India has seen the expansion of regional healthcare players into multiple cities, transforming them into national players. Apollo Hospitals, which started in Chennai, now operates in over 21 cities. Similarly, Manipal Hospitals, originating in Bangalore, has expanded to over 17 cities through strategic acquisitions. A multi-state presence allows these hospital chains to serve a broader population, enhancing healthcare accessibility and establishing strong brand recognition and trust.

Top 10 private hospitals players in India (by bed capacity)

In Southern India, national and regional players have successfully entered the markets in Karnataka, Telangana, and Andhra Pradesh. However, Tamil Nadu remains predominantly dominated by Apollo, while Kerala sees the fewest multi-state hospital chains, indicating lower penetration by national players. This under-penetration allows other private players to maintain their market share in terms of the number of beds and capacity utilization.

Key Factors Contributing to Kerala’s Unique Healthcare Landscape

(A) Attractive Demographic Factors

Kerala’s demand for healthcare is driven by several factors: high literacy rates (94% compared to 86% for whole of India), higher life expectancy (with 12% of the population aged over 65 compared to 6.83% for whole of India), minimal rural-urban differentiation, a cultural preference for traditional Ayurvedic healing practices. The state also has a larger share of non-communicable disease (NCD) cases and high morbidity rates.

TOI reported “With half the population of Gujarat, Kerala spends 30% more on health than the western state”.

These factors drive Kerala’s high per capita out-of-pocket expenditure (OOPE) of INR 7k on healthcare, highest among Indian states, and government health expenditure per capita of INR 2.6K, which is second only to Himachal Pradesh (INR 3.8K).

(B) Robust Public Infrastructure

A relatively well funded public health care sector that ensured the availability and the accessibility to a wide network of government health care facilities formed an integral element of the ‘Good Health at Low Cost’ model of the state.

More than 90% of the villages in Kerala had access to a health dispensary and about half of the villages had a health center within 2 km and 78% of the villages had access to a hospital within 5 km from the late 1970sHigher Government hospital density in Kerala

As per research conducted by CPPR — preference for public healthcare institutions was proximity in rural area and approachability/friendly conduct of doctors and staff in urban area. Access to advanced facilities is the second key reason in urban area, followed by proximity and reliability.

With a well-developed public health infrastructure, even middle-class households often prefer public hospitals. As per NSSO’ report, in 2014 33% of people in urban Kerala preferred public hospitals over private hospitals. Since public hospitals serve as direct competitors for certain segments of society, private operators are compelled to keep their prices competitive to maintain capacity utilization.

National Sample Survey Organization’s (NSSO, 71st Round) 2015 report on Preference of Rural and Urban Kerala dependence on private and public healthcare

(C) Solid partnerships with GCC countries

Kerala is home to well-established NABH/JCI-accredited hospitals funded by NRI tycoons and mission-based organizations, which fueled a 40% growth in private hospitals between 1986-96.

NRI funded / GCC partnered Hospitals

a. UAE’s VPS Health runs VPS Lakeshore Hospital, located in Kochi

b. MEITRA, promoted by the UAE-based KEF group, with 2 hospitals in Calicut & Kasaragod

c. Sunrise Group of Hospitals promoted by Dr Hafeez Rahman, Chairman of the group having presence in UAE and India

d. MotherCare Hospital, a Social responsibility initiative from the Mullas group owned by Mr. M.V. Thomas, a businessman based in the Middle East

Mission & Faith run hospitals

a. Rajagiri Hospital, initiative from the renowned Rajagiri (CMI) group of institutions

b. Amrita Institute of Medical Science, Founded in 1998 by Mata Amritanandamayi Devi

Kerala, traditionally known for its high remittance inflows (10.2% in 2020–21) received remittances amounting to INR 120 lakh crore in 2023, according to The New Indian Express. These funds provide significant capital for private hospitals, supporting their expansion plans. Additionally, having a presence in the GCC allows these hospitals to refer patients to their Indian counterparts, bolstering medical tourism.

