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Apollo Case

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Apollo Hospitals of India (A)
Dr. Prathap Reddy's office was filled with flowers. The tags conveyed birthday greetings from employees of Apollo Hospitals Madras and former patients, including the vice president of
India. Reddy greeted a steady parade of well-wishers and paused to chat warmly by telephone with a former janitor who had called from the United States. Throughout the day, employees greeted “the Chairman” with smiles, hugs, and gifts.
Dr. Reddy had founded Apollo Hospitals Madras in 1983 as the first corporate hospital in
India. It offered sophisticated treatment in a comprehensive range of medical specialties. Stateof-the-art medical technology, operated by skilled technicians, complemented superior doctors, many of whom had left lucrative jobs in Europe and North America to come to Apollo. Other entrepreneurs had followed Apollo into the market, building several dozen corporate hospitals to compete with Apollo and its government-run forerunners. Since Apollo’s founding, the quality of medical care in India had improved substantially for those who could pay. Despite competition, though, Apollo Hospitals Madras remained a leader in the provision of top-quality medical care and had made a profit for 10 straight years.
Reddy had been joined at Apollo by his four daughters, who took prominent roles in the company. Having introduced a new form of medical business to India, the family entered 1995 hoping to expand the availability of Apollo-quality care. The Reddys felt that despite initial troubles, Apollo’s second hospital in Hyderabad was making rapid progress toward profitability.
Building more hospitals would take advantage of the company’s experience, but expand its reach only gradually. Therefore, Apollo had created the Indian Hospitals Corporation (IHC) as a consulting service to share the company's expertise in hospital management and to license the
Apollo name to doctors and entrepreneurs. This would enable quicker expansion while relying on
Apollo’s established competencies. Finally, the Reddys were also considering a proposal to establish India’s first health maintenance organization. Operating such a hybrid of insurance and medical care, a new business for the Reddys, would allow them to promote high-quality health care through a large network of doctors and hospitals and improve the quality of care available to many Indians.

Research Associate Jamie O’Connell prepared this case under the supervision of Professor Gary Loveman as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Research Associate Robert Anthony prepared the earlier case of the same title.
Copyright © 1995 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call (800) 545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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India
Society and Political Economy
India was the world’s largest democracy. Its 920 million people represented an immense variety of economic levels, social statuses, and cultural groups. The country’s 16 official languages included Hindi, English, Urdu, and Sanskrit. A mass of poor people coexisted with a huge middle class. Although 80% of Indians were Hindus, there were large Muslim, Christian, and Sikh minorities, and relations among religious groups were marred by violence. Thousands of hereditary caste divisions among Hindus fragmented the country’s social structure even further. India had exported its human resources for decades, sending young people abroad to study in the United
States, Canada, and the United Kingdom. Many remained abroad after completing their studies, enriching their adoptive countries, but creating anxiety at home over the “brain drain.”
After independence, the Indian government pursued economic development through central planning and import-substituting industrialization. Widespread poverty and high unemployment led to liberal economic reforms beginning in the early 1980s. In 1991, Prime Minister P.V.
Narasimha Rao initiated another round of changes. His "New Industrial Policy” dismantled licensing requirements, eliminated many government monopolies, reduced tariffs, and liberalized foreign investment. The reforms were credited with stimulating private-sector growth.
Nevertheless, The Economist argued at the beginning of 1995, “there are still too many constraints on the economy to allow it to function as efficiently as it could.”1 Substantial tariffs on the import of capital goods remained.
Liberalization did not achieve spectacular economic growth and rising population made rapid increases in average living standards even more difficult. Growth in real gross national product averaged 4.5% per year between 1980-81 and 1991-92 (India’s fiscal years ran from April 1 through March 31) and 2% annual population growth kept per capita GNP growth to 2.5% per year.
Per capita GNP reached just $274 in 1991-92 and deteriorated to approximately $255 in 1993-94. 2 At the same time, economic reforms had produced wealth for some. India’s middle class was arguably the largest in the world at approximately 270 million people, and was growing by 8% per year. 30 million other Indians could be characterized as rich. This immense market, made more accessible by the Rao reforms, presented lucrative growth opportunities to native companies and attracted many multinationals. (Figure 1 is a map of India.)

1

“The tiger steps out: A survey of India,” The Economist (January 21, 1995), p. 16.

2

Economist Intelligence Unit, India Country Report, First Quarter 1995, London: Economist Intelligence
Unit; Statistical Abstract of India 1990, New Delhi: Central Statistical Office, Ministry of Planning,
Government of India, 1992, Tables 165 and 166. The Indian unit of currency was the rupee. As of June 1995, the exchange rate was U.S.$1 = Rs. 31.4 and had been stable for over two years.

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Figure 1

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India, including states and major cities

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Health Care
Health status varied widely among the Indian population, but average levels matched those found in developing countries in southern Asia and Latin America. The availability of medical personnel and facilities also lagged considerably behind the norms of developed countries.
(Exhibit 1 compares health and health care in India and other countries.)
Prior to 1983, the state provided most health care in India: state governments bore primary responsibility, while the national government sponsored major initiatives. The hospital sector consisted of private “nursing homes” and government and charitable missionary hospitals.
Government and missionary hospitals set their rates according to patients’ different income levels, and treated very poor patients for free. Nursing homes—small hospitals, most with fewer than 20 beds—charged higher, market-determined rates. They offered services in just a few medical specialties, and were owned and operated by the physicians who worked in them. Nursing homes could not afford the latest medical technology, but provided a more intimate setting than government hospitals. Diagnosing and treating complex ailments through nursing homes could be time-consuming and expensive, as visits to several homes with different specialties were often necessary. Large government hospitals generally had better facilities than nursing homes, but they were widely believed to provide poor-quality care. They failed to maintain their advanced equipment, trained their technicians inadequately, and did not publicize their capabilities to doctors who might refer their patients to the hospitals. One analyst described government hospitals as “characterized by long waits, poorly maintained and often inoperative equipment, and inefficient administration.”3 Many missionary and charitable hospitals were undercapitalized and did not offer all services. These conditions left unsatisfied demand for high-quality medical care. In 1983 Apollo Hospital opened in Madras, becoming the first comprehensive, for-profit hospital in India. By 1995, 150 corporate, comprehensive hospitals provided care generally considered better than that in government facilities. Apollo estimated that there would be at least
250 private hospitals by the year 2000. Most private medical care was paid for out-of-pocket by the patient, although a growing number of employers were offering health care benefits to their employees. (Apollo estimated 108 million workers were currently covered by such plans in 1994.)
As of 1994, approximately half of the middle-class was considered capable of paying for private health care, though that proportion was growing. 4 Few individual Indians purchased health insurance for themselves, but Apollo believed that this market would grow as incomes rose. Apollo expected the government in 1995 to relax a legal prohibition on private companies offering health insurance. Dr. Prathap C. Reddy
Prathap C. Reddy was born in 1933 and educated in his home town of Madras. He came to the United States in 1958 on a medical fellowship and served a residency at Massachusetts General
Hospital, becoming a specialist in cardiology. After working as a practitioner, researcher, and teacher in the United States, he returned to Madras in 1970.

3

Smith New Court, India, Apollo Hospitals Enterprise, Ltd.: Equity Analysis, Bombay: (April 23, 1994), p. 2.

4

Smith New Court, India, p. 2.

