Investors see SaaS as right prescription for healthcare IT

Wed Apr 29, 2009 2:59pm IST

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Nextgen and Insta Health are two SaaS based software companies for healthcare industry who got funding.

Healthcare IT based on SaaS (Software as a Service) may be the way to go if you look at the recent investment trend. Nextgen eSolutions and Insta Health Solutions are two SaaS based software companies for healthcare industry who recently got venture funding. Delhi-based private equity fund Lumis Partners picked up a majority stake in the city based NextGen. Insta Health bagged about $1 million from Bangalore-based Inventus Capital.

NextGen has come up with a product based on SaaS (Software as a Service) model for hospital management services. Bangalore-based Insta Health has also come up with a hospital management software based on SaaS.

These products help in management of various functions in hospitals like patient registration, inventory, billing, system administration, etc. Other such players include Karishma Software and Akhil Systems Pvt Ltd.

These companies are looking to capitalise on the fragmented nature of the hospital industry through their innovative products. The SaaS model limits the expenditure of customers as vendors host the application. They charge on the basis of revenues or per patient. They also sell on a licensed model.

NextGen's CEO Dinesh Parekh says that out of 15,000 hospitals in the country, only around 100 are run by top hospital chains. He adds that average size of hospitals is between 10-20 beds and they have average revenues of around Rs 1 crore.

"Today majority of hospitals, about 85%, are 30-bed nursing homes. Though things are changing a little, its a very fragmented picture as of now," said Ratan Jalan, Founder & Principal Consultant of Hyderabad-based Medium Healthcare Consulting Pvt Ltd.

"Healthcare firms have traditionally been a slow adapter of IT," said NextGen's Parekh. Agrees Jalan, saying that level of IT in Indian healthcare in abysmally low. But now many factors are working in favor of adaption of IT by these firms.

Hospital market in India is undergoing corporatisation with big chains like Apollo Hospitals, Fortis Healthcare and Max looking to expand, both organically and inorganically.

Big private equity firms are looking at this segment aggressively and nearly half a dozen funds such as ICICI Venture, Sabre Capital's Spring Healthare have formed SPVs to buy and build hospitals. Other investors like India Value Fund have also invested in this sector.

Jalan says that private equity investors will put pressure on availability of financial statements and other statistics regarding hospital management, which will give boost to IT in healthcare. Many hospitals are also adding IT systems due to peer pressure, he adds.

Insurance penetration is also expected to go upto 25% in next four years from the current 4%, and this will require hospitals to implement IT systems. "Insurance companies would like billing in an organised format, and that will also push IT," adds Jalan, who was earlier CEO of Apollo Health and Lifestyle, and is credited with group's neighbourhood foray.

The market opportunity for hospital management software in India is estimated to be Rs 1,000 crore. The market for electronic medical record (EMR) is estimated at another Rs 500 crore. There are also areas like pharmacy, an area in which many retain chains have come up in past 2-3 years.

Expansion Plans

With their products in place, these firms are now looking to expand their client base.

Insta Health recently raised series-A funding from Inventus Capital and some HNIs, and plans to use funds for sales and new product development. The company has 20 hospitals as its clients in south India region, and is looking to build a pan-India presence. In next five years, it's aiming to serve 2,000 hospitals with target revenue of Rs 500 crore.

Insta Health plans to go for a second round once it gets 100-200 hospitals as clients, its CEO Ramesh Emani told VCCircle. After that round, it will look at acquisitions in the space. "There are a lot of players and we believe that there is a scope of consolidation," he added. Insta Health, which was set up last year, plans to break-even in next five five quarters.

Four year old NextGen was set up by serial entrepreneur Akhilesh Khare (also part of the HCL founding team) and Silicon Valley returned executive Sanjay Sengupta. Parekh, who now heads NextGen, is also a senior partner with private equity firm Lumis Partners, which bought a majority stake in the IT firm last year.

Since then the firm has bagged clients like Fortis Healthcare, Max Hospitals, Metro and Primus, mainly in north India region. Also in order to expand its footprint and maintain sales cost, NextGen has tied up with a distribution company which sells medical equipments to sell its product.

NextGen has also developed a high-end software for cardiologists, which it believes has worldwide application. To sell it to an international clientele, NextGen is integrating its products with IBM's technology, thus allowing it to sell its products to a much larger market. It also has a dental practice management product.

Jalan says that though software solutions are now available in the market, hospitals still have to spend money on hardware solutions. "If you need to make a bigger thrust then it requires more broader solution," he adds. Hospitals are usually willing to spend 2% of their project cost on these IT systems, including hardware and software.

-- Copyright 2008 VCCircle.com. All rights reserved.

This content/article is provided by Mosaic Media Ventures Private Limited and not by Reuters. All rights, including copyright, in this content/article provided by VCCircle.com are owned or controlled by Mosaic Media Ventures Private Limited. The content may not be copied, broadcast, downloaded and stored (in any medium), transmitted, adapted or changed in any way whatsoever without the prior written permission of Mosaic Media Ventures Private Limited.

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