The examining rooms at Nanded are much like those I found elsewhere in India. They are ovens in the heat of the summer. The paint flakes off the walls in jagged strips. The sinks are stained brown and the faucets don’t work… Each room has a crowd of four, six, sometimes eight patients jockeying for attention… I asked people everywhere what they did when they had a serious health problem. All of them from villagers to the government doctors themselves told me that, if there was any way they could, they went to a private hospital, though the government does not pay for it… Patients borrow from the family, sell their possessions, do whatever they can to pay for care in private hospitals, which have no waiting lists and are usually clean and well supplied… Even the prime minister does not go to his government’s hospitals.4
Spending patterns reflected these concerns with the quality of publicly provided care. For example, private, for-profit hospitals captured more than 30% of total health care expenditure. The importance of for-profit players in India stood in marked contrast to many other countries, where health care was dominated either by nonprofit or by governmental institutions. Exhibit 1 compares the value chain of the health care industry in India and in the United States. While Health Maintenance Organizations (HMOs) played a major role in granting access to health care in the United States, India lacked organizations of this type. For the minority of Indians who were covered by insurance, Third Party Administrators (TPAs) negotiated prices for access to network clinics with the large corporations who offered health benefits to their employees. TPAs also processed medical bills on behalf of their network clinics, but they did not offer insurance. The financial risk of providing health care remained with the corporations.
Of course, the industry organization shown in Exhibit 1 was not set in stone. Given rapid technological progress and rising cost pressures, the roles of players in the value chain and the boundaries of companies were in constant flux in all countries. For instance, in the 1990s, hospitals in the United States integrated horizontally in a wave of hospital mergers and strategic alliances with other hospitals. In an attempt to create Integrated Delivery Networks (IDNs), U.S. hospitals also integrated toward the patient. They acquired the practices of primary care physicians, entered into alliances with physicians in physician-hospital organizations (PHOs) and developed HMOs. Horizontal and vertical integration, however, proved financially disastrous for the U.S. industry. In fact, the more a hospital invested in integration, the sharper was the financial decline that it suffered.5 As a result of these negative experiences, U.S. hospitals started dissolving their PHOs and abandoning their HMO products in the late 1990s.
The Apollo Group
Prathap C. Reddy was born and raised in Chennai in India’s southernmost state of Tamil Nadu. He practiced and taught medicine for nearly 15 years in the United States at various hospitals, including the Massachusetts General Hospital in Boston. An accomplished cardiologist, Dr. Reddy returned to India in 1970 where he opened a booming primary care practice that eventually allowed him to invest in a cardiology lab and clinic. When he found himself having to refer more complex cases abroad for treatment, a solution that was prohibitively expensive for his less affluent clientele, he considered opening a private, state of the art, multiple-specialties facility. Overcoming myriad regulatory and financial challenges, Dr. Reddy opened India’s first for-profit hospital in 1983. Twenty years later, the Apollo Hospitals Group emerged as the single largest private health care group in Asia, managing 33 hospitals with 6,400 beds and treating patients from more than 50 countries. In