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Apollo Hospitals Madras grew out of Dr. Reddy's own practice. After building a thriving primary care practice, Reddy invested in a complete cardiology lab and clinic with the capacity to diagnose heart and lung ailments. Other doctors began to refer patients to him, and he hired a staff of junior doctors to serve them. Still, Reddy was frustrated that certain therapies could not be performed at his clinic, and he referred his more affluent patients abroad for more sophisticated treatments. However, most patients could not afford this solution. In the late 1970s, Reddy decided to pursue the idea of creating a private hospital that housed all medical specialties under one roof and could provide state-of-the-art treatment in each.
Reddy faced many regulatory and financial obstacles. Government financial institutions, essential sources of capital, were not permitted to make loans to hospitals. After three years of lobbying, Reddy was able to present his idea to Prime Minister Indira Gandhi in 1981. He argued that his Western-quality hospital would help reverse the brain drain and hard currency outflows
(the latter caused by wealthy Indians seeking treatment abroad). Gandhi granted him a one-time exemption from financing restrictions. (In 1986, at Reddy’s personal urging, Prime Minister Rajiv
Gandhi liberalized the hospital sector, allowing broad access to financing and encouraging hospital development on a large scale.)
Dr. Reddy faced great skepticism in his campaign to convince investors and the press that a super-specialty hospital was viable in India. Nevertheless, he raised $4.6 million in a 1983 share issue. Although his Indian colleagues in the United States were uncertain about Apollo’s viability,
Reddy persuaded them to purchase 40% of Apollo's stock.
Prior to the offering, Reddy asked his patient V.J. Chacko to join the management team.
Chacko added business expertise to Reddy’s medical knowledge, having been chief executive of a large Indian conglomerate. Chacko created a professional management structure for the hospital, complementing—and sometimes countering—Reddy's more entrepreneurial approach. In 1989
Reddy’s daughter Preetha joined the Apollo Hospitals Madras as joint managing director, the equivalent of a U.S. CEO. The doctors liked and respected her, and when Chacko retired in 1995, she took full control of the hospital.

Management philosophy
Although Dr. Reddy had not previously run a large enterprise, he had a clear vision of
Apollo’s mission from the beginning. Apollo existed to give patients the most advanced medical care possible at high quality and “with a human face.” He often described Apollo as organized around “Five Stars”: medical personnel, medical technology, employees, value, and hospitality.
Apollo hired top-quality doctors in all medical specialties. It supported them with well-trained support staff, comprehensive facilities, and the most advanced medical technology in the world.
Managers from Dr. Reddy on down emphasized that every employee contributed materially to patients’ experiences at Apollo. They set high standards for all aspects of patient care, including non-medical ones, and stressed hospitality toward patients. Regular training gave employees the ability to meet these standards, and high pay, good benefits and a strong, team-oriented culture helped motivate them. Finally, Apollo’s operations were geared to provide outstanding value to patient through superior medical results, quick treatment, and a low total cost of care relative to competitors. This plan guided Apollo Madras managers as they learned how to run a for-profit, comprehensive hospital in India. The basic management principles were: respect for individuals and encouragement of individual growth, an open and constructive organizational climate, decentralized management, and a personal rapport between top management and all employees.
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As the pioneering corporate hospital, Apollo had no models to emulate. Managers tested practices that Dr. Reddy had observed in U.S. hospitals and discovered that some were appropriate to the Indian context, while others had to be replaced with home-grown systems. One
Apollo manager stated:
People think of us as pioneers because we were the first to effectively apply the best available medical technology to the hospital sector. Actually, there is a lot more to being a pioneer. We are also setting standards for the way that hospitals will be run in the future in India.

Apollo Hospitals Madras
Apollo Hospitals Madras boasted doctors and state-of-the-art facilities in all major specialties. It served middle- to upper-income patients who could pay for medical care, and employees of companies that provided a medical care benefit. Although Apollo provided primary care services to some patients as part of its emphasis on preventive health, its main emphasis was on tertiary care—advanced therapy and surgery for patients with advanced or complicated medical problems. (Exhibit 2 lists the hospital's primary areas of specialty.) Apollo Madras turned a profit quickly, paying dividends from its fourth year of operation. Inpatients accounted for roughly three quarters of its revenue. (Exhibit 3 shows growth in patients served and operations performed. Exhibit 4 presents a financial history of the hospital.)

Medical personnel
Top caliber, renowned doctors and surgeons were a key to Apollo Madras's reputation and service. 120 consultant doctors, many of whom had impressive academic and clinical credentials from North America or the United Kingdom, formed the hospital's elite medical staff. Consultant doctors operated on a fee-for-service basis. Most patients came to them through referrals for medical problems in their areas of expertise. About half only saw patients at Apollo, but all were free to consult at other hospitals as well. They paid Apollo rent for the rooms in which they saw patients, but kept the entire fee they received from patients. They set these fees themselves, their own rates, within broad limits set by the hospital. (The hospitals’ main sources of revenue were payments from patients for medical services—such as laboratory tests, and use of equipment and facilities for procedures—and hotel-type services, including accommodations and meals.)
Several consultants had known Dr. Reddy personally or professionally in North America, and had forsaken prestigious positions there to join him at Apollo. Dr. Joseph Thachil, chief urologist, had long wanted to return to his native country, but had stayed at a hospital in Canada to take advantage of advanced medical technology, comprehensive support services (such as a 24hour lab and blood bank), and skilled colleagues in all fields. Dr. Reddy had lured him back to
India by promising all of these, and had delivered them. Thachil was particularly happy with the cooperation among consultant specialists to diagnose and treat complicated problems.
Although he earned less than he had in Canada, housing and other goods and services were cheaper, so he felt that his real income had not changed. Administrators and other consultants believed that most returning expatriate consultants were motivated by the same desire to “return to their roots” while retaining access to the best technology and talent.
Many consultants cited colleagues and technology as central sources of their satisfaction with Apollo. Some also noted that the process for acquiring new equipment was informal and based on need, rather than formal and bureaucratic. Furthermore, they appreciated the academic support
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the hospital gave them. Apollo’s library contained current issues of key medical journals and reference books from around the world. An on-line bibliographic search system, unique among hospitals in Madras, provided references for recently published journal articles. The hospital’s weekly research colloquium gave consultants an occasion to present their work to their colleagues.
The administration also encouraged them to organize conferences at the hospital and took full responsibility for publicity, a job they were glad to avoid. The hospital sometimes paid for consultant doctors to attend medical conferences abroad to aid their professional development. In addition, it brought in specialists from abroad to train consultant doctors, junior doctors, and support staff in the latest procedures, therapies, and new equipment.
Most of Apollo's 100 salaried, junior doctors were residents in the last stage of their training. Once a consultant prescribed a general course of treatment, junior doctors carried out most of it. Apollo also strove to develop good supporting medical personnel, such as nurses and technicians, whom Dr. Reddy considered essential to good medical care.
The presence of top specialists at Apollo garnered referrals from throughout southern Asia.
One Apollo study revealed that what most attracted new patients was the consultants' reputations, though what brought them back was the value provided by the hospital itself. Apollo took every opportunity to publicize the accomplishments of its consultant doctors, soliciting coverage in print and electronic media. The marketing department also published Apollo Heartbeat, a quarterly, glossy newsletter with articles on the hospital and on developments in medical techniques and technology, generally written by Apollo consultants. The free newsletter was sent to doctors throughout India, many of whom read it regularly, according to General Manager—Marketing Rupa
Ranganathan. Publicity conferred prestige on the individual consultants as well as on the hospital.
A young consultant expressed gratitude that Apollo’s renown, its academic forums, and its publications had enabled him quickly to develop a strong reputation within Apollo, around
Madras, and even in other parts of India.

Medical Technology
Effective application of the latest medical technology was a critical part of Apollo's service and appeal to patients and consultant doctors. The equipment was expensive. For instance, a magnetic resonance imaging machine (MRI), which could show three-dimensional images of organs, bones, and joints to aid diagnosis of complex problems, cost more than Rs. 64 million ($2 million). (The Madras hospital’s total revenues in fiscal year 1994 came to Rs. 374 million.)
Equipment purchases consumed roughly 70% of the hospital's annual capital budget.
Careful management of equipment purchases and utilization was essential to Apollo’s profitability and constituted a formidable management challenge. Much of the equipment was manufactured in the United States or Germany and priced for those markets, but Apollo’s charges were constrained by Indian income levels. (Exhibit 5 compares national income per capita at market exchange rates between India, the United States, and selected other wealthy economies.
Exhibit 6 shows the cost of several major pieces of medical equipment, and the revenue generated each year at the Madras hospital.) Marketing Executive S. Gopinath elaborated:
My primary responsibility is to see that our equipment is fully utilized. I know what we need to do to break even on each piece, and I coordinate my priorities accordingly. Basically, it involves familiarizing doctors with what we have and making them comfortable with what it can do. For instance, I have one salesperson who is out every day doing nothing but meeting doctors, giving them materials on our equipment, and answering questions.

