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Apollo Hospitals – First-World Health Care at Emerging-Market Prices - page 8 / 19





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705-442Apollo Hospitals

A second possibility was to aggressively acquire international hospital management contracts.  An interesting question was if Apollo should consider foreign direct investments – a strategy the group had successfully pursued in Sri Lanka – or if it should concentrate on managing hospital assets without owning them.  The geographic focus of Apollo’s activities was another strategic variable under consideration.  Traditionally, Apollo had managed hospitals in South Asia and the Middle East.  More recently, it had developed some business in Africa.  At the time of the case, however, the Consulting Division studied a hospital project in Romania, which had the potential to open up the Eastern European markets.

Romania had 400 public hospitals with 160,000 beds, but not a single private facility.  Most health care services were covered by the National Health Insurance Fund (CNAS), which was financed by contributions from companies and employees.  The CNAS reimbursed hospitals based on the average diagnostic related group (DRG) of their patients.  The DRG was a clinical classification system used in most of Europe and in the United States.  Assisted by the IFC, the Romanian government sought to develop a public-private partnership (PPP) for the Fundeni hospital in Bucharest.  Fundeni was a major tertiary care hospital with 1,118 beds and a staff of 1,500, including 289 doctors.  The government offered a long-term concession to run Fundeni.  While Romania would retain ownership of all assets, the private operator was responsible for operations and capital expenditures.  The concession contract required the operator to take on all staff currently on Fundeni payroll.  In the first year, no significant layoffs would be possible.  The IFC advertised the Fundeni concession as “an excellent investment opportunity” because the hospital had a “top reputation as the premier tertiary hospital in Romania,” was “well-funded by CNAS” and “well positioned to serve the untapped private health market” in Romania.  

Dr. Reddy was optimistic about Fundeni: “I am now managing hospitals in Colombo, but I feel I should also be prepared to go to Central Europe and possibly the UK.  Romania is not so far; going from India to America, it is about half distance.”  Sangita Reddy, Director of Operations, felt similarly:

I am very positive about this opportunity, we need to go there with a positive spirit.  When we started the hospital in Hyderabad, everybody told us that it would be difficult because Hyderabad is very different.   They said the same thing about the hospital in Delhi and the hospital in Sri Lanka.  It is interesting that there is no global health care player.  Every other business is more global, but health care is very localized.  There is room for more globalization in health care.

Medical Tourism

A third strategic opportunity open to Apollo was to help develop India as a destination for international medical tourism.  Traditionally restricted to the elites of poor countries, global medical tourism was a relatively recent phenomenon.  Significant quality and cost differences in hospital care, however, made international patient mobility ever more attractive.  With more than one million medical patients per year, many of them undergoing plastic surgery, Thailand was the most successful destination.  India, in contrast, was not yet on the map for medical tourists.  In fact, even India’s general tourism numbers were abysmal.  Despite its rich cultural heritage and the many interesting destinations it offered, India attracted less than 3 million foreign visitors a year.  To compare, more than 90 million tourists visited China each year.

Despite its weak competitive position today, many analysts seemed to be optimistic about the prospects of medical tourism in India.  For instance, a study by the Confederation of Indian Industry (CII) and McKinsey estimated that medical tourism might bring India annual revenues of $1.1 to $2.2 billion by 2012.16  Apollo’s President, K. Padmanabhan, expected the group to capture up to 60% of this market.  


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