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  The Wall Street Journal, Apr. 26, 2004  
 

India's New Coup In Outsourcing:  Inpatient Care

Facing Expense, Long Waits At Home, Westerners Fly In; A Hospital Empire Grows

Mr. Salo Has 'Real Doubts'

 

By Jay Solomon

April 26, 2004; Page A1

 

MADRAS, India -- Last year, Terry Salo flew 22 hours from his home in Victoria, British Columbia, to this southern Indian port city for a partial hip replacement.

 

Mr. Salo, a former commercial fisherman, faced a wait of a year or more for free care from Canada's national health service but the pain had become unbearable. Before airfare and other expenses, he paid $4,500 for the surgery at Apollo Hospitals Enterprises Ltd., a quarter of the cost for similar treatment in Europe and the U.S.

 

"People need to know that there are other options out there," says Mr. Salo, 54 years old, who was swinging golf clubs a month after the operation.

 

Mr. Salo is one of 60,000 foreign patients who were treated at Apollo Hospitals over the past three years. Since its start as a single hospital in 1983, Apollo has grown to 37 hospitals with more than 6,400 beds, making it one of the largest private hospital chains in Asia. Apollo's emergence as a global health-care provider in many ways tracks India's economic trajectory over the past three decades. The company has capitalized on the high cost of health-care administration in the U.S. and demands of patients elsewhere, for fast, inexpensive treatment.

 

Hundreds of Apollo's data processors work late-night shifts providing billing services and processing insurance claims for U.S. hospitals and insurers. Apollo laboratories perform clinical trials for Western drug companies, such as Pfizer Inc. and Eli Lilly & Co. Apollo even remotely evaluates X-rays and CAT scans.

 

Apollo's range of medical services -- from the back office to the operating room -- highlights the contradictions of the global outsourcing debate. In seeking to provide a wide range of services at a large discount to Western competitors, Apollo is yet another Indian company threatening jobs in the U.S. and other countries. On the other hand, Apollo's relatively inexpensive medical services have benefited patients from numerous countries. It also has helped India's overburdened health-care system. India has fewer than one hospital bed per 1,000 people, compared with more than seven in developed countries.

 

"We're showing that a field like medicine is very much a two-way street," says Prathap C. Reddy, 72 years old, a physician who founded Apollo and now runs it with his four daughters from Madras, also known as Chennai. "We can all grow from each other's strengths."

 

Apollo and a half dozen other private Indian hospital companies are adding patient rooms, buying new equipment and installing modern telecommunications gear. Meanwhile they also are setting up marketing offices in cities such as London and Dubai to attract patients, many of whom remain wary of seeking health care in the developing world. Few of Apollo's patients come from the U.S.

 

Growth Industry

 

The Indian government sees health care as a growth industry. Public and private Indian universities are churning out 20,000 doctors and 30,000 nurses a year, some of them destined for jobs in western countries. That is roughly triple the pace at which nurses were trained during the 1990s.

 

In the so-called medical-tourism business, the focus is on big-ticket surgical procedures from face-lifts to liver transplants. Asian countries such as Thailand, Malaysia and Singapore have taken the lead in this field. Promoting health-care services alongside tourist destinations, the countries attracted more than 600,000 patients in 2003 alone, according to officials in Thailand and Malaysia.

 

Apollo offers cardiac surgery for about $4,000, compared with at least $30,000 in the U.S. Apollo's orthopedic surgeries cost $4,500, less than one-fourth the U.S. price. Consulting firm McKinsey & Co. says medical tourism could become a $2 billion-a-year business in India alone by 2012; the category is so new it previously wasn't measured.

 

For now, foreign patients represent 7% to 9% of the overall mix at Apollo. Upon arriving in the country, they are greeted at airports by Apollo staff and whisked off to one of its hospitals. These outside guests are treated and housed in buildings with local patients, though they stay in private rooms with one-on-one nursing care. When fit enough to travel, some patients such as Mr. Salo visit seaside resorts as part of their package.

 

Mr. Salo warns that Westerners need to brace themselves for some real shocks. The sight of urchins and beggars roaming Madras's streets was disturbing, he says. The 100-degree heat was oppressive. He faced "real doubts" about his decision when he entered Apollo's emergency room and saw the ragged condition of local patients. Outside Apollo's hospitals, clean water and blood supplies aren't a given.

 

Apollo was a longtime dream of Dr. Reddy. The son of a wealthy mango and sugarcane-plantation owner, he studied medicine in India but moved with his wife to the U.S. in the 1960s, like many professionals of his generation. After a hospital stint in Boston, he set up what would become a successful lung and internal-medicine practice in Springfield, Mo. But he missed home and returned to India in 1970.

 

Steep tariffs blocked the import of state-of-the-art equipment at the time, and hospitals often had little choice but to attempt to send their most seriously ill patients abroad for care. In 1979, Dr. Reddy was treating a young businessman who needed coronary bypass surgery. Lacking the necessary equipment, he advised the man to fly to Houston. The patient couldn't afford to and died.

 

"I pledged to myself then and there that I would make certain India would have world-class facilities before I died," Dr. Reddy says.

 

While the country had some private charity-owned health-care facilities, the best-known established by the late Mother Teresa, many of Dr. Reddy's friends doubted he could start a profit-making hospital. "I never thought it would materialize," says Joseph Thachil, an Indian doctor and kidney specialist then working in Toronto and now a doctor at Apollo in Madras.

 

Initially, financial regulations prevented Dr. Reddy from raising funds from international banks and overseas Indians. There were limits on the amount of land private hospitals could procure. Government bureaucracy required multiple applications for imported equipment.