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High utilization had to be balanced against availability: Apollo had to have enough equipment to serve patients’ needs promptly. Delays could cause a patient’s condition to deteriorate and erode Apollo’s revenues by tying up scarce beds. In the first four days at Apollo, most patients received an estimated 75% of the services they needed; the remainder of their stay was primarily for convalescence, during which they paid mainly for room and board. The hospital always had a waiting list for admission and tried to treat patients as quickly as possible to reduce the average length of stay. (In 1994, the average length of stay was seven days.)

Employees
Motivation xxx Employees were the “middle star” for Apollo, signifying their central role in the hospital’s success. Dr. Reddy emphasized each person’s importance, no matter how lowly his or her role. Preetha Reddy explained:
To us, it's top priority to spend time talking to the workers. . . . They get motivated because they know they’re part of a larger picture. I would tell a maintenance man, “Look, if you don’t check the boilers, the patient won’t get hot water in time, so we’ll get a dissatisfied patient. That will retard her recovery and she may spend another day in the hospital—it’s all a chain reaction. If you do your job well, you contribute as much as the best cardiac surgeon."
The Reddys considered a team spirit essential to Apollo’s cohesion as an organization and success as a business.
Dr. Reddy made sure that employees understood Apollo’s larger ambitions. Every time he addressed a group of them, he portrayed their work as a part of a grand effort to meet India's health care needs. New employee training included a lecture on the history of the company. The effectiveness of this message was made manifest in an employee-written play at the Madras hospital’s 1995 celebration of Founder's Day, Dr. Reddy’s birthday. A cut-out map of India stood on stage throughout the two-hour show, and near the end, the stage was filled with pillars representing each of the Apollo facilities in India. The employees presented Apollo’s work as a patriotic effort to improve the country.
Culture xxx Many employees had a strong sense of community at Apollo. This grew out of personal relationships within departments and an array of hospital-wide events. Founder’s Day was celebrated every year with an evening ceremony at which Dr. Reddy distributed awards. Every year, several hundred employees wrote, produced, and performed a play about the company. The
1995 awards recognized dozens of employees, many from the maintenance and housekeeping departments. Their achievements included outstanding attendance, punctuality, achievement in intramural sports competitions, and honesty. (One housekeeper had found an item worth Rs. 20,000 and returned it to a patient.) As the honorees bounded to the stage one-by-one, they were cheered by friends in the audience. Each received a small present, such as a wristwatch, and a handshake from Dr. Reddy. Many clearly were thrilled to greet the Chairman in person, and one threw his arms around Reddy and kissed him on the cheek. Celebrations of Sports Day, the hospital’s
Anniversary Day and the Indian holiday Ayudha Pooja may have been less emotional, but they brought the Apollo “family” together outside work. These contacts encouraged a team spirit on the job. Compensation xxx Employment at Apollo yielded material rewards, as well as a place in a community. Apollo's wages were 10% to 20% higher than those at other local, private hospitals.
Government hospitals generally paid slightly more than Apollo, but their reputation made them unattractive to many Apollo staff used to a flexible atmosphere. Competition for some skilled
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staff, like nurses, had recently arisen, but local, private competitors could only afford to offer higher salaries to a few Apollo employees. Emigration was also a threat: two physical therapists had recently left to work in the United States. Overall, though, the Madras hospital’s managers were satisfied with the level of turnover. (Exhibit 7 shows staff turnover by job category for 1994.)
Employees also received many benefits. Medical care at the hospital, which few could have afforded out-of-pocket, was free. In addition to vacation, sick leave, paid holidays, and a pension plan, they were eligible for an attendance bonus each month, subsidized meals in the hospital’s cafeteria, and a variety of smaller treats. These included a box of chocolates on their birthdays and a Rs. 101 wedding gift. In the event of financial hardship, employees could obtain loans of up to two month’s salary each year.
The hospital’s Induction Manual, given to employees when they arrived at Apollo, summarized Dr. Reddy’s view of Apollo’s relationship with its employees:
The initiative and hard work that you put in will never go unrecognized, for we offer you ample opportunities to grow. We welcome you to the Apollo family fold and wish you a long and successful career with us.

Hospitality
Dr. Reddy’s fourth “star” was a personal value. He asked each employee to take responsibility for meeting each patient’s every need and desire. Customers' expectations made this necessary: patients expected hospitality and personal service in return for the premium they were paid to be in a private hospital.
Employee training programs explained what hospitality meant and how to anticipate patients’ needs. They also covered specific job functions and other aspects of customer service.
Apollo made sure employees knew what it expected when it demanded excellence, and encouraged managers to commend good work. Chacko commented:
We have very good employees, but they are young and need training. Of course, training is very costly in both time and money. But, we have the opportunity to train people in our way of doing things, which is important. Unfortunately, we did not have any other exemplary hospitals to emulate, as we were the pioneers.
Employees at all levels were trained annually. The housekeeping staff attended a 30-hour course over 15 days. Functional training covered topics like bed care, patient preparation, and patient transportation. Behavioral training focused on communication, teamwork, attitudes, values, and understanding patients’ expectations. A case study used in training asked employees to identify what went wrong in a hypothetical patient’s visit to the hospital, and taught that the patient “now tells at least 10 persons a day about the bitter experience she had in the hospital.”
The Induction Manual specified standards for grooming, etiquette, and hygiene, and stressed,
“NEVER FORGET TO THANK THE PATIENT.”

Value
The fifth star encompassed a number of ways in which Apollo strove to serve its patients better than its competition. Patients’ health was the most important measure of success, so the hospital aimed to provide the best medical outcomes. Many patients were attracted by Apollo’s

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pioneering work in cardiothoracic surgery, including angioplasty and coronary bypass. 5 Following
Apollo Madras’s lead, Indian private hospitals had achieved mortality rates for bypass operations of 2% to 3%, far better than the 15% risk of death patients had endured in government hospitals in the early 1980s. Kidney transplantation was another specialty in which Apollo
Madras was well-known, and its 88% success rate met the highest international standards. These low rates were due in large part to high sanitary standards and clearly-specified procedures that reduced the risk of errors and infection. For example, Apollo was one of the first hospitals in India to mandate that all donated blood be tested for HIV infection.
Total opportunity cost of hospitalization xxx Apollo tried to reduce the total cost of care below the cost at nursing homes or other hospitals, while providing superior service. Quick diagnosis and treatment were the keys to this value. Apollo had facilities and specialists immediately available in virtually all disciplines, unlike nursing homes. Often, complex ailments could be diagnosed in a few days, rather than a few weeks. Early diagnosis led to early treatment, providing value both to patients and to the hospital. Early treatment increased the chance that therapy would succeed and reduced recovery time, follow-up treatment, hospitalization time, and lost work time. (The average stay at Apollo was seven days, two lower than the average for local private competitors and five lower than that at government hospitals. The average income of
Apollo Madras patients was approximately Rs. 63,500 per year for 300 days of work.) This efficiency was important because Apollo charged 20% to 30% more for procedures than its local competitors, although 10% to 15% less than top hospitals in Bombay and New Delhi.6
Quality assurance xxx Apollo made special efforts to ensure patients’ complete satisfaction. The
Guest Relations Department’s 50 staff members interviewed each patient upon admission and again at discharge. In addition, they visited each ward every three days and spoke to each patient. All patient complaints were noted in writing, referred to the relevant department (such as housekeeping) for action and comment, and then passed for information to the hospital’s chief executive (chief operating officer). Complaints were recorded in a computer database that revealed patterns by location and type of complaint. The Guest Relations Department then gathered staff from various departments to identify causes of each problem and address them.
Apollo also invited former patients to focus groups to discuss its service and suggest improvements.
Some suggestions led to special programs for particular patient segments, such as a menu of Sri
Lankan food to serve the many patients from that country.
CHANGE xxx In the summer of 1994, Dr. Reddy challenged the Apollo Madras family to rejuvenate the hospital’s service through a program of CHANGE.7 One consultant considered this the most significant shift in management in several years. He believed there was a general feeling that the organization had grown a bit stagnant, “sitting pretty right at the top.” Employees from all levels, including consultants and executives, volunteered to serve on CHANGE committees to refine operations in a range of areas. Some “CHANGE teams” focused on very specific operations, while others took entire functions as their purview. Teams worked on overtime procedures, paging, hygiene in the hospital environment, and health education, among other matters. After a general

5

Angioplasty was a procedure to enlarge constricted blood vessels. Coronary bypass involved grafting a piece of vein or artery onto the heart to bring blood to an area of heart tissue where blood vessels on the organ’s surface had been damaged.
6

Smith New Court, India, p. 4.

