The Apollo Clinics-The Perils of Franchising Healthcare Services in India

I came across a piece co-authored by my former colleague Ratan Jalan in ‘Marketing Health Services’ (Eye on The Indian Market, Spring 2009 edition)of the prestigious journal of the American Marketing Association. I have known Mr. Jalan since he hired me to work for him at Apollo Health and Lifestyle Ltd., many years ago and hugely respect his scholarship and knowledge about the business of healthcare in India. However, I must confess that I do not quite agree with Mr. Jalan’s portrayal of the opportunities in franchising healthcare services in India and his conclusions about Apollo Health and Lifestyle’s successful franchising of the Apollo Clinics.

Apollo Hospitals is one of the largest chain of hospitals in India. It has in its network more than 41 hospitals and manages over 8000 beds mostly in the secondary and the tertiary healthcare space.  I met Ratan in the year 2001, when he was setting up Apollo Health and Lifestyle, which was to get into franchising of the Ápollo Clinics, the primary healthcare services chain, which were supposed to complement Apollo’s large secondary and tertiary care network. These clinics were envisaged as a franchised operations, supported by the Apollo Hospitals group. They were to leverage Apollo’s excellent brand equity and knowledge about the healthcare in India and help franchisees run a profitable enterprise.

The Apollo Clinics were well conceived. The service mix was essentially OPD consultations, a collection centre for pathology samples, radiology services (X-Ray, Ultrasound) and basic cardiology diagnostics (ECG, TMT and Echo). The clinics also had a 24 hour pharmacy and basic preventive health packages were also offered. We worked hard on the look and feel of the clinic (Ratan had Alfaz Miller design the clinic interiors), Ravi Bajaj was to do the staff uniforms, and the clinics were to hire smart and well-trained youngsters to be the face of the clinics. The consultants were to from the local areas and it was thought that Apollo Hospital’s senior consultants will also run their OPD’s from these clinics.

On the business side of things a franchisee needed to invest close to Rs. 20 MN upfront. The business plan included a fixed percentage payout by the franchisee of the revenue that he made. Apollo was to handhold the franchisee through the setting up of the clinic, purchase of medical equipment, development of the software to run the clinic, recruitment of the employees both medical and non medical, and selection of doctors. Apollo was also to provide an exhaustive set of instructions and guidelines on the management of the clinic to the franchisees and it was responsible for monitoring the quality of the services delivered at these clinics.

While on paper the model looks perfect, it has some serious infirmities.

A franchised operation by definition has to be a replication of an existing successful model. In Apollo’s case, they had nothing to show in the area of Primary Healthcare. They used to run a clinic in Mumbai, which they owned. Just about the time Apollo decided to go the franchise route, their own clinic shut shop. It was losing money hand over fist and the management decided to shut it down.

In the franchised model that was now envisaged Apollo had no financial stake. The money was to be put up by the franchisee, he was to bear all the costs including a revenue share with Apollo and it was not clear how Apollo will contribute to bringing in new patients to the clinic. It was expected that Apollo’s name itself will pull in patients. Thus the franchisee was to fend for himself as far as developing the business was concerned. Apollo could have contributed by investing in the brand ‘Ápollo Clinics’ and by forcing some of its leading doctors to run the OPD’s from the franchised clinics. Apollo made lofty promises of investing millions in the brand but just didn’t. As far as doctors were concerned, some feeble attempts were made to get Apollo doctors to attend these clinics but hardly anything materialised. The problem really was that in Apollo system the senior doctors are not paid firm salaries and they work on a revenue share model. Thus, Apollo’s control over these doctors is minimal. The senior doctors with a busy practice had no reason to sit in the newly opened Apollo Clinics, which in any case did not have any patients of their own.

The selection of the franchisees too threw up issues. The franchisees were largely businessmen with hardly any experience of healthcare. Neither did they have any particular love or passion for the healthcare business. I remember meeting and offering franchises to computer hardware merchants, aluminium dealers, a golf ball manufacturer, a real estate player and the like. All of them were driven purely by a profit motive. Some also saw healthcare as a more respectable business for their children. We sold the franchises indiscriminately, (at least in the beginning) to anyone willing to put up the money. A network was thus born that had no glue except the brand name that each franchise shared with the other.

