PB Fintech is the incubator, the catalyst, not the eventual owner of the healthcare project: Yashish Dahiya

On Policybazaar parent investing big in PB Healthcare
Yashish Dahiya: About four crore people, every year pay the insurance industry a certain amount of premium in the hope that when they fall ill, when they go to hospital, there they will face no difficulty and that is the reason they buy that insurance policy. However, when they reach the hospital, a certain conflict starts happening. What is that conflict? If their bill is larger, it is financially beneficial to the hospital. If the bill is larger, it is financially a loss to the insurance company and the customer is stuck in the middle. And because of this conflict of interest, there is a lot of pain because when you have conflict of interest, you have mistrust. So, if you are going to benefit from one thing and I benefit from exactly the opposite, then we are likely to have a conflict. And that would mean mistrust and that would mean I would check every move of yours.

So, an insurance company is validating things like, was this hospitalisation required? Was this treatment necessary? Was this an overtreatment? And then they are also checking if the customer had declared something incorrectly, etc. That is okay, that is the insurance company’s problem and the hospital’s problem. When will it become my problem? Actually, it becomes my problem when it is an insurance company’s problem, because eventually insurance companies have to survive. But let us keep that away. The customer has to wait for six to eight hours to get their claim settled and we are hearing lots and lots of delays in claim settlement. And the reason these delays happen is because that investigation is on and why do investigations happen because of the lack of trust.

So, what are we trying to do? We are trying to say, okay, insurance industry, what if you had a set of hospitals who follow a very standard protocol, which you and they agree to? What does that mean? If I get ill and I want to report to a doctor, the doctor decides whether I need to be in the hospital. If I have malaria, if I have dengue, do I really need to be in hospital? Do I need an ICU? Do I need to be in a primary care hospital? Do I need to be in a secondary care hospital or is my illness so complicated that I actually need to be in a tertiary care hospital or a quaternary care hospital?

If you go back 20-30 years, we had something called a GP or a family doctor who used to do that for us, who would advise us on our course of medication, that has largely disappeared. We intend to bring that back. So, we intend to essentially give you a family doctor who would advise you in all such situations. But what is more, when they advise you that, listen, you need to go to this hospital, there is further convenience created. When you go to the hospital, you do not need to stand in a queue to get admitted. There is no pre-hospitalization process, there is no post-hospitalization process. All of those become easy. Why do they become easy? Because we trust you.

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Because the doctor who first spoke to you is a trusted entity who has no incentive from you going to hospital, who has no benefit from you getting a particular treatment. So, you can trust them that, look, this doctor is not advising a surgery to me because it benefits them. So, the trust goes up and because the trust goes up, the claims process becomes easier. This concept is usually called an HMO and that is what we hope happens in India, because with an HMO happening, I think hospitals and insurance companies and customers get aligned.Now, from a market standpoint, you have made an investment of about $80 million. Is that the initial commitment? Could it go up or this as big as it gets?
Yashish Dahiya: I will explain. You have to separate out PB Health and PB Fintech. They are two separate companies. PB Fintech is an incubator of the idea, but does not intend to be a majority shareholder or the owner of the company. PB Fintech will have maybe 30% equity in the company for the 800 odd crores. Now after this, PB Health will run its own business with whatever Rs 2,000-2,500 crore that it raises. At some point, it may run out of money. And then PB Health may say, I want more money. Now, arranging that money is the job of the PB Health board, the PB Health management. PB Health shareholder as a 30% shareholder has no liability to put in a single rupee more. Opportunities can change, situations can change, but as of today, I do not envisage PB Fintech ever having to invest anymore because the other investors who are coming on board, whom I will not name at this stage, are pretty strong and are much stronger in their healthcare practices than PB Fintech. Like PB Fintech has no healthcare practice. So PB Fintech is an enabler. It is a catalyst. When you have a catalyst, when two elements come together, they react, they do not react till the catalyst is there. So, you need the catalyst to do the reaction. But once the reaction is over, the catalyst is left there just as it is. The catalyst had no other role except for making sure the reaction happened, that is the role PB Fintech is playing. It is the incubator, it is the catalyst. PB Fintech is not, in my opinion, as of today, the eventual owner of this project.

