Wall Street is betting big on India’s hospitals. Patients, meanwhile, are facing a healthcare bill that is getting bigger.Over the past five years, global investors like Blackstone, KKR, TPG and General Atlantic have spent about $10 billion buying stakes in Indian hospital chains, according to data compiled by EY.The money is helping hospitals add beds, buy expensive technology and expand through acquisitions.But the rising costs could eventually put a bigger burden on patients.Medical inflation has been running at as much as 13% annually, according to a parliament report. Treatment at private hospitals costs, on average, five to 10 times as much as in the public system, according to a panel of Indian lawmakers. The biggest gaps are in cancer care, cardiac treatment, kidney failure and maternity services.Private-equity-backed operators account for less than 5% of India’s hospital beds, but have a significant presence in high-margin areas such as cardiac surgery and cancer care.
How India’s healthcare gap attracted foreign investment
The investment story is built around a simple problem: the gap in India’s hospital infrastructure.According to Bloomberg, the country has only about 1.3 hospital beds per 1,000 people, far below levels in many developed economies. At the same time, demand for cancer care, cardiac treatment and other specialised services has been rising as incomes increase and life expectancy improves.For private equity firms, this created a sector that needs heavy investment upfront but can generate long-term cash flows. India’s fragmented hospital market offered another opportunity, as standalone hospitals could be brought together into larger chains with more specialist services and higher returns on capital.The scale of the opportunity was highlighted by policymakers in 2021, when they identified about 600 hospital projects requiring roughly $32 billion of investment.“The biggest change in Indian healthcare hasn’t happened in the operating theater—it’s happened in the boardroom,” says Joseph Benaven, managing director of Kanate Hospitals in Kerala and a former president of the Indian Medical Association’s state unit. “Increasingly, hospitals are judged by return on capital and revenue per occupied bed,” said the expert, as cited by Bloomberg.
Where is the money going?
Private equity firms are increasingly backing hospital expansion through acquisitions and consolidation.KKR’s investment in Baby Memorial in July 2024 is one example. The Kerala-based operator had roughly 1,000 beds at the time. Within two years, it had surpassed its pretax earnings target, reaching 6 billion rupees ($62.6 million) in fiscal 2026, largely driven by acquisitions, according to a person familiar with the matter who asked not to be named due to reasons of privacy.KKR is expanding further. In August, it agreed to acquire the Indian operations of Swedish hospital chain Medicover AB for $1.4 billion. The deal will nearly double the number of hospital beds it owns in southern India to 10,000.The firm had earlier backed entrepreneur Abhay Soi’s Radiant Life Care and helped merge it with listed Max Healthcare Institute Ltd. KKR’s exit from Max Healthcare in 2022 is touted by the industry as a successful hospital investment.India’s maturing capital markets have also made this strategy more attractive by giving private equity firms clearer exit routes. Public listings and secondary share sales allow investors to cash out and recycle their capital into new acquisitions.Temasek Holdings (Pte) Ltd. generated roughly a 10-fold return on its 2017 investment in Manipal Health Enterprises Ltd. after a partial stake sale during the hospital operator’s initial public offering in July. The investment delivered an internal rate of return of about 30%, according to VCCircle.The sector continues to grow. Crisil expects private hospitals’ revenue to rise by as much as 15% in fiscal 2027, helped by their ability to treat more patients and an up-to-7% increase in average revenue per occupied bed.
Why is the sector facing scrutiny?
The strong financial performance of private hospitals has increasingly brought the question of affordability into focus.In August, a parliamentary committee warned that an “unchecked influx of foreign capital” was facilitating acquisitions of cost-effective, midsize hospitals by large corporate groups. The committee recommended reconsidering foreign investment rules for healthcare, examining price caps and creating a regulator for hospitals.“For all the benefits of private equity fund infusion, the tax we have to pay is higher cost,” says S. Prakash, chief executive officer of the General Insurance Council’s Health Insurance Ecosystem and Strategic Partnerships.The debate also extends to which treatments should be covered by insurance. As hospitals adopt more advanced and expensive procedures, insurers are questioning whether some offer enough clinical benefit to justify their cost.Hospitals argue that newer technologies, implants and surgical techniques can improve outcomes despite increasing costs.To make coverage decisions, insurers need evidence-based treatment protocols, said Bhabatosh Mishra, chief operating officer of Niva Bupa Health Insurance Co., during an analyst call in May. He added that some robotic procedures can cost significantly more than conventional alternatives without delivering proportionately better outcomes.
Who will pay the higher costs?
The growing tussle between hospitals and insurers is increasingly focused on who will bear the rising cost of healthcare. Insurers say private, PE-backed hospitals are inflating bills and pushing patients towards expensive procedures, while hospitals blame delayed insurer payments and inadequate reimbursements for squeezing their margins.For patients, the dispute can mean paying more out of pocket when insurance does not fully cover treatment. The Insurance Regulatory and Development Authority of India has introduced new rules on cashless treatment and standardised authorisation procedures, but the role of regulation remains contested.“The issue of whether or not regulation can contain rising healthcare costs has been debated in the US for 50 years,” Lawton Robert Burns, a professor at the University of Pennsylvania’s Wharton School who’s studied both the US and Indian healthcare industries told Bloomberg. “The jury’s out on that. We’re not convinced that regulation can effectively control costs.”EQT Group chair Jean Eric Salata said regulatory intervention in healthcare pricing could hurt India’s investment climate.“It will be counter to the trend of deregulation that the government has been supporting, which has encouraged foreign investors like us to continue to invest in the country,” Salata said, adding that if regulation were to happen, it would discourage the firm from further investments.The challenge, therefore, is to expand hospital capacity and attract investment without making treatment increasingly difficult to afford.“India has reached a point where healthcare can’t become progressively more expensive while insurance remains affordable,” Das told Bloomberg. “Unless the economics are reset, the biggest casualty will be the missing middle, people who are not eligible for government support and can’t absorb rising medical costs.”
