Medicover Hospitals India (MHI) ranks among the largest domestic multi-specialty hospital chains, a business seemingly destined to play an outsize role in the consolidation of a highly fragmented industry. But Akshay Tanna, a partner and head of India private equity at KKR, which recently acquired MHI at a EUR 1.2bn (USD 1.39bn) valuation, is wary of pursuing scale for the sake of it.

“Expanding bed capacity is not the only lever for driving growth. We already have 24 hospitals and approximately 4,800 beds. It’s about upgrading infrastructure, attracting the best clinical talent, increasing the complexity of the case mix, and improving asset utilization,” he explained.

“We will also look at M&A and organic growth, but the priority is taking what we have today in micro-markets that we think are attractive and putting the value creation playbook to work.”

Developing infrastructure and complex specialties are two of four key operational vectors. The others are building out medical tourism and boosting patient volume, with the latter achieved chiefly by increasing outpatient footfalls and outpatient to inpatient conversion rates.

Financial performance is the expected consequence of hitting targets in these areas. Similarly, to the extent prices might increase, this will be an indirect result of other actions: better clinical outcomes beget more referrals begets high patient occupancy begets a broader case mix begets a price premium.

“You can’t increase prices without giving a better patient outcome. And better outcomes expand access. When a tier-two or tier-three hospital handles a complex high-acuity procedure that previously meant a patient travelled 100-plus kilometres to a metro, that is better clinical care and a lower clinical cost and burden for the patient and their family,” Tanna added.

Reusing the playbook

Healthcare is one of the trends that underpin many of KKR’s investments in Asia. India’s supply-demand imbalance is stark: 15.9 hospital beds and 9.5 medical doctors per 10,000 people, compared to 26.8 and 26.5 in the US, according to the World Health Organization. Factors such as rising incomes, an aging population, and increasing insurance penetration are expected to spur private sector growth.

In Medicover, the firm has an existing platform of scale. Its prior two multi-specialty hospital deals were growth plays. KKR backed Radiant Life Care, a two-hospital outfit, in 2017 and facilitated a merger with Max Healthcare Institute that created the country’s fourth-largest chain. Baby Memorial Hospital (BMH), a 2024 investment, has grown from three to nine hospitals and trebled its bed count.

Different models, but commonality across value creation playbooks. Tanna points to rising margins at Max, which he claims were driven by better patient outcomes rather than cost reductions, and an emphasis on recruiting high-quality doctors at BMH that led to an improved clinical complexity mix.

“You get operating leverage by focusing on the underlying operational and clinical drivers, not just the financial metrics,” Tanna noted. “A lot of initiatives we learned at Max, we then saw at BMH, and we think we can use them at Medicover.”

There are also similarities in target structure: securing BMH and MHI hinged on winning over doctor founders who retained significant minority stakes. MHI launched in 2017 when Medicover, a Sweden-headquartered healthcare services business, teamed up with a group of Indian doctors. Including employee stock ownership plan (ESOP) entitlements, the doctors held 40%.

MHI was expected to go public, but KKR entered into negotiations on a proprietary basis, having established relations with the doctors in India and Medicover via its presence in Europe.

Industry evolution

At present, 60% of MHI’s beds are in tier-one cities and the rest are in second-tier locations. This reflects the broader industry picture. According to Tanna, roughly two-thirds of India’s hospital beds are spread across eight major metropolitan areas that account for one-third of the population.

MHI is one of eight hospital chains with 4,500-plus beds; Manipal Hospitals and Apollo Hospitals lead the way, claiming approximately 10,000 and 13,000 respectively. These are concentrated in tier-one cities, although together the eight account for less than 5% of nationwide bed count.

Consolidation is happening, but Tanna doesn’t subscribe to the notion of a handful of chains cornering the multi-specialty space. He believes the industry moved from its first phase, entrepreneur and doctor-led hospitals, into its second, with the addition of large chains backed by institutional capital. The third will be characterized by scaled, professionally managed groups with deeper clinical capabilities.

“Healthcare is local, it’s about the physician referral networks, clinical talent, and patient trust, and that builds market by market. You must look at it on a micro-market basis. I think we will see the emergence of more scaled regional players, not just national platforms. Some of that will happen through M&A, but a significant amount will be organic,” he said.

The key is finding the right assets – and then finding a way to work with the talent that built them. “The most important asset in a hospital is not the real estate; it’s the doctors and the clinical teams,” Tanna added. “If you can attract high-quality clinicians, build capabilities in more complex specialties and improve outcomes, you can create a virtuous cycle.”