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.
So, the notion of a ‘for-profit’ hospital is new. And while many did crop up in the 1980s (a few even tapped the capital markets), Apollo’s is considered to be the first national success story. Till f Max, Fortis and Wockhardt jumped into the ring..
The Strategies
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.
Indeed, hospital industry executives believe it is futile looking for over arching figures. What is more relevant is whether the drivers of the business are in place. And they are.
Firstly, the healthcare market in India is under priced, not only compared to the developed world, but also compared to other Asian countries. If a heart surgery costs $14,250 in Thailand, $20,000 in Singapore and $30,000 in the US, it costs $5,000-7,000 in India. This, despite the fact that Indian doctors (and nurses) are considered to be one of the best in the world.
Secondly , 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. along with the intrinsically lower costs, has ensured that hospitals are uniformly full and don’t have lean patches .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 worked here in India.
Doctors and patients differed. The former felt that the primary clinics were mpeting 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.
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.
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 is 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.
Max today has four secondary care centres — two at Panchsheel in south Delhi and one each at Noida and Pitampura (north-west Delhi). Plus, it has a general hospital (half- way between a secondary and tertiary care) in Patparganj in east Delhi. It also has as a massive tertiary care unit at Saket (south Delhi), which comprises a general hospital (Institute of Allied Medical Sciences), plus five superspecialty institutes. “Our strategy to meet the demand has been to create five institutes — cardiac, orthopedics and joint replacement, neurosciences, pediatrics and one for obstetric and gynaecology,” says Max executive director and CEO Mukesh Shivdasani. Work is on for another superspecialty hospital in Gurgaon, which will focus on transplant surgery and another one in Patparganj with oncology as the superspecialty. Analjit Singh feels he now has the critical mass to expand.But his advice to all who want to get into hospitals:
“The business is capital-intensive, it has long gestation, and the viability comes when you have played that out.”Nephew Shivinder’s experience was different. Fortis decided to set up its first hospital at Mohali, Chandigarh, a market that didn’t have any other large, tertiary care private hospital. The idea was to attract patients from Himachal Pradesh, Haryana and Punjab. Simultaneously, it planned secondary care centres in other locations, which would be linked to the big Mohali hospital. It was a classic hub and spoke model.