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Healthcare's New Leaders
18th December, 2006

"It is a capital-intensive venture with a long gestation period, and viability comes only after that"

"The idea is to identify catchment areas, set up hubs, citycentres, boutique hospitals and medicities" Shivinder Mohan Singh CEO and MD, Fortis Healthcare and Escorts, No. of hospitals: 12 Turnover: Rs 443 cr No. of beds: 1,900.

Max, Fortis Healthcare and wockhardt have crafted distinct strategies to tap the growing potential of healthcare
By Gina S. Krishnan

In less than a decade, Wockhardt, Fortis Healthcare and Max have added close to 5,000 beds, something that took Apollo 20 years. (It is of course another matter that projections show that India needs an additional 80,000 hospital beds each year.) Their revenues have also grown briskly - about 30 per cent annualised for the past five years for each, according to Vivek Desai, managing director, Hosmac, a hospital consultancy.

While their respective strategies are responsible for their success, it is also true that they timed their entry well. India has a long history of privately run and owned hospitals. By the 1960s, once it became clear that there weren't enough government hospitals to meet the country's needs or that they weren't just good enough, the middle classes swiftly changed allegiance to privately run hospitals. These were of two types. A majority were trusts, set up by big business houses (Escorts in Delhi , Birla Hospital in Kolkata, etc.), while a sprinkling were for profit institutions though these were usually nursing homes and not full blown hospitals, often built by doctors.

There aren't any precise estimates of how big the hospital industry is. Apollo's hospitals group has a turnover of Rs 719 crore over 8,000 beds. That translates into revenues of Rs 2,460 per bed per day. According to some approximations, there are around 875,000 hospital beds in India . So that translates into an industry worth Rs 78,630 crore. However, that would perhaps be on the higher side as majority of the beds wouldn't fetch Apollo rates. According to a CII McKinsey report, the entire healthcare industry is worth $18.7 billion, with the private sector controlling 65 per cent of it. But this figure includes the pharma industry as well as other healthcare related businesses like pharmaceuticals, diagnostics, etc.

"Serving unmet needs and a pan India presence are the two drivers for Wockhardt Hospitals" Habil Khorakiwala Chairman, Wockhardt Hospitals No. of hospitals: 10 Turnover: NA No. of beds: 1,500.

Two, rising income levels and greater awareness has ensured that people are more conscious of the service level of hospitals and don't mind paying slightly more if what they get in return is substantially higher.

Three , India 's cheaper healthcare has stoked the flames of healthcare tourism - patients come here from all over the world to be treated. This - reported first in BW (see 'The Healthcare Traveller', 22 December 2003) - along with the intrinsically lower costs, has ensured that hospitals are uniformly full and don't have lean patches like say, the hotel industry which has similar cost structures.

Also, traditionally healthcare is a recession-proof industry.

This means hospitals can flourish pretty much, as long as they get two things right - managing doctors and understanding the psyche of Indian patients. A quick insight: unlike in the west, where people go to GPs for everyday illnesses, Indians tend to go to specialists. Max Healthcare tried changing this, but failed. Indeed, Max bore the brunt of public scrutiny far more than any other given that it came up in Delhi , and was the first private player of any significance after Apollo.

The original Max plan was simple. Have local primary care centres, which would feed into secondary care centres, which would converge at a tertiary care centre. This model is established abroad, but was being tried for the first time here. It did not work-though Analjit still defends this original plan. "A pilot does not start with a 737; he begins with a turbo jet so that he does not take a large number of people with him."

Doctors and patients differed. The former felt that the primary clinics were competing with their private practice and, therefore, were reluctant to join up. The absence of a full fledged hospital within Max was another disincentive for doctors who were usually attached to big hospitals for tertiary care treatment which is the big ticket spend. Primary care is like a filter. The absence of a tertiary care hospital also meant that Max's clinics were used as referral centres to other hospitals.

"It is a capital-intensive venture with a long gestation period, and viability comes only after that" Analjit Singh Chairman and MD, Max Healthcare No. of hospitals: 7 Turnover: Rs 137 cr No. of beds: 785

Also, Max had started its centres at upmarket Delhi localities, assuming correctly that the resident had more spending power and would be willing to afford better medical care. But this turned out to be a bit of a liability, since those patients were used to visiting marquee doctors, whom Max did not have. Though Max had consultants trained internationally, they were unknown names in Delhi .Analjit Singh describes those days as "his struggle to understand the Indian healthcare market". Worse was to follow. By 2003, Max's CEO and the chief medical officer quit. Also, a tie-up with Harvard Medical International (HMI) was terminated in 2004. (Wockhardt would sign up with them later.) Many blamed Singh for his unwillingness to delegate. He took the criticism in his stride and continued to be closely involved. What he learnt has shaped the Max Healthcare of today.

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It has adapted the original primary- secondary-tertiary model to a roughly secondary-tertiary model. The secondary care clinics have been upgraded to smaller hospitals (a 20-bed outfit i now a 60-100 bed outfit); simultaneously, the practice of the primary centres has moved to the secondary and main hospital and all primary centres have been closed down.

"It took us time but finally the credentials of Fortis Healthcare as a centre of excellence has been established" Daljit Singh, President (Strategy), Fortis Health Limited

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It also figured that time wasn't ripe yet for the hub and spoke model. Instead, it put up another multispecialty hospital at Amritsar , though smaller than the one at Mohali. And focused on OPD camps in smaller towns and villages. This has turned out to be a win-win for doctors, patients and Fortis. While patients get specialty opinion at no cost, local doctors co-opted in this process become primary care-givers. and start referring their patients to the Mohali hospital.

