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

 

A Business Case for Branded Primary Healthcare Services In India

This winter Delhi has been smothered with fog or rather smog. While, I am one of those who enjoy the cold and love my walks in the neighbourhood park, pretty much like almost everyone else in the city I am not immune to the cough, cold and the respiratory track infections that that the damp and the cold brings.

I have been struggling with a bad cough for the last few days and have been wondering that it is perhaps about time I saw a family physician. Unfortunately, we do not have a regular family physician and I am not sure where to go. I also know if the problem worsens and a fever materialises I would go and see a specialist at Max Hospital and with a course of antibiotics I would be fine.

However, this is not the way it is meant to be. For something like this shouldn’t I be going to a neighbourhood clinic and getting the problem fixed before it became bad enough for me to see a specialist at a big hospital? And this brings me to the point that we need good quality and reliable primary healthcare in our neighboourhoods. There is a significant business opportunity here waiting to be tapped.

A Little bit of History

Apollo Hospitals tried setting up Apollo Clinics a few years ago. I was part of the founding team, which went into planning the clinics and the business around them. Apollo however was clear that it was not going to own or fund these clinics. They were supposed to be franchised with Apollo providing medical knowhow, its brand name, some of its doctors and IT support connecting the clinics with the hospitals. Ratan Jalan the than CEO had a vision of opening 200 clinics in 3 years. The clinics were supposed to provide outpatient services, namely consulting with doctors, diagnostic imaging services which included an X-Ray and an Ultrasound basic cardiology diagnostics like an ECG and a Treadmill test and a pathology sample collection centre. We sold some of these franchises and the Apollo Clinics started functioning with the first one commencing operations in Janakpuri in New Delhi. The owners were businessmen running a computer hardware store in Nehru Place and had no prior experience of healthcare. Similarly a few other clinics were also franchised and were set up in Delhi, Kolkata, Bangalore and elsewhere . However, it became apparent early on that Apollo was hardly serious about this business. They were keen on netting more patients for their large hospitals through this network and saw these as no more than referring centres and the support that was promised to the franchise owners  never materialised. The smarter ones quickly realised that in this new business they were pretty much on their own, learnt the ropes of this new business fast and managed to survive. Many did, many shut shop. Apollo was hardly bothered with any of this.

Max Healthcare too experimented with Dr. Max Clinics in New Delhi. Two clinics were set up in South Delhi. Unlike Apollo, Max invested in the clinics and had no desire to franchise. This experiment unfortunately failed mainly because Max in those days was focussed on rolling out its large hospitals and these clinics did not get any management attention. They were just not worth the trouble in the larger scheme of things and were closed down after a few years of experimentation.

The Learnings

While Apollo and Max both tried to set up Primary Healthcare Clinics, they were hardly serious attempts at the business. Apollo did not want to invest and was keen on skimming profits at the cost of the hapless franchisees and Max was just not ready at that point in time for something like this.

Apollo Clinics had a large upfront investment of approx. Rs. 20MN in the venture and since they themselves were not investing, they allowed the costs to go up and with the franchisee not knowing any better, they got away with this. When we crunched the numbers at Max we realised that a fairly decent clinic can be set up for as much as INR 5-7 MN.

The biggest challenge really here was about getting quality doctors (Family Physicians, Paediatricians, Internal Medicine, Obs and Gynae and Cardiologists) to join the clinic. Since the clinic is a very local enterprise one would want to pull in local doctors. However, we discovered at Max that many of them were just not interested as they saw the clinic as serious competition. They were afraid that if they moved to a Dr. Max Clinic and asked their patients to come there, the patients in future might prefer the superior and more professional services of the clinic. We tried hard to convince the local doctors that we sought a win win partnership but it really did not go anywhere.

The solution thus lies in forging a relationship with the local prominent doctors, which safeguards their economic interests. This can be achieved by asking them to invest in the venture. Thus 50% of the ownership of the clinic can reside with the lead consultants in the clinic. Thus let us say a sum of INR 2.5-3.5MN can be invested by the doctors and the balance by the entrepreneur, who sets up the business. A city like Delhi can easily absorb at least 100 such clinics and the model can be scaled up and rolled out across the country.

The clinics can than be established as a chain and can be marketed under a single brand name, 50% owned by an entrepreneur and 50% by local doctors. The clinics can all be connected under an IT backbone and data can be shared seamlessly. This can also open up enormous revenue possibilities from scientific research and allied work. Costs can be driven down by centralised purchasing and efficient supply chain management. Superior and unique customer experiences can be delivered through processes integrations and people training. I personally believe time has come for these clinics to emerge and claim their rightful place under the sun.

Finally, will this mean the McDonaldisation of primary healthcare in India? Well, may be yes, but than don’t we all love the neighbourhood McDonalds.

Pic Courtesy http://theapolloclinic.com/CorMainArticle.asp?Id=3

The Healthcare Opportunity in India

Wockhardt HospitalEverybody acknowledges that the healthcare industry in India has a lot going for it. Patients from across the world are looking at state of the art Indian hospitals for cheap and quality care. The doctors and the nurses are considered to be one of the best in the world, their is abundant supply of good quality medical talent, health insurance is penetrating deeper and the market is predicted to grow substantially.

A quick look at the numbers tell the story. Healthcare is presently a USD 35 bn industry and is expected to grow to USD 75 bn by 2012. A Confederation of Indian Industry report says that investments worth USD 50bn are required annually for the next 20 years to meet the growing demand. India will need 3.1 mn additional beds (presently 1.1 mn) by 2018     Continue reading

Around the World For a Cure – The Big Opportunity in Medical Travel

Medical Tourism is a much reviled word, in many ways an oxymoron. Tourism is all about holidays to be enjoyed with family and friends, while ‘medical’ connotes ill health, hardly conducive to travel. Maybe Medical Travel might be a more appropriate word.That as it may, medical tourism has gained wide currency and captured the world’s attention.

It is viewed as the next big opportunity for countries like Thailand, Malaysia, India, Singapore in Asia and Costa Rica, Panama, The Bahamas and Peru in Latin America.

The reasons for Medical Travel are not difficult to understand.

People travel in search of good quality medical care. In the past business tycoons, politicians with ill gotten wealth, businessmen, aging filmstars and shaikhs from the Middle East would typically travel to foreign shores seeking high quality medical care. Most of them traveled from the lesser developed countries like Middle East, India and Latin America. The destination usually was the United States.   Continue reading