Reddys Prescription For Growth
A packed parking lot, security guards choreographing the traffic, a crowded lobby, and it could pass off for a supermarket at peak time. But unlike a supermarket, the tense countenance of patients seeking medical attention gives the venue away. Behind the stolid facade of Chennai-based Apollo Hospital, theres feverish activity, as chairman Prathap C Reddy gears up for growth.
After a decade of existence, Reddy is all set to leverage the Apollo brand equity. Even as stories about his links with the Chandraswami Trust have hit newspaper headlines, Reddy is busy acquiring hospitals, setting up new ones in India and overseas, initiating the concept of managed care and seeking partners for a logical extension into health insurance. Our aim is to widen the reach of healthcare in the country, he says.
With an initial investment of Rs 12 crore about a decade ago, Reddy set up Apollo Hospitals Enterprises Ltd (AHEL). What could have been called an ambitious project then, has evolved into a strong edifice with a turnover of Rs 75 crore, triggering off future expansions in the group.
Today, the Apollo group has a 457-bed multi-speciality hospital and a 100-bed cancer unit at Chennai, a 300-bed hospital at Hyderabad and, of course, the much publicised venture at Delhi Indraprastha Medical Corporation. Besides, a broad gameplan is being drawn up for increasing the number of hospital beds from the present level of 1,200 to 6,000 in the next five years.
A major plan is to set up a 450-500 bed multi-speciality hospital at Mumbai. In fact, the group is ambitiously considering the acquisition of a leading hospital in the city, a decision on which is expected shortly. While a hospital with around 250 beds may be acquired, another 250-bed hospital may be constructed by the Apollo group for which land is being finalised, says Suneeta Reddy, joint-managing director, Indian Hospitals Corporation (IHC).
Sighting the need and potential for healthcare in urban and semi-urban areas, Apollo has expanded into the Tamil Nadu hinterland. The group has acquired Mother Meera Hospital at Nellore and Orient Hospital at Madurai. Supported by its Chennai flagship, the group will invest Rs 9 crore in the Madurai Hospital, which will have 135 beds. Likewise, Nellore with 100 beds will have an investment of Rs 7 crore. Also under implementation are projects at Pune, Nagpur, Ahmedabad and Lucknow.
Not satiated with plans on homeground, Reddy has already kickstarted hospital projects overseas. The first phase of Apollo Nepal (150 beds), again a multi-speciality unit, commenced operations during the last quarter of 1996 at a total cost of Rs 30 crore. The Bangladesh venture (500 beds) is a superspeciality hospital expected to cost around Rs 135 crore, for which financial closure is under way. A Rs 100 crore hospital has been planned for Sri Lanka, besides projects in Dubai and Muscat.
Given these lofty plans, where are the funds going to come from? With the per bed cost having risen from Rs 5 lakh to Rs 25 lakh over a decade, the investment called for is a massive Rs 1,500 crore over the next five years. While some circles expect the promoters ambiguous political connections to swing deals, there are others who believe that the groups success has generated enough goodwill among financiers. However, Reddy is optimistic. The international investors, including NRIs, are willing to provide funds, he says.
A case in point is Indraprastha. Planned as a 695-bed multi-disciplinary hospital, it has been co-promoted by the Delhi government, which has a 26 per cent stake in the company. The other shareholders include TWL Holdings (24 per cent equity), a Mauritius-based company controlled by Asia Pacific Fund II and the Apollo group (24 per cent). The balance is held by the public. The total project cost of Rs 179 crore is being funded through a mix of debt (Rs 87.9 crore) and equity (Rs 91.7 crore).
This could set a trend in the financing pattern for future projects. It is towards this end that the IHC has been set up. As a consultancy organisation in the hospital management sector, IHC will plan and assist implementation of hospital projects with a local partner who will partly fund the project. In overseas ventures, IHC would also help source investments for the local partner. Apollo will also pitch into the equity if necessary. With all these services, IHC will earn a consultancy fee.
However, contrary to general perception, the privilege for the Apollo brand equity lies with AHEL, Chennai and not IHC. By virtue of being the pioneer, we feel that brand royalty fees should accrue to this hospital, explains Reddy.
In fact, barring those under the Apollo banner, most corporate hospitals in Tamil Nadu are still on the stretcher. The Dr S Ramamurthi backed Malar hospitals, and Tamilnadu hospitals, promoted by S P Veluswamy, are yet to recover their capital investments. At Apollo Chennai, turnover has risen only marginally due to inadequate capacity. Both the cancer and multi-speciality hospitals are working at full capacity. During 1996-97, it is expected to post a turnover of around Rs 75 crore with a net profit of Rs 12 crore.
This dearth of hospital beds is reflected in Delhis Indrapastha, which opened last year. Of the 300 beds now operational, 85 per cent are already in use and this is likely to post a marginal profit for 1996-97. Last year, the Hyderabad hospital has also moved out of the red.
The success therapy at Apollo, taken up as a case study by the Harvard Business School in 1995, is cost-effective operations. For instance, with the help of a modified Total Quality Management system, Apollo has gradually increased the per room, per bed turnover. In other words, patients are discharged soon. Initially, the patients average stay was 10 days. Today, this has been reduced to 6.8 days even in speciality wards such as the cardio-thoracic and orthopaedic wards. The target is to bring this down to the international standard of five days.
The logic here is that in a hospital, only the first few days of a patients stay are money-spinners. Nearly 70-80 per cent of hospital charges, which includes diagnosis and operations, are normally paid within this period. After that, the patient brings in revenue only in the form of room rent as he convalesces.
But setting a trend in prudent hospital management practices hasnt been easy. It requires counselling the patients who have a mind-set against early discharge, explains a consulting surgeon. What has helped is the groups constant investment in technology upgradation. It is here that some government hospitals fail to keep pace, says an industry analyst. For instance, Rs 20 crore was invested in Apollo Chennai with an almost equal amount being invested in the cancer institute.
Time and effort is also spent on continuous orientation programmes for employees at all levels. Says a group executive, When they are new and young, employees are keen workers. But, after a point, if left to themselves, complacency sets in. So for new recruits, there is a two-week orientation course, while all employees are subjected to it every quarter, for 6-12 hours.
With systems in place for efficient operations, the Apollo faculty list boasts some of the best names in the medical profession. However, critics of corporate hospitals reckon that the problem arises when the management has to satisfy two contradictory goals: service to the community and enhancing shareholder returns. But Reddy sees no conflict here. If profit is a healthy word in all other industries, why is it looked at negatively in healthcare? he argues. He believes that the profits in a corporate hospital, if judiciously ploughed back, will only help expand the reach of services.
And, the group is leaving no stone unturned to achieve this. It is finalising a strategic alliance with Air India to lure healthcare customers from other countries. Apollo is also introducing the concept of managed care, popular overseas. K Padmanabhan, president IHC, reveals that a 50:50 joint venture is under way with a leading UK player.
Under this health maintenance scheme, a member would be entitled to regular health check-up with follow-up treatment if need be. For wider reach, the group has struck alliances with 100 registered hospitals (target of 1,000) all over the country to serve as facilitators. Day-care centres are being looked at as a future business opportunity where synergies related to cataract, gall bladder, minor rectal and gynaecological ailments can be handled. It is also talking to foreign majors to enter the health insurance sector. For Reddy sure wants to maintain his stature as a pioneer in healthcare.
While some circles expect the promoters ambiguous political connections to swing deals, there are others who believe that the groups success has generated enough goodwill among financiers.