 

"I told him there was no precedent for what he was doing," says Manmohan Singh, India's finance minister in the early 1990s. "But he persisted," opening the first of his hospitals in a modest five-story building down a narrow lane jammed with ox carts in Madras. The hospital since has taken over a hotel that used to operate next door.

 

Ultimately, economic reforms Mr. Singh introduced proved significant for Apollo. A surge of investor interest in India allowed Dr. Reddy to raise money by listing parts of his growing business, including the parent company, on the Bombay Stock Exchange. Apollo expanded into clinical research, education and pharmacies.

 

Apollo also attracted investment from units of Schroders PLC in the U.K., and Citigroup Inc. and Goldman Sachs Group Inc. in the U.S. Sharp drops in Indian tariffs, meanwhile, allowed the company to import gear almost as soon as it appeared in Western hospitals.

 

With barriers down, Dr. Reddy expanded rapidly. He formed a joint venture with the state government in New Delhi to build and finance a new hospital and franchised Apollo's services to bring 45 new clinics to other parts of India. He also signed deals with hospitals in Kuwait, Sri Lanka and Nigeria to contract out the company's management services. Today, Apollo operates in eight countries across South Asia, the Middle East and Africa.

 

But the core of its business is a fast-growing class of Indians who have the money to forego free treatment at state-owned hospitals. Of India's one billion people, roughly 250 million are considered middle-class. Complete checkups typically cost about $90 to $180. That is affordable to India's growing numbers of call-center workers and engineers -- though still out of reach for the very poor, estimated at about 300 million.

 

For the first three quarters of the fiscal year ended March 31, Apollo posted net income of the equivalent of $6.4 million, more than the $6.2 million it earned in the full prior fiscal year. Its revenue totaled about $84 million for the nine months, compared with $75 million during the same nine months of the year before. Nearly 62% of Apollo's revenue came from its core hospital business during the 2003 fiscal year; 36% came from pharmacies, and the balance from the newer outsourcing businesses.

 

The company expects the number of patients to grow about 20% per year over the next decade, and Dr. Reddy anticipates the outsourcing businesses will soon make up 25% of total net profit.

 

"The globalization of health care is changing service rapidly, and Apollo has been among the most aggressive in pursuing these opportunities," says Ofer Carmel, senior assistant to the director general of Maccabi Healthcare Services, a top Israeli health-care provider in Tel Aviv. Mr. Carmel says Maccabi is seeking to replicate some Apollo strategies.

 

Campus in the Hills

 

Apollo's focus on developing a global business is on display at its 17-year-old, 23-acre campus in the Jubilee Hills of Hyderabad, 500 miles north of Madras. About a dozen white-stucco office buildings stretch across the rolling land. Besides a hospital and nursing school, the buildings house Apollo's information-technology operations. Eucalyptus and bougainvillea line the roads. A Hindu temple has been erected for prayer, and the sound of worshipers reciting mantras can be heard from the hospital ward.

 

In a cramped conference room in one building on a recent day, Sangita Reddy, 41, one of Dr. Reddy's four daughters, gathered with staff around a pool-table-size model of the Hyderabad complex. In the group were architects and experts in the ancient Indian art of Vastu, a discipline focusing on mastering the universe's cosmic forces, such as water, fire and earth. The goal: identifying the most auspicious setting for a new building for foreign patients. A bad location could be harmful to their care, noted Cherukuri Sasidhar, one of the designers, who aims to blend Eastern and Western medicines and architecture.

 

In another room on the campus, 30 Apollo staffers pored over medical bills and insurance claims, some of the 400 data processors who move in and out of the information-technology wing each day. They have memorized hundreds of codes that correspond to different medical procedures. The unit's manager, Miriam Mamta Edwards, punched numbers for radiological procedures into her computer. On her cubicle hangs a sign: "I Came, I Saw, I Coded."

 

In another room, Apollo executive Divya Sehgal met with American health-care executives who had flown in to look at how Apollo is handling their company's remote billing operations. To accommodate more billing and claims operations, a floor has been cleared in the complex for 300 more workers.

 

Meanwhile, pathologist Shyamala Sesikeran was overseeing clinical trials for half a dozen Western pharmaceutical companies. Over the past year, her staff has studied the effects of antibiotics, cancer drugs and heart treatments on local residents.

 

"More people will come to India" for treatment, says Saif Salim Sulieman al-Ziyuti, who was at the complex with his cousin, Salim Ali Salim al-Ziyuti, for annual check-ups. They had traveled from their home in the United Arab Emirates, three hours away by air. "They take good care of you," says the white-robed Mr. Saif. The cousins say their medical care at home is first-rate, but a scheduling backlog means weeks of waiting.

 

For Dr. Reddy, one question hovers: How big can Apollo grow? Local politicians, among others, complain that the company's services are too expensive for the average Indian. "There needs to be a way for hospitals like Apollo to channel more of their profits to the poor," says Harsh Vardhan, a physician and former Indian health minister in New Delhi's capital region who now is a senior member of the ruling Bharatiya Janata Party.

 

Apollo executives say they are helping India's poor. The company sets aside beds for free care and has established a financial trust to aid the needy. The company also notes that new technologies, such as examining patients in remote areas via television monitor, allow Apollo to reach India's poor in ways doctors once couldn't. Apollo has set up nearly 60 "tele-medicine" centers over the past two years.

 

On a recent afternoon, Apollo doctors sitting around a conference table in Madras digitally connected to Dr. Reddy's hometown of Aragonda. The X-ray of a 10-day-old boy with a misplaced heart beamed into the room. "We can make a composite diagnosis in just one hour," says Vilva Nathan, a physician. "Before it could have taken days just to get the patient to the hospital."

 

--Jon E. Hilsenrath contributed to this article.

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