of 2008.  Mr. Hamilton, a 14 year veteran of the Wall Street Journal, apparently shared my trepidation about this hospital chain even when it was in its planning stages.   He was quick to pounce.

Apparently the idea is to import U.S.-style ideas about healthcare management to Asian nations. Sounds great, until you recall that U.S. healthcare is among the most wasteful in the world, with unnecessary and often dangerous overtreatment alone accounting for up to a third of all healthcare costs. If these are the sorts of ideas Columbia Asia, the firm’s Malaysia-based unit, plans on exporting, then Indians had better brace themselves.

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Now, this may end up being a fine investment opportunity; pampering the wealthy is a tried-and-true business model. Still, depending on exactly what parts of the U.S. healthcare experience Columbia Asia transplants, it may well be selling its customers a bill of goods.

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The equation might be different here if Columbia intended to expand medical access for the vast number of Asians who aren’t rolling in newfound wealth — but, of course, there’s no money in that.

For me, it was the following paragraph which seemed to confirm my worst suspicions.

True to the path blazed by many U.S. hospital chains, Columbia Asia intends to cater primarily to well-heeled patients, particularly those who are opting out of public healthcare.

‘Facilities are small: a typical hospital has about 65 adult beds, costing about $15 million to $16 million to build. It sees about 8,000 patients a month, and brings in about $1 million in monthly revenue, said Evans.

The company’s growth is in part driven by the expansion of private health insurance in Asia. About 70 percent of the company’s revenues come from insurer payments, Evans said.’

I have previously written about an inherently exploitative, and often faulty strategy of building American-style hospitals in Asia’s developing countries (Article 1: The Changing Healthcare Opportunity in Asia, Article 2: How Asia Changed the Game in Cars and Could in Healthcare).

My central argument from a business standpoint is that these business models, which are most often small 60-120 bed hospitals that have future earnings dependent on high income individuals who pay out of pocket, and global residents with insurance plans,  are operating under immense time pressure.

Essentially, when the health insurance regulation system becomes comprehensive enough to properly regulate private health insurers and thereby confident enough to let in international health insurance players, these small hospitals are going to see their profit margins shrink.

In a mature insurance market, multinational insurers will have a much stronger position at the negotiating table when discussing the reimbursement rates these hospitals should receive.  Naturally, a sixty bed hospital which farms out most of its more complicated procedure and many simple services like X-Rays, is going to see its insurance reimbursements plummet.

Columbia-Asia’s hospital models fit this profile almost exactly.

From a humanitarian standpoint I think these kinds of hospitals to be exploitative because they will, more often than not, advertise themselves as institutions offering a “full range” of services, when, in fact, their ability to recruit qualified doctors, nurses, and other medical staff is limited by virtue of their size, budget, and lean business model.  This amounts to a service package that is at best “middle of the pack” when measured against international standards, and at worst grossly incompetent when measured against comparable care options.

This, in essence, is David Hamilton’s opinion about Columbia-Asia, and I agree with it.

A hospital model that avoids both the insurance trap and the humanitarian gaffe can only be built using components native to the Asia health context – native staff, relevant services, and a profit model based around the majority populations ability to pay.  From within this framework it is then possible to offer a greater range of luxury services.  I have previously written about these models in the following two articles; (What 60$ Gets You at an Indian Hospital) , and American Healthcare Providers: Prestige is No Longer Enough.

It is obvious that the Columbia-Asia hospital has formed a plan around short term profit based on the assumption that the Indian and Asian Tiger markets where they are building their hospitals are not going to be regulating private insurance in the near future.  To their credit, the press statements they put out do not try to claim otherwise.

If I had to guess I would say that their revenue is likely based on health plans handled through third party administrators (TPAs).  And, if I had to guess further, then I would guess it likely that the TPAs handling those accounts are also owned by Columbia Pacific.  In essence, this boils down to a double dipping the celery stick into the insurance money bowl.

Assuming that their expansion plans go to completion, Columbia-Asia will likely make a lot of money in the next decade or two if their profit projections hold.  I am even willing to give them the benefit of the doubt regarding the claims made about the positive impact these hospitals will have on surrounding communities.   Columbia-Asia  spokespeople keep pointing out that they are building “community hospitals”, that will 1.) almost exclusively employ local residents as doctors, nurses, and staff, and 2.) that will “be developed in communities that are easily accessible and the medical costs would be affordable.”

While I see the plausibility of both the employment structure and the community placement, I am at a loss to see how an insurance and TPA based hospital model will make the medical costs affordable. Affordable to the rich and insured who could afford it anyway?  Or affordable to the actual community?

Until someone gives me some new information, I have to assume that  by referring to insurance funded, 65 bed hospitals, as “community hospitals” Columbia-Asia is just riding a disingenuous marketing ploy aimed at investors and soon to be disenfranchised community members in India, Malaysia, Vietnam, and Singapore.

Unfortunately for both the investors and the community members, the truth of the matter will likely have a definitive impact on the success of the venture.