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Apollo Hospitals – First-World Health Care at Emerging-Market Prices - page 3 / 19

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Apollo Hospitals Group705-442

India, Apollo’s share in the tertiary care market stood at 14%.1  This corresponded to a 35% share in the market for private tertiary care.

The Apollo Group was active in many parts of the health care value chain.  Apollo Hospitals Enterprise Limited (AHEL), the publicly listed holding company, owned and operated hospitals in India and abroad.  The hospitals specialized in providing upmarket tertiary care.  AHEL also ran India’s largest network of pharmacies and offered international consulting services.  AHEL had five subsidiaries which provided a wide array of health care services ranging from technology solutions and medical billing (Apollo Health Street Ltd.) to in-home care that allowed patients with medical needs to continue living at home (Unique Home Health Care Ltd).  Of special strategic importance was Apollo Health and Lifestyle Ltd. (AHLL), a wholly owned subsidiary, which had started franchising primary care clinics.

Apollo also operated several nursing schools and the Global Nursing Program (GNP) which trained and placed nurses in the United States, Great Britain and in countries throughout the Middle East and Asia.  In the GNP, nurses received clinical training in most therapeutic areas.  Apollo also offered non-medical training ranging from computer skills to grooming as well as cultural and language classes.  In part, the GNP was a response to the high turnover in Apollo’s nursing staff (over 25%).  Apollo nurses were actively wooed for their skill level and reputation and many left Apollo hospitals for jobs abroad.  With attrition seeming inevitable, Apollo’s management decided to capitalize on the large shortage of nurses in the developed world by creating the GNP.  In the United States alone, 110,000 nurse positions were vacant at the end of 2004.  As a result of the shortage, wages rose fairly quickly in the industry, from $49,634 in 2003 to $54,574 in 2004 (see Exhibit 2).  More than 25% of the nurses working in the United States reported earning at least $65,000.6  Higher wages lured many retired nurses back to work (The number of licensed nurses not employed in health care is shown in Exhibit 3).  Nurses over age 50 accounted for 63% of employment growth (see Exhibit 4 for the age distribution in the profession.)  All in all, U.S. hospitals hired more than 200,000 nurses since 2001, the largest increase in nurse employment since the government launched the Medicare program in 1965.  The federal Bureau of Health Professions projected that the demand for registered nurses will grow to 2.8 million by 2020, up from two million in 2000.7

Apollo Hospitals Enterprise Ltd. (AHEL)

While the quality of care at Apollo’s hospitals was high, the group specialized in offering advanced procedures at prices that were surprisingly low by global standards.  A liver transplant that cost $300,000 in the United States was $45,000 at an Apollo hospital.  Similar price differences existed for cardiac surgery ($30,000 vs. $6,000), orthopedic surgery ($20,000 vs. $4,500) and bone marrow transplants ($250,000 vs. $30,000.)8  There were several reasons for these remarkable price differences, including personnel cost, the high equipment utilization rates in Apollo’s hospitals and differences in margins (see Exhibit 5).  Apollo’s cost advantage was less significant compared to other developing countries (see Exhibit 6).

Surgeons and other physicians at Apollo were employed on a fee-for-service basis.  A cardiac surgeon typically earned about $300,000 a year, compared to a median wage of $417,000 in the United States.9  In a fee-for-service model, the corporate entity with which the doctor was affiliated took responsibility for the patient.  When complications arose, Apollo seemed to worry more about reputational damage than legal liabilities.  “Most other hospitals have localized problems,” an Apollo manager explained. “But if something happens to an Apollo patient in Chennai, it affects Apollo everywhere. If something happens in India, it will affect Apollo in Sri Lanka.”

1 Tertiary care services are provided by specialized hospitals or departments that are often linked to medical schools or teaching hospitals.  They treat patients with complex conditions who have been referred by other hospitals or specialist doctors.

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