India: New Fortis CEO Plans To Cut Costs To Revive Hospital

The new chief executive officer at Fortis Healthcare Ltd. plans to cut a fifth of costs to resuscitate India’s second-largest hospital chain after a regulator found it was defrauded of tens of millions of dollars by its former owners.

Fortis is now looking to squeeze spending in everything from energy-efficient light fixtures to automating its business analysis unit and even renegotiating doctors’ salaries. The goal is to reduce expenses by $31 million over the next two years, Ashutosh Raghuvanshi, the CEO who took over in March, said in an interview at the company’s headquarters outside New Delhi. Fresh capital expenditure of $84 million is also in the offing.

“This is the new Fortis,” he said, pointing to his own office as an example, where all the furniture had been replaced with a conference table so the space can double as a meeting room. “Simple, uncluttered and transparent.”

These are just the first steps by Raghuvanshi to nurse Fortis back to health after a tumultuous year where its former owners, Malvinder Singh and Shivinder Singh, were found by a regulator to have fraudulently taken 4 billion rupees ($56 million) out of the company. That led to a protracted bidding war for the cash-strapped Fortis, which Malaysia’s IHH Healthcare Bhd. won.

The first thing IHH did was inject 40 billion rupees to stabilize the business, then it hired Raghuvanshi. The CEO held the same position before at the Narayana Hrudayalaya Ltd. hospital chain, which is famous for achieving some of the lowest costs in the world through its hyper-efficient processes, and is bringing to Fortis his old playbook.

“The problem with Fortis is its bloated cost structure,” Deepak Malik, a Mumbai-based analyst with Edelweiss Financial Advisors Ltd. with a buy rating on the firm, said in a telephone interview. The new CEO “knows how to run a lean cost structure.”

That’s why the bulk of the money IHH provided was quickly deployed to buy out a Singapore-based real estate trust which acted as a landlord to Fortis’ hospitals. Eliminating rental payments is expected to improve profitability.

Divest or shutter

Raghuvanshi is now planning to negotiate pay with doctors to be “mutually beneficial.” He is also replacing a team of people who collated and analyzed how long patients stayed in the hospital with software that can do the same thing.

There are plans to divest or shutter under performing facilities and exit contracts for managing other people’s hospitals, which he calls “distractions.” The company is also exploring the sale of non-essential assets such as its stake in a Sri Lankan hospital.

Another trick from his Narayana days: applying a cost saving technique called “task-shifting” under which nurses only perform patient-care tasks that they alone are qualified to do. Other work such as feeding patients or making beds is left to less qualified, and lower paid, employees.

Expanding capacity

Fortis will invest as much as six billion rupees in capital expenditure over the next three years in expanding capacity and adding new technologies and therapies to its existing hospitals in Kolkata, Bangalore and around New Delhi. It will also commission a new 200-bed facility in Chennai that has been delayed for lack of funds.

The company reported profits for the past two quarters under IHH and the new CEO after logging losses for six straight quarters, data compiled by Bloomberg show. The quarterly results earlier this month saw margins of its hospital business nearly double from the year before, according to a company statement.

Upgrading and replacing Fortis’ existing equipment and keeping the overall shine is essential for the brand, according to Raghuvanshi, to retain its claim of providing premium health-care services — a premise it was built on.

“What Fortis needs to reaffirm is its quality health-care positioning. We need to bring it back to where it was,” he said. “When you dilute yourself like that, you’re not doing service to yourself or anyone else.”

He said he’ll consider starting more affordable offerings after a few years to complement Fortis’ current high-end positioning.

Bold plans

Even with its bold new plans, Fortis has not yet left its checkered past completely behind. While the company has written off the money allegedly taken by its previous owners, it’s still trying to get recompense.

The company petitioned India’s market regulator to arrest its founders in February and filed a civil case this month in the Delhi High Court to recover $73 million from the Singhs. “This money is important for Fortis,” Raghuvanshi said. “It’s almost equivalent to two years of capital expenditure.”

Bloomberg