7

CHANGE was an acronym for “Customer satisfaction leading to customer delight, Honor and dignity to serve all patients—regardless, A ccountability in every area of service, N ew ideas and commitment to innovation, Growth as a continuous discipline, [and] E xcellence expressed as a yardstick for performance and evaluation.” 10
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analysis, each team focused on a few specific problems, brainstormed solutions, obtained management approval, and set time-tables for progress. Dr. Murlidhar Rajagopalan felt that the admissions procedures committee had been particularly effective:
Admissions used to go on day and night. Anybody could get admitted at any time, and that produced a lot of pressure on the people working in the wards. The admission counter could never tell you when you could get a bed. So doctors, nurses, and receptionists—people from all sections of the staff—got together, and they suggested that we limit admissions to 9:00 a.m. to 11:00 a.m. or 9:00 a.m. to 1:00 p.m. each day.
Management believed that improvements could be achieved in many areas by pooling the insights of staff at all levels and implementing their recommendations.

Management Issues
Reconciling Medical and Business Goals
Dr. Reddy and his team faced a number of ongoing issues in managing the hospital. Among the most critical were the relationship between consultant doctors and administrators, and the hospital’s ability to further both medical and business goals. Vice President B. S. Venkataraman explained: Doctors and administrators are naturally very different from each other in their professional perspective and orientation. Doctors are not subservient to the goals of the institution. They have strong loyalties to their patients, and they have strong individual identities. However, administrators have corporate loyalties and corporate identities. The potential for conflict certainly is there.
Equipment and facilities management laid bare an essential tension between medical and business goals. When consultants experienced what they saw as undue or unacceptable delays in the availability of equipment or facilities they complained to managers, who had to decide whether to buy more. Venkataraman elaborated:
Doctors would naturally prefer to have a surplus of facilities and equipment available, while the corporation wants to optimize the utilization of both. This could result in wrangling between doctors and administrators, or between medical departments as they vie for resources. In addition, doctors make a number of discretionary decisions that affect the financial performance of the hospital, such as whom to admit and whom to refer elsewhere, what procedures to recommend, and when to discharge patients. The corporation would like doctors to take its interests into consideration when making these decisions, because it needs money to invest for the benefit of future patients.
Relationships have been relatively smooth here, and that has been a key to our success. However, there are enough small problems for us to be concerned, should there be greater resource constraints in the future.
The hospital resolved many important issues through committees of consultants and administrators. Both groups also received training in collaborative problem solving and conflict
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resolution. In general, consultants felt that the hospital administration served their needs without getting in their way. Still, the goals of medical progress and respectable profit pulled in opposite directions at times. “A difficult balance must continually be struck,” Venkataraman concluded.

Marketing Apollo
Creating awareness of the hospital’s capabilities presented another challenge to Apollo managers. In 1983, many Indians saw private health care as a luxury. Dr. Reddy had convinced investors and the Indian government that a private hospital would be financially viable. Once
Apollo Hospitals Madras opened, its marketing staff had to convince potential patients and their doctors that the hospital provided superior care that justified its prices.
Apollo's served individuals, referring physicians, and corporations throughout India that paid for their employees' health care. When the new hospital opened, Dr. Reddy’s local clientele and reputation provided an immediate patient base. Apollo quickly became well-known and highly regarded. In 1994, 42% of Apollo's patients were from Madras and its state of Tamil Nadu.
The rest came from every part of India and dozens of foreign countries. (Exhibit 8 presents a geographical breakdown of patients at the Madras hospital.) Apollo offered six categories of rooms, ranging from General Ward, at Rs. 230 per day, to Super Deluxe, at Rs. 1,750 per day, to cater to as wide a market as possible.
Individual consumers xxx Apollo publicized itself to individuals early on. The marketing of health-care services was new to India. There was some public concern over its ethical propriety, even though Apollo’s efforts were less aggressive than those of U.S. hospitals. Accordingly,
Apollo focused encouraging awareness of preventive health measures, with the goal of developing long-term, trusting relationships with patients. It aimed most marketing efforts at women, whom it had found to be the primary health-care decision-makers in families. Efforts to reach out to potential patients included programs to encourage awareness of health issues, such as the
“Healthy Hearts Club," "Well Women’s Club," and outreach programs for local schools. A lowpriced preventative check-up package provided comprehensive physical exams for a family of four. In addition, Apollo targeted people at risk for specific illnesses, like diabetes, by advertising specially priced diagnostic packages.
Referring doctors xxx Primary-care physicians represented a critical market for Apollo, because their referrals brought in most new patients. Marketing programs aimed both to develop relationships with potential referrers and to publicize the hospital's capabilities. Some competing hospitals paid doctors for referrals, but Apollo felt that this contradicted patients’ interests. Persuading physicians to refer their patients was difficult because they could perceive
Apollo as a competitive threat. Although Apollo Hospitals Madras was primarily a tertiary-care provider, it offered some primary-care services that competed with referring doctors. Instead of returning to their primary-care physician, patients could choose to rely on the hospital for care after a major procedure.
To assuage potential referrers’ worries, Apollo established a program to help them maintain close contact with their patients at the hospital. They were allowed to join their patients during consultations and visit whenever they wished. Apollo’s continuing education programs, including conferences, and publications, like Apollo Heartbeat, also helped keep referrers abreast of medical advances. The hospital sought to be seen as a primary source of information on new medical techniques and technologies. As such it could both provide value to referring doctors

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and earn their goodwill, and associate itself with sophisticated treatments that did not threaten their business.
Corporations xxx Apollo had contracts to provide preventative care and advanced treatment for employees of about 150 corporations. It aggressively courted new corporate business. Master Health
Check, a popular program, catered mainly to corporate clients. It packaged five diagnostic services into a fairly comprehensive physical exam at a relatively low price (Rs. 1,250 for men and Rs. 1,350 for women, who received gynecological tests). Exams were concluded in a morning, and the results, including those from lab tests, were available the next day.

Apollo’s marketing appeared to have succeeded. By 1995, Apollo Hospitals Madras had an international reputation for excellence in medical care. The hospital scored a public relations coup in 1993 when the vice president of India chose to have his coronary bypass operation performed at the Madras hospital, rather than abroad. Apollo was on the front pages of newspapers throughout India every day for a week, and the vice president’s surgery was successful.
The vice president’s choice was especially influential among India’s three-million-strong economic elite, which could afford medical care anywhere in the world.
The hospital’s performance reflected its renown. It turned a profit after two years, raised revenue per bed, and increased its fixed assets and capacity by 300% between 1983 and 1995.
Although further expansion was limited by a cramped site, Apollo had built a 150-bed specialty cancer hospital in another location in Madras, and it planned an off-site recovery facility to free up beds in the main hospital for more intensive use. Apollo’s executives reported that the hospital’s financial performance had not been affected by competition, despite the appearance of five other private hospitals in Madras. They felt that enormous, unmet demand for high-quality health care among Indians and the hospital’s superlative reputation had insulated it so far.

Hyderabad Apollo Hospital
In 1988, Apollo opened a new, 250-bed hospital in Hyderabad, a large city 500 miles northwest of Madras. It offered the same facilities and services as the Madras hospital, except magnetic resonance imaging (MRI), and was located on 38 acres of land in the hills outside the city.
Dr. Reddy explained Apollo’s choice of location:
A weakness of Madras is its location. The building is older, and some patients find the center-city location unattractive and difficult to access. This hurts our position in the local market. There is also no room to grow. We were determined not to let that happen in Hyderabad. Unfortunately, access is also a problem there. Transportation is difficult for some patients who do not want to travel outside of town. But the facility and grounds are beautiful—really very therapeutic. The hospital was managed according to the same philosophy as Madras, as expressed by the Five Stars, and the Reddys worked hard to create a similar culture. However, it had not been as successful, taking until 1994 to show a profit on its financial statements. Managers, many of whom came from the Madras hospital, handled many of the same business issues, such as the tension between medical and business goals. Hyderabad also initially faced several challenges that Madras had not, including competing private hospitals and a less prestigious staff of

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consultants that was reluctant to commit exclusively to Apollo. Although the hospital’s administration believed that it had overcome these problems, some concerns lingered about quality in non-medical areas. (Exhibits 9 through 12 provide various data on the performance of the
Hyderabad hospital.)

