Healthcare financing and our investment in LetsMD
When we first met Nivesh, the founder of LetsMD, the stand out thing about him was his hard to match energy levels and his passion on making healthcare affordable. Having come from a background in running his family IVF business, he had deep insights about the healthcare ecosystem and the dire need for patient financing.
Despite being one the word’s most populous nations, because so few Indians now carry health insurance, India has one of the world’s highest rates of out-of-pocket (OOP) spending in health care. According to World Health Organization (WHO) data, the public sector in India spent just ~1.46% of gross domestic product (GDP) on health care, ranking 187th among 194 countries and at a ratio about half that of neighbouring China.
Including a variety of ineffectual govt. schemes, insurance penetration in India is ~20%. An overwhelming ~70% of healthcare expenses in India are met by OOP) expenditure by the individual, due to which ~7% population is pushed below the poverty threshold every year. Clubbed with healthcare inflation at ~15% and increasing co-pay/high deductible in health insurance, an estimated 85% of healthcare expenses is potentially OOP.
Approximately ~86% of rural population and ~82% of urban population in India are not covered under any scheme of health expenditure support. Out of the total number of persons covered under health insurance in India, approximately three-fourths are covered under government-sponsored health schemes and the balance one-fourth are covered by private insurers. As per National Health Accounts 2014–15, ~70% of all OOP expenses on healthcare are financed through household revenues placing a severe strain on household finances. The govt. recently launched its ambitious Ayushman Bharat scheme, touted as the world’s largest healthcare scheme, which aims to provide a coverage of Rs five lakh per family annually, benefiting more than 10 crore poor families and 50 crore Indians. While we await the actual execution of such a mammoth scheme, we believe LetsMD’s business is complementary to various insurance schemes considering the limited procedure coverage, increasing premiums and lower payouts in health insurance.
At WaterBridge Ventures, we had been on the look-out for a deep vertical focussed consumer fin-tech play and LetsMD was spot on in the space — at the intersection of healthcare and fin-tech. The company is creating a new lending category in healthcare by providing EMI options for patients to convert their hospitalisation and surgery expenses into a 12–18 months loan. The solution is a win win as it helps hospitals convert patients that previously could not afford this treatment and consequently increase their OP/IP conversion ratios while it helps patients avoid taking emergency loans from friends/family/loan sharks or dipping into their savings.
Considering that LetsMD builds deep relationships within hospitals and other healthcare delivery centres and knowing how notoriously difficult it is to gain the trust of doctors and hospitals, we felt Nivesh has the right mix of entrepreneurial experience running his own food business, investment banking and healthcare experience from running his family business of IVF centres along with an MBA from Wharton, all the right ingredients to give him and his team an unfair advantage to crack this space.
Bajaj Finance is an incumbent and a formidable competitor although it is a large horizontal player while we believe in benefits of backing a company focussed on a deep vertical. There also have been a clutch of newer start-ups that have come up in this space. We continue to expect newer competition considering the large market and that vertical focused players we believe will have a shot at building a long lasting business.
Since inception, LetsMD has grown substantially and is now present in 3 cities across over 300 hospitals and clinics. It is also developing new products in the direct to consumer space offering not just financing but a variety of healthcare and wellness offerings to the patient and his/her family.
- Low health insurance penetration, ~70% of healthcare expense through OOP and rising expenses driving the need for a healthcare focussed lender to facilitate loans/EMI products and making healthcare more affordable
- Nivesh and his team have the right mix of experience in healthcare, have deep insights in the space giving them an unfair advantage to scale and grow this business
- LetsMD is building deep relationships with hospitals and clinics, gaining the trust of the hospital/doctor is tough and takes time, hence building sustainable moats and creating a win-win for all participants in the ecosystem
- Data: Apart from broad consumer data, the company also has vertical data such as surgeries, hospital, insurance etc which could provide key insights to develop a proprietary healthcare specific credit model
- Product innovation for the hospital, consumer and for corporates which enhance the offering beyond just financing to broader healthcare and wellness
It has been an exciting journey so far at LetsMD, after WaterBridge Ventures led the seed round in late 2016, the company has raised subsequent funding from SRI Capital and Orios Venture Partners and is now on the cusp of growing exponentially!