Once the Mohali operations stabilised, Fortis Healthcare turned its attention to the National Capital Region (NCR). "For us, NCR is 44 million people, a larger catchment area, more than Mumbai," says Shivinder. So, in 2004, Fortis Healthcare opened a 175-bed hospital in Noida with a focus on orthopaedics and neurosciences. However, the big step was Fortis Healthcare buying out the Escorts Heart Institute and Research Center in 2005.

"We have been on a significantly higher growth path in the past five years after we understood and perfected our growth strategy" Vishal Bali, CEO, Wockhardt Hospitals

The Fortis Healthcare strategy is beginning to look a bit like this. The company is returning to its original hub and spoke model, but each hub (or spoke for that matter) looks different. And instead of 'hub', the Fortis Healthcare management calls them 'epicentres'.

North India has four epicentres - one in Mohali and three in the NCR (Noida, Shalimar Bagh and Gurgaon). Each of these epicentres will be connected to spokes ('city centres'). For north India, the epicentre was Mohali bringing together Himachal, Haryana, Punjab and Chandigarh . In the NCR, it has opted for three epicentres since the market is huge. Each epicentre has a number of spokes around it. The epicentres are large hospitals at Shalimar Bagh (ready by 2007), Noida (running) and Gurgaon (ready by 2007-08). The smaller hospitals or city centres feeding into these epicentres could be owned or managed 100-150 beds which cater to a smaller area and attach themselves to larger hospitals like Jeevan Mala and Jessaram.

Fortis Healthcare is also setting up boutique hospitals. There is already one called Le Femme which offers women's health (mother and child care, adolescent care, cosmetic surgery, etc.). Sixty five acres of land has also been acquired to set up the 'medicity' in Gurgaon, a world-class facility for international patients. "The idea is to identify catchment areas, set up hubs, city centres and boutiques and medicities," says Shivinder.

"We are creating 5 institutes to cater to the increasing number of patients " Mukesh Shivdasani, executive director and CEO (NCR1), Max Healthcare

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Moreover, with India becoming a significant player in healthcare tourism, international chains have also begun looking at setting up shop here, though to stay competitive they will have to price their offerings intelligently. Add to this the fact that states are falling over each other to offer incentives to anyone setting up hospitals, and you get the picture.

But Devi Shetty, a renowned cardiac surgeon who is setting up two medicities in Kolkata and Bangalore , sounds a word of caution. He argues that to be viable on the long term, a hospital needs to have at least 5,000 beds. Today, only Apollo has those numbers. This means that the other players will have to scale up. Also you can expect far more M&A in this sector.

So where does this leave Apollo? Reddy argues that it has nothing to worry about.

"We paved the way for the younger players"

"We paved the way for the younger players" Prathap C. Reddy, Chairman, Apollo Hospitals

Prathap C. Reddy, the grand old man of corporate healthcare in India, had set the agenda for his rivals. But the chairman of Apollo Hospitals is currently facing a series of problems - from charges of violation of medical ethics to losing market share to a clutch of new super specialty hospitals. Reddy discusses all this and more in an interview with Businessworld. Excerpts.

Are the corporate hospitals a challenge to Apollo?
A number of corporate hospitals in the country is good news. There was a huge vacuum with only one player for almost 20 years. Apollo faced many difficulties and has smoothened the way for the younger players. But there is still a long way to go. The good thing is that the focus is the same - value and quality of service to people.

What other locations are you mapping in India , and abroad?
We opened a hospital in Bangalore six weeks ago, we have hospitals planned in Mumbai, Bhubaneswar, North East, and are looking at five centres in tier 2 cities. Also on cards are overseas projects in Mauritius, Fiji , Maldives and Caribbean .

We are not restricting ourselves to the developing market. The US government is worried about costs and we can provide the solutions. Apollo has set the tone by providing world-class healthcare and getting international accreditation. We have similar or even better technology and equipment than many hospitals in the West, while our cost is one-sixth the cost in the US. The developed world can learn from us.

Has the Colombo episode, where you had to sell the minority

stake in the hospital that you set up, affected your strategy?
We are proud of what we have left in Sri Lanka . In terms of investment opportunities, we got back good returns when we exited. In fact, now the management has invited us to manage the facility. I still believe that we took the right decisions in those difficult times.

Has the Mahajan controversy affected Apollo's reputation?
For Apollo, the growth rate has doubled. The Mahajan case became a media trial. It was unfortunate that one doctor's enthusiasm created so much adverse publicity. What the media did not see is how we saved the life of a man.

What is the strategy to stay ahead in the game?
We are a multispecialty, tertiary care hospital with emphasis on cardiothoracic care. But now we are moving to quaternary (healthcare and research) care. We have a partnership with John Hopkins for heart care. We are looking at partnerships with players in the US and UK in oncology and diabetes. We are looking at application areas like nanotech and proteomics.

In the 1980s, my vision was to create a corporate professional hospital. Now, we are the largest network (8,000 beds) of care provider in Asia, ranging from outpatient clinics to community hospitals to tertiary superspecialty hospitals. Initiatives like health insurance, telemedicine and IT in healthcare are areas we intend to devote our attention and resources to.

There are some doubts over your second line of command...
Five years ago, my four daughters started looking after the business - Preetha looks at hospitals, Sunita at finance, Shobhana at insurance, research and pharma and Sangeetha looks at IT, BPO, and overall development. We have professionals who handle the day-to-day operations and all divisions are led by highly respected professionals like David Neville, Richard Larison.