Private competition
Several local, private hospitals had preceded Apollo in Hyderabad and offered lower prices to both individual and corporate clients. Hyderabadis and residents of Andhra Pradesh were more price-sensitive than Madrasis, according to Managing Director Sangita Reddy (another daughter of Dr. Reddy). Apollo Hyderabad responded to price competition in three ways. First, it expanded its efforts to bring in patients from out of state. During the slow, festival season, it offered free overnight accommodation in the hospital to patients who came far for its diagnostic packages, like Master Health Check. (Exhibit 13 shows the geographic origins of Hyderabad hospital patients.) Second, it targeted corporations that paid for their employees’ health care.
The hospital matched competitors’ prices and emphasized its unique medical services, such as a 24hour lab. Once a company’s employees were used to Apollo quality, Apollo raised its premium.
Although the company complained, its employees protested its attempts to change health plans, and Apollo kept its business. Third, Apollo identified cardiac surgery and laproscopy as especially profitable operations, and took steps to increase their volume.8 It publicized these services— acquiring prestige in the process, since the public recognized them as especially difficult—and increased its staff of cardiologists from three to six.

Less famous consultants
The Hyderabad hospital began with a less famous medical team than Apollo Madras, but built its reputation over time. Apollo Madras had started out with approximately 25 renowned, senior consultant doctors who practiced exclusively at the hospital. Their patients, plus Dr.
Reddy’s, had given the hospital a customer base as soon as it opened, and their reputations drew in more patients. Sangita Reddy commented:
A lot of the consultants who came to this hospital initially were wellknown but not nationally renowned. Many were attached to other hospitals and were consulting here only part-time. We needed a more committed, full-time team, to build up the reputation of the consultants and the institution. In India, people will put up with a little inconvenience in facilities, but they want a famous doctor.
Accordingly, the marketing department publicized the accomplishments of the key consultants. One cardiac surgeon, who previously had been the number two at Madras, had completed 247 bypass operations without a mortality, a world-record. Public lectures by Apollo consultants both promoted the Hyderabad hospital’s reputation and provided valuable continuing education to potential referrers. Whenever possible, Apollo solicited Indian Medical Association sponsorship for the lectures to emphasize their educational value over the marketing purpose.
Apollo Hospital Hyderabad also found that many people automatically associated “Apollo” with the Madras hospital, so it changed its name to “Hyderabad Apollo Hospital.” Sangita Reddy felt that Hyderabad had taken longer than Madras to build relationships with referring doctors, but that by 1995, it had a solid local referral network.

8

Laproscopy involved running a flexible tube through an orifice and a canal, such as the mouth and the esophagus, in order to inspect an abdominal organ, such as the stomach.

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Consulting doctors also grew more loyal over time, and a core of full-time consultants emerged. Once the hospital's reputation was established, it brought in business for them and supported their work. Sangita Reddy explained:
When our blood gas machine goes down, everyone knows it here [in the executive offices]. We're all on top of the situation to order spare parts flown in and do whatever it takes. If we need backup support, we'll create a runner service and get samples tested at outside labs. Our commitment is that the patient doesn't suffer. . . . They [consultants] realize that we're sharing a lot of their headaches, and they realize that's worth quite a bit."

Uncertain non-medical quality
There had been some criticism of quality control in non-medical operations. Sangita Reddy volunteered that more quantitative measures of quality were needed. A patient who had traveled in the United States complained, “They say this is on a par with any Western hospital, but they’re not quite up to those standards.” Test results came back slowly, she said, and the cafeteria was dirty, a complaint echoed by a consultant. Hyderabad Apollo had recently initiated a series of efforts to improve quality and efficiency throughout its operations. It had found the CHANGE program unsystematic and, in 1994, initiated a re-engineering process. After defining core values, administrators and other staff identified six areas for re-engineering: emergency services, inpatient service, outpatient service, support services, business process, and human resources management.
Teams from outside each area were reviewing and redesigning procedures in early 1995.

Apollo Medical Center, Hyderabad
Apollo had anticipated the problem of the hospital’s remote site by opening a satellite facility, the Apollo Medical Center, in the center of Hyderabad in March 1988. The medical center expanded Apollo’s geographic reach and served as a source of referrals for the hospital. It contained two operating theaters for minor surgery and facilities for stabilizing cardiac arrest and trauma patients. The 16 inpatient beds included four in an intensive care unit. In addition, the medical center offered a full range of diagnostic tests and simpler treatments. It was possible that some local doctors saw the medical center as a competitive threat and, therefore, did not refer their patients to the hospital. The other Apollo Medical Center, opened in the Madras suburbs in
February 1992, found that local doctors initially were reluctant to refer their patients to it. In response, its director had decided not to accept referral patients on a permanent basis and had built relationships with referring doctors. The Hyderabad facility turned a profit in its fourth year, and saw revenues double in 18 months after a new manager took over in 1993. (Its financial results were combined with the hospital’s for reporting purposes.)

By 1995, Apollo executives were optimistic about the Hyderabad hospital’s future.
Sangita Reddy explained that the hospital now had full-time, well-known consultants and loyal referring doctors in the area. Chief Executive S.N.S.R. Sekhar believed that the hospital would turn a profit in 1995 and recoup its earlier losses by 1996. Revenue per patient had been rising rapidly for three years. The abundance of room for expansion and the city of Hyderabad’s anticipated growth attracted foreign, institutional investors in 1995, boosting the hospital’s stock.
All members of the Reddy family expressed relief that the Hyderabad hospital had finally
“turned the corner” in 1994.

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Expansion plans
In early 1995, Dr. Reddy and his family were considering several options for expanding
Apollo. In addition to building more hospitals, they were considering licensing the Apollo name, and establishing India’s first health maintenance organization.

Licensing
Dr. Reddy had created Indian Hospitals Corporation (IHC) as a consulting group to help entrepreneurs build and manage new medical facilities.9 The group had managed the construction and opening of a super-specialty hospital and two medical centers, but had not yet managed a facility for a long period. IHC assisted its clients in market research, development planning, project management, architectural design, equipment selection, and staff recruitment and training.
The Apollo group was considering licensing the Apollo name to groups of doctors or entrepreneurs, as long as they retained IHC to manage the facility according to Apollo’s standards.
Shobana Kamineni, one of Dr. Reddy’s daughters and Managing Director of IHC, wanted to place a major facility in every large city in India to promote the Apollo name.10 Apollo-licensed medical centers also would provide referrals for the super-specialty hospitals: licensees would be required to refer patients only to Apollo hospitals.
In certain ways, licensing was more attractive than building wholly-owned facilities.
Apollo would not risk large amounts of its own capital or have to cover loses until facilities broke even. Working with partners would also make ventures easier. Apollo anticipated that many local partners would provide land on a good site, which was very expensive in major cities, and good relations with local authorities. Local doctors would make good partners, because they would help staff the facility and provide a ready-made customer base.
Licensing might not be the most profitable way to use Apollo’s managers, though. Since
Apollo (through IHC) would manage licensed facilities, it would have to provide as many managers as for wholly-owned ventures. Skilled hospital managers were rare in India. The Apollo
Institute of Hospital Management had recently opened, thanks largely to the efforts of Hyderabad hospital executives. IHC anticipated hiring about half of its projected 15 masters degree recipients each year. The Apollo Institute was an important advance in India’s medical infrastructure, but the health care market’s rapid expansion appeared likely to increase demand for its graduates.
Even with an affiliated source of new managers, IHC might face shortages.
Most management contracts would compensate IHC with a percentage of profits, but the company was willing to consider investing equity to form partnerships. Licensing without equity participation expanded Apollo’s presence without straining its capital resources. Under either compensation arrangement, long-term profit potential was reduced along with financial risk.