The biggest casualty in all this was of course the quality of healthcare services that each clinic rendered. There was no uniformity as each franchisee left to fend for himself became increasingly desperate for revenue. He hired doctors on his own many of dubious quality, started offering cuts for referrals, set his own prices and started indulging in all kinds of practices that would help him get the extra money that he needed to stay afloat. As most of these franchises were not businessmen with deep pockets, they were willing to cut corners as their very survival was at stake. In-spite of all this many had to close down operations.

Apollo gradually lost control over these franchises. Since, it did not add any value to the franchise’s life he decided not to pay the monthly royalty. Many refused access to Apollo personnel on their premises and are now pretty much operating as stand-alone entities. They continue to use the Apollo name, as that is the only thing, which adds value to their operations.

Creating a franchised healthcare network is fraught with danger. Apollo failed by not first establishing a successful chain of primary healthcare centres of its own. It had no proven learnings in that space and it undertook to make money at its franchisee’s cost. It lost the trust of not only its franchisees, but also of many of its patients who certainly expected a lot better from Apollo.

Pic courtesy The Apollo Clinic website

 

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10 thoughts on “The Apollo Clinics-The Perils of Franchising Healthcare Services in India

  1. Dear Anas,
    What you written is the one side story of the franchising or the healthcare model set by Apollo. Few words or sentences may be true and you should also see the success factor in Apollo Clinic in the southern India, Eastern India and to the extent Gorgon. Were the turnover is more than Rs 4.5 Million. PA.You’re quite Unlucky you did not wait in the organisation till the clinics became successful and profitable
    Just for your information 2 Successful Clinics in Chennai were established even before it was conceived of franchising, it looks poor on you to write without any deep analysis
    The Healthcare business investments are not to look out for a profit in Short term and one should have the views for mid- term to long term profitability. Majority of the franchisee who had a belief and trust with the business model and I am 100% sure they succeeded.
    Regards, Lakshman , Apollo health and Lifestyle Limited (2002 – 2009)

  2. Dear Laxman,

    I respect your views. However, I can’t agree with them. I spoke with some franchisees and ex-employees, while writing this. I found them uniformly against Apollo’s model and felt that Apollo has not kept many promises, which it made to them, while signing them on.
    More than anything else this story is also about missed chances. Apollo set itself a goal of opening 200 clinics in two years. This was in 2002. Mr. Jalan kept repeating this mantra till 2007. 200 clinics is still a mirage.
    I believe the opportunity in Primary Health Care in India is much bigger. Apollo messed up by not investing its own money and taking the franchisee route. If Apollo really believed in this business they should have put their money where their mouth was, opened 50 clinics of their own, managed them successfully and than ventured into franchising maybe 500 clinics.
    While I appreciate your loyalty to your former organisation, let us not run away from accepting failures as they are.

  3. Hi Anas

    Met you only briefly in Delhi while you were with Artemis (I recall that was your last day in office?). As a co-author of the piece that you are referring to, and someone who has been in both the franchising industry as well as healthcare industries for long, there are perils in any franchising business which are not very different from what in the case with Apollo. To top it, healthcare has always been a difficult business space in India.

    Given all this, Apollo Clinics have created a creditable model. you can also see my case study on the Clinics in Vikalpa last year. Would love to connect with you.

    regards

    Vinay

  4. Dear Anas,

    Now the new management has just reversed the model they are getting the process correct and they are going on their own (clinic) buying out existing clinic. It will be really interesting case study to study. Let us keep learning from each others.

    Few of the articles you have written is worth studying and implementing in Healthcare service one such is the royalty program.

    1. Dear Laxman,

      Good to know that AHLL is relooking at its business model. I am sure the rejigged version will do well.

      Regards,
      Anas

  5. Dear anas
    Would like to have a talk/meeting with regard to franchise model in health care. Found your inputs valuable

    Warm regards
    Ashna 9540044834

  6. Dear Anas,

    I’m Indonesian, I found Indonesia have similar problem in standarize of their public health service.
    So I would like to have meeting with you regarding business model of Apollo Clinic
    Thank you

    Warm regards
    Denny Bernardus
    +6281 132 9778

  7. Apollo Clinic Rates For Testing Varies from Clinic to Clinic
    I got the rates from Kolkata P A Shah Clinic for Testing Of Blood Sugar PP & Fasting
    Prince Anwar Shaw Road Clinic Rs 80 + 80 = Rs 160
    Garia Clinic Rs 90 + 90 = Rs 180

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