The eventual owner of this project will probably be somebody with a deep understanding of the healthcare industry and who wants to have a foray in the healthcare industry for the next hundred years. At least two of the investors who are coming along are such people who have a global view on the healthcare system, have seen this model happen in many places, understand this model deeply and thus are committed to this model in a long-term, far greater way than PB Fintech would be.

As new investors come in, will this Rs 800 crore for a 30% stake become the yardstick for them to come in or the investors will come at a premium and then the sum of part valuation for PB Fintech shareholders because of PB Healthcare changes?
Yashish Dahiya: No, everybody is coming in at exactly the same valuation. Whether it is me, whether it is Alok, whether it is anybody else, everybody comes in at exactly the same valuation and so do the external investors and PB Fintech. Please do appreciate that everybody is playing different roles here. Somebody is playing the role of a catalyst. Somebody is playing the role of a long-term investor. Somebody is playing the strategic role of a long-term movement in the healthcare industry and thus we do not want to get into who is benefiting more and who is benefiting less. Everybody is coming in at exactly the same value. Everybody pays the same number of rupees for each share and there is no privilege in terms of value differential to anybody whatsoever.

Between you and Alok, what would be your personal holding in this venture?
Yashish Dahiya: At the end, the round is structured in two pieces. What has gone for approval right now is round one and then there is round one B which happens 90 days later and another investor comes on board in that round. Of course, subject to it happening, nothing is ever guaranteed till it is signed. By the end of that, I would be about 3% or so, 3 point some percent, Alok would be about 1 point some percent and yes, that is that.

And just to have another follow-up question on the valuation, Rs 800 crores for 30% stake. Before the business has started, you have incubated a company with a valuation of about Rs 2500 crores, just to put the maths right.
Yashish Dahiya: You have not. I wanted to clarify, you have incubated a company at a value of zero. I wanted to be very clear on this. See that there are two concepts and we are being fairer than anybody perhaps has ever been. There is a pre-money valuation and a post-money valuation. So, the day the company is started, let us say it has Rs 2500 odd crore of cash, it has exactly a valuation of Rs 2500 crore. So, it is cash valuation, there is no difference whatsoever and that is a very important part too. It is not like we are saying on day one, the company is valued at Rs 2500 crore. The value of the concept is zero. Neither is the incubator, nor is me or Alok taking any value for the concept per se and that is a very important part to see, we are valuing it at exactly zero.

I want clarity on that. In the valuation of this company, there is no premium for the brand or for the idea. It is pure cash of Rs 2500 crore, which would be the cash in the book and that is the right way of looking at it. And then when the future value gets created, then it is a completely different kettle of fish. So, what would be the yardsticks on which investors and shareholders should map the progress of PB Health?
Yashish Dahiya: It is a private company and the yardsticks on which PB Health would get managed would depend on the PB Health investors and the PB Health management. However, because PB Fintech is also an investor in it, I am taking the lens of PB Fintech and saying, how should PB Fintech look at this investment? And what would be the success criteria? Number one, customers should have a great experience because why is PB Fintech investing? PB Fintech is investing to enable a change in the healthcare system.

If customers do not have a great experience, then that thing will not last, however profitable it be or however loss making it be, it will not last. I do not think this venture will die because of lack of cash. It will die if it does not give great customer experience.

Number two, I think the consumer outcomes should be superior to what they are today. So, the early things that you can measure will be things like re-hospitalization rates, re-operating rates, those should come down, the person should not be coming back for the same illness again and again.

Number three, the insurance cost must come down because if the insurance cost does not come down at all, that is number three, I would say if one and two are delivered in the first three-four years, to me as a PB Fintech who is investing in this venture, who wants it to succeed and who wants this change to happen, I think success has been achieved. It would be great if also the insurance cost came down, which I suspect it will, but that will not be the endeavour on day one. The endeavour would be to make sure the customers have a great experience.

And lastly, the venture should also make a profit. I am confident that with control of that venture, a profit will be made. However, that is not an urgent requirement. It does not have to happen very quickly. But I see those four parameters. Number one, customer experience. Number two, customer outcomes. Number three, insurance costs actually coming down. And number four, the venture delivering a profit.