Local healthcare is a largely disaggregated affair but Apollo’s new plan to start local clinics could change the way we access doctors while adding another valuable addition to the hospital group’s value chain
Apollo Hospitals, started by Pratap Reddy in 1979, is well known for being a pioneering influence in the healthcare arena. Apollo was the first to corporatize healthcare in India—it is now one of the largest hospital chains in the country with 7,000 beds and 43 hospitals—and also introduced the concept of a national pharmacy chain. These were fresh concepts for a market that was largely disaggregated with no single brand dominating the field.
Now, Apollo is thinking of doing it again by starting a national chain of clinics that will total 200 units after a Rs 300 crore investment in three years. This means that instead of relying on a word-of-mouth reference for a doctor every time you get an ear-infection or a fever, you can simply wander over to an Apollo clinic in either your neighbourhood or a nearby mall for a checkup.
| THE OUTSIZED OPPORTUNITY IN HEALTHCARE |
| The healthcare sector is estimated to be $ 65 billion, reaching $100 billion by 2015 |
| It is growing at around 20 per cent a year |
| Outpatient treatment accounts for around 74 per cent of private out-of-pocket expenditures. Over 50 per cent of outpatient spend is on acute infectious disease. |
| Medicines account for 72 per cent of the total private out-of-pocket expenditures. |
| Healthcare majors such as Max Helathcare and Manipal Group have targeted the primary care industry as well as diagnostics. Now, Apollo joins the pack |
| APOLLO'S PLAN |
| Over the next 3 years Apollo plans to set up 200 clinics with an investment of around Rs 300 crore. |
| The investment will be made by Apollo Health and Lifestyle, a 100 % subsidiary of Apollo |
| The initiative will target the middle and upper class segments. Clinics will be set up in neighbourhoods, malls and SEZs |
| All clinics will cater to primary helath care, while fielding specialty doctors like ENT, gynecologist and others. |
| Upto 20 doctors can be consulted in a given clinic |
| Apollo is looking at at least 10 % of its revenues from these clinics in 5 years |
Pratap C Reddy, executive chairman and founder of Apollo Hospitals says, "This is part of our vision to take the service from hospitals to clinics and then to the door steps of people. To achieve this we will use a retail format and tele-medicine . This will be a hub and spoke model, which will help us to reach out to the market".
An underserved market
In general, extending one's brand in the healthcare space is a no-brainer. The Indian healthcare sector, estimated to be around $ 65 billion, is expected to reach $100 billion by 2015, growing at around 20 per cent a year, according to rating agency Fitch. Another report by PriceWaterhouseCoopers estimates around 189 million people in the country will be more than 60 years of age by 2025, contributing to higher healthcare spends, especially in primary health care.
Moreover, in India, outpatient treatment accounts for around 74 per cent of private out-of-pocket expenditures and over 50 per cent of outpatient spend is on acute infectious disease. Medicines account for 72 per cent of the total private out-of-pocket expenditures. However, the real opportunity that Apollo is chasing is the complete lack of organisation in the outpatient space. "We estimate less than one per cent of India's approximately 200,000 outpatient clinics are branded by larger chains or organised into a network," says a PWC's Global Healthcare Deals, a monthly newsletter. "The majority is run by a single physician, often out of private homes or small outpatient clinics. Similarly, fewer than 10% of pharmacy and diagnostic service providers are affiliated with a chain," it adds.
Apollo is no stranger to clinics in general. It already operates them in the diabetic, dental and cosmetic space (on a pilot basis) as well as day care surgery—all considered upmarket and niche. These assorted clinics number 73, of which 43 are franchisees. "What we are now talking about is going further down to reach the door step of the customers," said Krishnan Akhileswaran, CFO, Apollo Hospitals Ltd. The 200 clinics that Apollo plans to set up with an investment of around Rs 300 crore will be made by its subsidiary, Apollo Health and Lifestyle and will be funded through equity, debt and internal accruals, says Akhileswaran. According to Apollo, the hospitals will cater to local populations and immediate problems. Yet, it will also have specialty doctors such as ENT specialists and gynaecologist.
The clinic model, according to the hospital group, makes good financial sense. Akhileswaran says that it is not only successful but scalable as well, with an Ebitda margin of around 30-35 per cent, while the investment per clinic is slated at Rs 1-1.5 crore per clinic. Apollo's existing retail play—the pharmacy business—broke even during the quarter ended December 31, 2011 by posting a Rs 2.2 crore EBIT profit, compared to loss of Rs 9 million a year ago.
More From This Section
Retail success
In many ways, this is a logical extension of the Apollo empire, something that taps into a vast business opportunity that hinges on a severely underserved market while at the same time fitting itself neatly into the hospital group's ambitions to establish a vertically integrated empire. Siddhant Khandekar, chief manager, ICICI Direct says a retail expansion by a hospital chain is a globally successful model. While the generic business (hospitals) focuses on addition of beds and patient registration, the retail model brings in incremental cash from other services and becomes a value addition to the generic business, he said.
One example is the US-based CVS Care Mark, which started as a pharmacy chain and later ventured into clinical and health management programs, retail clinics and others areas. In Apollo's case, the clinic business, much like, say its pharmacy business, will add not just revenues to its coffers but can send droves of patients upstream as referrals to its hospital business.
Apollo has another advantage. Amit Mookim, head- healthcare practice, KPMG says that in urban India, most people look for brands purely for quality and Apollo has arguably the biggest brand in healthcare today. For instance, in diagnostics, there are three organised players who own around 8-10 per cent of the estimated $2 billion market. The rest is all unorganised. (The organised market is growing at 35-40 per cent.
Apollo's main competitor Fortis Healthcare has also quickly made forays into the clinic model—albeit only at a specialty level. The company last year announced setting up standalone dialysis and diagnostic centres. "We see great benefit in augmenting Fortis presence in new specialty-based verticals. The addition of diagnostics and retail dialysis will serve to enhance the quality of care to our customers,"
Fortis Healthcare (India) Managing Director Shivinder Mohan Singh said in a statement earlier. Fortis also launched C-Doc for diabetes and metabolic diseases and stem cell therapy centres.
Pitfalls
In any retail venture, there are two major concerns—building a brand that can catch the eye of a target audience and then bringing the customer to the location where they can sell them a good or service. In Apollo's case, half the work is done since the hospital group already has a well known brand. Bringing in customers is far from being a given. The crucial challenge here is to be able to capitalise on India's high urban density while dealing with sky-rocketing rents that are already proving to be the bane of other retail chains like coffee franchises.
Then, there is the other hurdle that almost every retail chain, regardless of which business they are in, faces: A shortage of qualified and trained manpower. India, according to a recent report, has an abysmally low doctor-patient ratio—one doctor for 1,953 people, or a density of 0.5 doctors per 1,000 population—coupled with acute shortage of nurses and health delivery personnel. Getting the right people in the hospital business is infinitely more crucial than in most other kinds of business, considering that a hospital deals with human lives on a constant basis and can suffer potentially crippling liability issues.
How Apollo chooses to expand could also have an impact on how it performs. Since hospitals work on an asset heavy model, aggressive expansion may load the company up with lots of debt. However, so far, Apollo has chosen an more organic, measured approach.
Ultimately, however, if one negotiates these issues with circumspection, the field is wide open for a first mover to dominate—in this case, Apollo. Healthcare in India is in a nascent stage and a large part of the country still depends only on the limited government hospitals and services. Healthcare currently serves a paltry 35% of the country's population. In this category, there are only two major listed players and their opportunity to grow is huge.
That's good news for someone intent on plugging the rest of the 65% gap.