Shaking up healthcare? What PB Fintech's hospital foray means

Imagine the horror: you are invested in an asset-light tech business, which suddenly does a 180-degree turn and forays into a capital and asset-heavy venture. Policybazaar parent PB Fintech's investors can tell you what it feels like. They crashed the stock by over 15 per cent in five days (September 24-30) after news reports claimed the digital insurance platform would build hospitals. It was only after the management cleared the air that the stock recovered. We explain what the new venture means and how it will impact consumers and the company:

What's the deal?

The online insurance seller clarified that it would establish an entity to run hospitals under the health maintenance organisation or HMO model. If successful, it will be India's first-of-its-kind hospital network. Under the HMO model, insurance companies set up hospitals where their insured clients get treated. This allows insurers (hospital owners) to charge low treatment costs and limit their claim disbursal.

PB Fintech will invest around Rs 700-800 crore in the entity for a 20 to 30 per cent stake. It will rope its customers, the insurance companies, to hold the rest of the majority stake as part-owners. The new healthcare entity will initially set up six to eight hospitals in the Delhi NCR region.

The impact

PB Fintech's balance sheet has sufficient cash to fund the investment, which is less than a per cent of its market cap. Moreover, the company has clarified that the investment is non-recurring. Thus, the company will continue its asset-light model by only managing the hospitals. So, even if the venture fails, it's unlikely to suffer a huge setback.

That said, the HMO model could revolutionise how consumers use healthcare services. If successful, the model will allow insurers to charge lower premiums from customers and increase volumes due to lower claim amounts. This will also bring in solid commissions for PB Fintech. Overall, the move could benefit all three stakeholders—insurance companies, patients and PB Fintech.

Also read: Should you bet on Piramal Pharma's lofty growth guidance?