Consequently, a new player entering this competitive market might struggle against well-established hospitals with strong NRI backing and GCC connections.

(D) Inexpensive Nurse Cost

Kerala is renowned for producing the maximum number of registered nurses in India. It is estimated that out of the approximately 2 million registered nurses in the country, around 1.5 million are from Kerala, making it a significant contributor to the nursing workforce. Nurses from Kerala are highly sought after globally, particularly in countries like the United Kingdom, the United States, Canada, Australia, and the Middle East. A significant percentage of internationally educated nurses working overseas are trained in Kerala.

Due to the high supply, Kerala has an abundance of nurses available at relatively low wages, with average salaries ranging between INR 16,000 to 24,000 per month, or even lower in some areas. This has led to nurse unions petitioning for increased minimum wages. In response, the State Government issued a notification setting the minimum salary for nurses at INR 20,000 in hospitals with up to 50 beds and INR 30,000 in larger hospitals. However, after protests from private hospitals, the Kerala High Court quashed the notification and asked the government to revisit the issue.

A challenging market for Hospital chains to penetrate, but an intriguing opportunity for PE players

These 4 factors allow well-established local players to maintain an efficient cost structure, enabling them to retain market share while offering world-class facilities at competitive prices.

According to MCS Medical Tourism, Kerala offers world-class healthcare at approximately 15 percent lower costs compared to other destinations in India.

Comparatively lower cost and well-established network reduces the risk of losing market share even if a national brand enters Kerala. This competitive edge has likely attracted interest from private equity funds like Blackstone, KKR and CX Partners, which have entered the state’s healthcare market through acquisitions.

Recent M&A activity in Kerala led by PE funds

Key Takeaways for Private players from the Kerala Model

The 3 takeaways which a single hospital private player can take are following —

(1) Foreign Partnerships & Funding

Forming strategic partnerships with foreign healthcare players can be a strong approach. Such partnerships can provide access to enhanced medical expertise, facilitate knowledge transfer, and lead to improvements in healthcare infrastructure. Additionally, these collaborations can expand service offerings by introducing new specialties and advanced treatments, thereby strengthening the hospital’s position in the market. For example –

Ramaiah Memorial Hospital Signs Long Term Collaboration Agreement with the Mount Sinai Health System in New York for Specialty Care Development and Quality and Technological Advancements

(2) Improving Operational Efficiency and Costs

With efficient cost model, Kerala is able to deliver similar services at almost 15% cost lower. Optimal use of medical equipment and facilities, appropriate structuring of salaries for doctor and nurses by managing supply can help in achieving similar cost efficiencies. Streamlined processes enable efficient hospital management practices, reduced administrative overheads & Faster patient turnover without compromising care quality.

A study highlighted the implementation of Activity-Based Costing (ABC) techniques to better allocate costs to various services. This approach allowed hospitals to identify inefficiencies and reduce unnecessary expenditures, leading to improved financial performance and more competitive pricing for patients.

(3) Develop Strong Community Ties

Private hospitals can significantly enhance their local presence and build a strong community-oriented brand by implementing a comprehensive health awareness strategy. This approach centers on organizing regular health camps and educational programs within their catchment area, focusing on preventive healthcare and early intervention.

Key components of this strategy can include — Regular Health camps, Comprehensive Health Check-up Packages, Lifestyle Disease Management Workshops, Chronic Disease Management Education.

LoEstro Advisors is an investment banking firm specializing in sell-side fundraise and M&A advisory, along with a strong consulting arm. Recognized as the №1 financial advisor in education in India, we are the advisor of choice to India’s blue-chip education businesses.

Over the last four years, we have grown to be one of India’s largest (in terms of M&A transactions) homegrown boutique investment banks, with $1.2bn+ worth of combined deals closed across education, healthcare, consumer, and technology sectors.