9

Dr. Reddy and his daughters made decisions about IHC’s strategy jointly, as well as playing roles in the management of the Madras and Hyderabad Apollo hospitals. This discussion of Apollo’s expansion plans refers to the Reddys and the senior executives who advised them on all projects as “Apollo” or “IHC.” These terms should be understood to mean the same set of people.
10
The 1991 Indian census found 19 cities with populations over 1 million and an additional 33 with populations over 500,000.
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Health Maintenance Organization
The Apollo health maintenance organization would be the first HMO in India. Modeled on
HMOs in the United States, it would provide all medical care as needed to members in return for a fixed, annual premium. Because the HMO’s revenues would be fixed, it would try to prevent illness so as to spare itself the cost of sophisticated treatments once serious ailments developed.
The Apollo HMO initially would accept only corporate clients who bought health coverage for their employees, but after two years it would start accepting individuals. It would appeal to corporations and institutions that already paid their employees’ health expenses, either through insurance or by reimbursing them directly. The Reddys believed that Apollo’s reputation for quality and the promise of lower costs would be powerful selling points. Several large corporations had already expressed serious interest in joining the HMO.
A network of hospitals and medical centers would serve the HMO’s clients. Venkataraman explained: Eventually the Apollo name will reach every nook and cranny. A superspecialty hospital will anchor a self-contained medical system and never be more than 20 kilometers away from densely populated areas. The medical center concept has evolved to where we now talk about four levels of centers, from small diagnostic facilities to 50-bed hospitals. The only fixed criterion is that the center have cardiology and traumatology capabilities, because they are the services for which a patient can never wait.
The HMO would combine two methods of expansion--building wholly-owned hospitals and licensing. It would give the Reddys influence over quality at more facilities across India than either of these other methods alone.11 The HMO’s network would include wholly-owned facilities; licensed facilities; and independently managed facilities without the Apollo name that would be accredited by the HMO to serve its patients. Accredited facilities would be required to meet high standards in medical and non-medical care. HMO patients would receive treatment only at facilities in the network, providing a constant flow of patients for those facilities. Creating the network would be time-consuming, and possibly expensive. Many of Apollo’s best managers would be drawn in to inspect facilities for accreditation and to develop new ones, either wholly-owned by
Apollo or through licensing.
Managing the HMO would require careful balancing of patients’ medical needs with the costs of care. Although this involved a departure from Apollo’s experience with building and managing medical facilities, Apollo had administered medical insurance policies for the government-owned Oriental Insurance Company. Under Oriental's standard policy, sold through insurance brokers, patients were reimbursed for medical expenses only up to a set limit per year. In return for paying a regular fee to Apollo in addition to the standard premium, patients could be reimbursed for all medical expenses that Apollo approved in advance. Apollo accepted the risk of providing adequate medical care for its 150,000 insurance patients for a fixed fee. This resembled closely the arrangement under which U.S. HMOs operated.
The Reddys hoped that their experience would enable them to build a profitable HMO quickly if they chose. It would be a difficult enterprise. Unless Apollo could find a large number of
11

Apollo’s own hospitals might continue to treat non-HMO patients on a fee-for-service basis, when space was available. However, if an Apollo facility was able to profit more by treating only fee-for-service patients,
Sangita Reddy said, that facility might leave the HMO network.
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high-quality medical facilities to include in its network, it would have to build new hospitals and medical centers at a rapid rate. These would require capital for land, construction, and equipment.
Kamineni did not see this as an obstacle: “In the capital markets, the time is now right in India to develop a huge project that needs $200 million or $300 million.” She believed that the performance of private hospitals, including Apollo, had convinced once-skeptical investors of the profitability of the health care business. Apollo’s managerial resources would also be stretched to inspect and accredit applicants to network, and to supervise building the new hospitals and then run them. Finally, medical insurance of any sort was relatively new in India, and Apollo anticipated that Indians might be skeptical of a company that charged a fee, and then tried to minimize the amount of medical care it provided. Apollo executives believed that a large, costly marketing effort would have to accompany the launch of an HMO.

Conclusion
Facing a stage filled with paper-mache columns representing Apollo hospitals of the future, Dr. Reddy looked to his next year with great anticipation, but he and his daughters faced complicated choices. In 12 years, Apollo had built a valuable name and network of friends in industry, finance, and government. Now, the Reddys would try to expand their business and bring
Apollo-quality care to even more Indians. They had built and managed two hospitals and were confident that they could continue to expand successfully by building more. New Delhi, India’s capital and third-largest city, appeared to be the best candidate for a large, new Apollo hospital.
The city's politicians, businesspeople, foreign diplomats, and middle to upper-level civil servants represented a large market for premium health care.
Licensing would spread Apollo’s influence and recognition more quickly than building wholly-owned facilities. Working with local partners would enable Apollo to share financial risk while maintaining quality. Its managers were as precious as its financial capital, though, and licensing would occupy them as much as running wholly-owned facilities.
The HMO would represent a major innovation in Indian health care, and Apollo could not be sure how Indians would respond. If Apollo created the HMO, it would own some facilities in its network, run others licensed to use the Apollo name, and merely accredit and monitor the rest. The greater Apollo's stake in the network’s facilities, the greater its risks and potential profits. Even if Apollo owned none of the facilities in the network, though, creating the HMO would absorb considerable management time. Attaching the Apollo name to the HMO would mean gambling one of the company's most important assets. Perhaps most importantly, insurance represented a departure from Apollo's primary experience, running hospitals. Although Apollo hospitals aimed to keep their patients healthy, they made money when patients underwent procedures, either preventative or curative. A health maintenance organization would try to turn fixed revenue into profit by carefully controlling the amount of treatment it had to provide. Despite these potential hazards, Dr. Reddy believed that the HMO presented the most dramatic way to try to extend
Apollo-quality care across India, strengthen the Apollo brand name, and increase revenues.
Finally, health maintenance organizations’ approach to health—emphasizing prevention to minimize cost and pain—matched Dr. Reddy’s philosophy of medicine.
Dr. Prathap Reddy had brought a new form of health-care, the super-specialty corporate hospital, to his country. Having achieved success, he and his daughters faced complex choices about how best to allocate their resources to improve health care in their country and expand their business.

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Exhibit 1 xxx Comparative Health and Health Care Statistics
Life Expectancy

Male
India
Brazil
Haiti
Indonesia
Pakistan
Thailand
United Kingdom
United States

55
62
53
59
59
64
72
72

Female
56
68
56
62
59
69
78
79

Infant Mortality per 1000 live births 80
63
97
75
108
39
7
9

Per 1,000,000 Population
Hospital beds
Doctors
Nurses
407
85
147
142
340
229
1,615
2,380

214
179
1,746
464
193
990
7,891
3,204

1,600
4,300
800
n.a.
600
1,500
8,000
5,900

n.a. not available
Sources: United Nations, Statistical Yearbook, 1994, Table 14 (life expectancy, infant mortality); The World Bank,
World Development Report 1994, Washington, D.C.: The World Bank, Table 27 (doctors, as of 1990); Economist
Handbook of Vital World Statistics , London: The Economist Intelligence Unit, 1990, pp. 216-17 (hospital beds, nurses; doctors for Brazil, Haiti, United Kingdom; data as of 1983-1988).

Exhibit 2 xxx Apollo Hospitals Madras Medical Specialties
Cosmetic surgery
Dentistry
Diabetology
Drug addiction and rehabilitation
Emergency services
Endocrinology
Ear, nose, and throat disease
Gastroenterology
Internal medicine

Nephrology and urology
Neurology and neurosurgery
Obstetrics and gynecology
Ophthalmology
Orthopedics and traumatology
Pediatrics and neonatology
Physical therapy
Psychiatry
Radiology and imaging

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22,005
15,398
37,043
6,378
54,811
8.59

1985

150

n.a.
19
366
n.a.
n.a.

Surgeries performed
Major surgeries
Kidney transplants
Heart surgeries
Minor surgeries
Total of major and minor surgeries
n.a.
58
525
n.a.
n.a.

272

173

78%

21,927
22,325
44,252
7,016
57,195
8.15

1986

Data for 1993 and 1994 provided by Apollo Hospitals Madras

not available

200

111

n.a. a 150

74%

Average length of stay (calculated) a
Bed occupancy percentage (from daily census) Average patient per day in hospital
(according to daily census)
Beds available

n.a.
51
638
n.a.
n.a.

75%

13,984
-13,984
3,986
23,680
5.94

1984

n.a.
66
862
n.a.
n.a.

307

240

87%

28,571
22,049
56,620
9,239
87,762
9.50

1987

3,502
92
903
3,299
6,801

338

264

90%

32,945
37,520
70,465
11,087
96,332
8.69

1988

1989

3,423
108
961
4,210
7,633

356

282

88%

41,153
51,617
92,770
12,424
101,760
8.19

Apollo Hospitals Madras Patient and Procedure Statistics (calendar years)

Patients served
Total new outpatients
Total repeat outpatients
Total outpatients (new and repeat)
Total admissions
Total number of inpatient days

Exhibit 3

3,681
88
976
4,556
8,237

375

290

82%

29,748
55,170
94,909
12,907
105,278
8.16

1990

4,565
105
1,080
4,597
9,162

393

321

87%

43,676
71,048
114,724
14,492
117,245
8.09

1991

5,082
95
1,250
7,841
12,923

412

333

85%

45,848
102,063
147,911
16,099
121,912
7.57

1992

5,165
62
1,458
8,018
13,183

439

345

85%

48,831
109,074
157,905
17,304
n.a.
7

1993

396-027

5,394
79
1,704
8,676
14,073

463

375

87%

51,876
129,772
181,648
18,031
n.a.
7

1994

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(8,569)

Net profit/(loss)

Medical Center opened in February 1992.

58,703

65,761

a

4,953

6,444

6,537

23,801
7,674
7,627
14,648

65,241

24,844
8,478
7,575
18,420

57,192

134,828
45,910
75,446
12,412

Year Ended
June 30,
1986

EXPENSES
Operating expenses
Salaries and benefits
Administrative & other expenses
Financial expenses
Income tax paid
Depreciation provision
Preliminary expenses
Other expenses including public issue Deferred revenue expenditure
Provision for taxation
Total expenses

REVENUE
Total revenue

113,776
39,135
84,240
11,518

17 Months
Ended June
30, 1985

50,142
13,563
10,968
15,844
66
23,396
29
487

131,786

153,397
52,181
66,232
20,206

Year Ended
June 30,
1988

16,626

575
1,085
75,823
8,025

665
115,160

32,242
9,831
9,704
15,781
65
6,025
29
487

83,849

140,641
48,732
74,289
11,773

Year Ended
June 30,
1987

Financial History, Apollo Hospitals Madras and Medical Centera (in Rs. 000s)

SELECTED BALANCE SHEET DATA
Fixed assets
Shareholders’ equity
Secured loans
Unsecured loans

Exhibit 4

17,711

831
3,467
166,797

88,594
24,267
20,397
18,573
9,922
36
609

184,508

216,713
54,098
75,209
22,986

15 Months
Ended Sept.
30, 1989

21,426

998
230,335

115,195
41,424
28,309
27,858
1,425
14,351
43
731

251,761

240,320
54,178
67,467
44,705

18 Months
Ended
March 31,
1991

23,167

796
212,319

110,660
31,132
26,462
31,960
10,793
29
487

235,486

244,401
54,178
61,349
62,612

Year Ended
March 31,
1992

32,851

796
266,534

136,946
39,571
33,872
41,770
13,064
29
487

299,385

430,972
54,178
253,102
47,101

Year Ended
March 31,
1993

- 21 -

54,734

796
319,692

179,186
45,077
34,349
44,446
15,259
29
550

374,426

511,561
106,319
294,921
37,011

Year Ended
March 31,
1994

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This document is authorized for use only in Service operation management by Prof.G.Anand, IIM Kozhikode - EPGP Kozhikode Campus from March 2015 to September 2015.

For exclusive use IIM Kozhikode - EPGP Kozhikode Campus, 2015
396-027

Apollo Hospitals of India (A)

Exhibit 5 xxx National income (gross domestic product) per capita, India and wealthy economies

France
India
Japan
United Kingdom
United States

1993 GDP per capita, in US$ at market exchange rates
21,722
255
33,578
16,237
24,557

Source: Economist Intelligence Unit, Country Reports: First Quarter 1995 (for each country), (London: Economist Intelligence
Unit). GDP and population figures for India are EIU estimates. Exchange rates used are average rates prevailing during year. Exhibit 6 xxx Apollo Hospitals Madras, Major Medical Equipment Cost and Annual Revenue (in Rs. millions) Equipment
MRI machine
CAT scanner
Catheterization laboratory
Gamma camera
Linear accelerator

Number owned 1
2
2
1
1

Cost of each at purchase 39.3
12.0
40.0
20.0
70.0

Revenue generated by each per year
21.0
8.4
42.0
4.1
13.6

Exhibit 7 xxx Apollo Hospitals Madras Staff Turnover, January through December, 1994

Rank

Average number employed during year
186

Total additions 92

Total departures (for any reason)
65

Turnover
35%

10

14

19

1080

174

170

16

Trainees

87

118

93

107

Special Assignment

19

3

1

2

Temporary

54

115

19

35

306

488

375

123

a

Doctors
Executives
Staff b Casuals

c

74

a

Including consultants and salaried, junior doctors. Nearly all of the junior doctors who left were in the middle of their medical training and departed to continue their studies. Apollo estimated that almost none left out of dissatisfaction with the hospital. A company official stated that turnover among consultants was very low and estimated that perhaps 30 had left over the previous several years, out of between 260 and
300 working at Apollo Hospitals Madras during that time. b The trainee category included Apollo employees being trained for other positions and students from programs outside Apollo who were receiving training at the hospital. The former moved into other categories (and therefore were counted in this reckoning as having departed) upon completion of their training. The latter departed upon finishing their training programs. c Casual employees represented another category of temporaries employed for specific, short-term jobs.
These were counted as “departed” when their contracts finished.

22
This document is authorized for use only in Service operation management by Prof.G.Anand, IIM Kozhikode - EPGP Kozhikode Campus from March 2015 to September 2015.

For exclusive use IIM Kozhikode - EPGP Kozhikode Campus, 2015
Apollo Hospitals of India (A)

396-027

Exhibit 8 xxx Geographic Distribution of Patients at Apollo Hospitals Madras, 1994. (All numbers are percentages of total patients. May not total to 100.00% due to rounding error.)
India

94.66%

Foreign countries

5.34%

Madras
Andhra Pradesh

30.26%
12.87

Sri Lanka
Maldives

2.36%
1.03

Tamil Nadu

11.89

Nepal

0.74

Assam

10.16

Bangladesh

0.46

West Bengal

7.38

Malaysia

0.10

Bihar

4.45

United Arab Emirates

0.08

Madhya Pradesh

3.04

Singapore

0.05

Kerala

2.07

USA

0.05

Orissa

2.00

Oman

0.04

Tripura

1.89

United Kingdom

0.04

Karnataka

1.71

Saudi Arabia

0.04

Pondicherry

1.23

Indonesia

0.03

Gujarat

1.17

Bhutan

0.03

Maharashtra

0.84

France

0.03

Uttar Pradesh

0.73

Germany

0.03

Jammu and Kashmir

0.64

Israel

0.02

Delhi

0.44

Australia

0.02

Rajasthan

0.36

Bahrain

0.02

Mehalaya

0.36

Yemen

0.02

Manipur

0.35

Canada

0.01

Andaman

0.25

Hong Kong

0.01

Nagaland

0.14

Netherlands

0.01

Chandigarh

0.13

Pakistan

0.01

Haryana

0.10

Philippines

0.01

Sikkim

0.08

South Africa

0.01

Goa

0.04

Fiji

0.01

Punjab

0.04

Kenya

0.01

Himachal Pradesh

0.03

Brunei

0.01

Mizoram

0.02

Denmark

0.01

Arunchal Pradesh

0.01

Muscat

0.01

Spain

0.01

Sudan
Other a

0.01

a

0.05

Includes two patients from each of the following countries: China, Dubai, Italy, Switzerland,
Thailand, and the West Indies; and one from each of Belgium, Korea, Lakshwadeep, Mauritius, New
Zealand, Norway, Russia, Sweden, and Zambia. One patient was listed as “Other, Europe.”

23
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For exclusive use IIM Kozhikode - EPGP Kozhikode Campus, 2015
396-027

Apollo Hospitals of India (A)

Exhibit 9 xxx Hyderabad Apollo Hospital Patient and Procedure Statistics (calendar years)
1990
Patients served
Total new outpatients
Total repeat outpatients
Total outpatients (new and repeat)
Total admissions
Total number of inpatient days
Average length of stay per patient
Bed occupancy percentage
Average patients per day in hospital
(according to daily census)
Total beds in hospital (December 31)
Surgeries performed
Major surgeries
Kidney transplants
Heart surgeries
Minor surgeries
Total of major and minor surgeries

1991

1992

1993

1994

14,016
12,466
26,428
5,353
36,889
6.89
40.4%

16,641
11,191
27,832
6,379
40,253
6.31
43.6%

15,097
11,082
26,172
7,430
44,552
6.00
50.4%

15,285
11,631
26,916
8,229
52,131
6.33
59.6%

16,021
9,929
25,950
8,678
63,875
7.36
70.0%

101
250

109
250

126
250

149
250

175
250

n.a.
22
273
n.a.
n.a.

n.a.
29
321
n.a.
n.a.

3,800
34
339
2,050
5,850

4,600
52
390
1,700
6,300

4,900
97
480
1,600
6,500

n.a. Not available

24
This document is authorized for use only in Service operation management by Prof.G.Anand, IIM Kozhikode - EPGP Kozhikode Campus from March 2015 to September 2015.

c

a b 40,248



46,736

74,802
(28,065)

483
408

13,412
350



61,128
31,947
13,036



49,848

9436

10,400

50,728

349,054
83,310
348
300,593
2,150

1992

26
36,174

50
9,965
387
147
1,053
476
93,261
(32,134)

35,551
11,591

0

7,800

36,845
11,222
12,082

9,600

29,500

321,902
83,082
211
238,279
2,150

1991

146
27,643

55
9,287
387
1,189
2,241
56
88,145
(38,298)

53
14,615
387
147
3,189
1,282
121,411
(37,592)

96
45,250

41,137
15,254



83,819

219

13,700

69,900

353,887
83,650
231
353,138
5,150

1993

7,962
58
17,381
387
147
11,614
1,024
149,503
100,478

140
24,911

68,722
17,158

79,505
35,837
249,981

39

23,900

110,700

335,437
153,731
745
172,449
16,650

1994

- 25--

Includes Apollo Medical Center— Hyderabad
Creditors agreed to restructure past-due interest worth Rs. 140 million. Rs. 79,505,000 was waived outright and the rest was converted to equity through a new issue. Part of the new issue was used to retire principal. Furthermore, Rs. 60 million of principal was raised by selling several major pieces of medical equipment to creditors for more than their depreciated value. The hospital leased the sold equipment from its creditors, and the equipment remained on the hospital premises
Depreciation taken on equipment sold, as required by law. Depreciation on equipment not sold was been deferred. Cumulative, undeclared depreciation was
22,585,974 by 3/31/91. Undeclared depreciation was 15,906,770 in (fiscal year) 1992; 16,226,304 in 1993; and 7,164,152 in 1994.

EXPENSES
Operating expenses
Salaries, wages, & other employee benefits
Administrative and other expenses
Managerial remuneration
Financial expenses, including interest
Cutlery, crockery, surgical instruments, etc. written off
Depreciationc
Auditor’s remuneration
Other administrative expenses
Preliminary and public issue expenses written off
Deferred revenue expenditure written off
Prior year’s adjustments
Provision for doubtful debts
Total expenses
Net profit/(loss)

REVENUE
Hospital and medical center revenue attributable to inpatients Hospital and medical center revenue attributable to outpatients Other revenue (calculated)
Extraordinary itemsb
Interest waived by financial institutions & banks
Profit on sale of assets
Total revenue

253,988
78,476
3,309
195,745


1990

Hyderabad Apollo Hospital Financial History.a (Years ended March 31, in Rs. 000s)

SELECTED BALANCE SHEET ITEMS
Fixed assets
Shareholders’ equity
Share application money
Secured loans
Unsecured loans

Exhibit 10

396-027

For exclusive use IIM Kozhikode - EPGP Kozhikode Campus, 2015

This document is authorized for use only in Service operation management by Prof.G.Anand, IIM Kozhikode - EPGP Kozhikode Campus from March 2015 to September 2015.

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396-027

Apollo Hospitals of India (A)

Exhibit 11 xxx Hyderabad Apollo Hospital, Major Medical Equipment Cost and Annual Revenue
Generated (in Rs. millions)
Equipment
MRI machine
CAT scanner
Catheterization laboratory
Gamma camera
Linear accelerator

Number owned none
1
1
1

Cost of each at purchase n.a.
24.7
39.5
7.4

none

Revenue generated by each per year
n.a.
5.4
24.6
a

n.a.

n.a.

n.a. Not applicable a Machine out of order from October 1994 through May 1995

Exhibit 12 xxx Hyderabad Apollo Hospital Staff Turnover, January through December, 1994

Rank
Salaried doctors a

Average number employed during year
70

Total additions 21

Total departures (for any reason)
21

Turnover
30%

37

18

Nurses

207

59

Paramedical technicians

130

19

9

7

Clerical and junior administrative staff

270

38

20

7

Casuals, laborers

130

15

5

4

a

Most salaried doctors are hired to complete a two-year residency as the final stage of their medical training. 26
This document is authorized for use only in Service operation management by Prof.G.Anand, IIM Kozhikode - EPGP Kozhikode Campus from March 2015 to September 2015.

For exclusive use IIM Kozhikode - EPGP Kozhikode Campus, 2015
Apollo Hospitals of India (A)

396-027

Exhibit 13 xxx Geographic Distribution of Patients at Hyderabad Apollo Hospital, 1994. (All numbers are percentages of total patients. Does not total to 100.00% due to rounding error.)
India
96.48%
Andhra Pradesh
70.00%
Orissa
7.52
Karnataka
5.42
Maharashtra
5.31
Madhya Pradesh
5.01
Assam
1.12
West Bengal
0.42
Uttar Pradesh
0.41
Bihar
0.28
Delhi
0.21
Tamil Nadu
0.17
Arunachal Pradesh
0.09
Gujarat
0.08
Kerala
0.07
Punjab
0.07
Rajasthan
0.07
Nagaland
0.06
Maghalaya
0.05
Goa
0.03
Haryana
0.03
Manipur
0.02
Andaman and Nicobar Isl. 0.01
Mizoram
0.01
Jammu and Kashmir
0.01
Sikkim
0.01
Pondicherry nil Foreign countries
United Arab Emirates
Saudi Arabia
Bangladesh
Mauritius
Italy
Nepal
Iran
Kuwait
Oman
Bhutan
Canada
Port Louis
Singapore

3.50%
1.09%
1.04
1.02
0.15
0.04
0.04
0.03
0.03
0.02
0.01
0.01
0.01
0.01

27
This document is authorized for use only in Service operation management by Prof.G.Anand, IIM Kozhikode - EPGP Kozhikode Campus from March 2015 to September 2015.

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Gods of Management

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Hermes In Greek Mythology

...“When he was exploring he came across a turtle, which he killed and took out of its shell. He took the shell, drew strings across it and invented the lyre and plectrum, which is known more commonly today as a pick” (Phillips). After this, he went to Piera, stole eleven oxen, and put on a pair of sandals so he would not leave footprints. He then went to Pylos where sacrificed two of the oxen to the twelve gods, and is called the inventor of divine sacrifice and worship. Apollo realized that the oxen were gone and went to Maia’s to get them back. Apollo, seeing Hermes in his cradle, blamed him and then Zeus demanded that he give the oxen back. Hermes claimed that it wasn’t him, but when he saw nobody had believed him, he took Apollo to his oxen in Pylos. Apollo was going to take his oxen back until he heard Hermes playing the lyre and loved the sound so much he let Hermes keep the oxen. Hermes by then had also invented the syrinx, now called a pan flute. He shared his new invention with Apollo, and the two gods became close friends from that point...

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