Apollo Hospitals’ Prathap Reddy: Preparing for Tomorrow’s Health Care Problems

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Cardiologist Prathap C. Reddy started Apollo Hospitals with a 150-bed hospital in Chennai in 1983. Today, it is one of Asia’s largest health care groups with more than 10,000 beds across 55 hospitals and a host of health care services. For the 81-year-old Reddy, making quality health care affordable and accessible remains a focal point. Over the next three years, he plans to invest Rs. 2,500 crore (around $400 million at the current exchange rate of Rs. 62 to a dollar) to upgrade and expand the group’s infrastructure and services.

But the most important need of the sector, he says, is innovation. In an interview with Knowledge@Wharton, Reddy noted that today’s models of health care “are not the solution for tomorrow’s … scenarios and problems.”

An edited transcript of the conversation follows.

Knowledge@Wharton: What do you think are the biggest challenges for health care in India at present?

Prathap C. Reddy: Quality health care is one of the most important factors in how individuals perceive their quality of life. The biggest challenge in health care delivery is to increase quality supply while at the same time ensuring that it is affordable to a large number of patients who are currently not served, underserved or poorly served. This has been the focus area for innovations and the emergence of new models. These include mechanisms employed by the private sector to make treatments more accessible, to reduce [the need for] investments and therefore costs, and to improve operating efficiencies.

However, fluctuating market prices for medical services are incompatible [with these objectives]. Changes in consumer preferences are also leading to new demands in health care delivery. Another challenge faced in India is the changing demographics. [Compared to the overall population, which is growing at 1.8% per annum, the population of those who are age 60 and older is growing at 3.8%. This number -- which currently stands at 100 million -- is expected to increase to 240 million by the year 2050.] As a result, there is increasing demand on health care delivery organizations.

Knowledge@Wharton: Given India’s issues of accessibility and affordability, what model do you think is most appropriate to address the country’s health care needs? Is public-private partnership a viable option?

Reddy: Indian health care is on the brink of a revolution. Opportunity, entrepreneurship and a facilitative environment will lead to public-private partnerships (PPP) and many more such novel health care delivery models. These could give the desired push and provide the impetus to transform India’s health care scenario.

As a matter of fact, PPP models have proved to be a successful tool in the infrastructure sector and the model has been replicated under the Apollo Hospitals’ umbrella. For instance, the Apollo hospitals in New Delhi and Bilaspur [in the state of Chhattisgarh] and the Rajiv Gandhi Hospital in Raichur, Karnataka, are based on the PPP model. I think the PPP model works and will sustain and grow.

“There will be a new and genuine model of public-private partnership when private sector hospitals support government insurance programs effectively.”

Knowledge@Wharton: There is a wide perception among people that most private health care providers in the country are money-making “rackets” and that there is a huge extent of commercialization. As a private player how do you balance the needs of the patients and the commercial interests of the organization?

Reddy: At present, about 60% to 65% of the [hospital] beds are in the public sector but 80% of the care is delivered by the private sector. If you look at the budget allocation or the spending — the out-of-pocket spending — only 30% to 40% of the budget is government driven; 60% of it is private. These trends will continue, but [I expect] that there will be a new and genuine model of PPP when private sector hospitals support government insurance programs effectively.

But we also need infrastructure. We need about 100,000 new beds per year for the next eight years to reach the World Health Organization’s requirement in terms of bed numbers. Very few hospital groups are economically attractive and foreign direct investment is going into every other sector in India and not so much into health care. We have to push this concept of PPP into newer dimensions.

But, most importantly, we need innovation [to reduce costs and improve outcomes]. Today’s models of health care are not the solution for tomorrow’s health care scenarios and problems. We need the ability to do preventive health care and productive health care in a whole new way. [To overcome the problems] of a fragmented health care system in India, we need to [leverage] the concept of an information society and a connected world.

Knowledge@Wharton: You were among the first large private sector players in India. How challenging is it for private sector players to operate in the health care space in the country?

Reddy: A corporate hospital has to define two things. Our responsibility to the patient is first, but we have an equal responsibility toward people who have invested in us. We need investments to sustain and to grow. So we need to bring the best of both worlds as far as the investors and the patients and their relatives are concerned.

I believe that to excel at something one must have excellent leadership qualities. The health care field is as challenging as any other economic activity, perhaps much more challenging because multiple people are involved in this industry.

Knowledge@Wharton: Can India become a global health care destination? What are the measures needed by both private players, as well as the government, to facilitate this?

“Our responsibility to the patient is first, but we have an equal responsibility toward people who have invested in us.”

Reddy: Modern medicine combined with India’s 5,000-year-old traditional therapies can offer to the whole world an unbeatable healing package. The top private hospitals in India not only have the best-in-class medical infrastructure and technology — like 64 slice CT scans, computer navigated surgery suites, etc. — they also have on board physicians and surgeons who are among the best in the world. There is a “reverse brain drain” happening now with more and more top doctors of Indian origin returning to India and delivering world class services at Indian hospitals.

The government is expected to play an important role in regulating the private sector. This sector has already received considerable subsidies in the form of land, reduced import duties for medical equipment, etc. Medical tourism could further legitimize their demands and put pressure on the government to subsidize them even more. This is worrying because the scarce resources available for health will go into subsidizing the private sector. But eventually market forces shall come in to play as has happened in sectors like telecom. Market forces have made it possible for the common man to have a mobile phone in his pocket and India today has the cheapest call rates in the world.

Knowledge@Wharton: What is your vision for the Apollo Group?

Reddy: India should become the global health care destination. That is my vision for the health care domain in India. And I think it is eminently possible. We have most of the essentials like medical and nursing professionals with very high standards of skills and talent, infrastructure, and technology that matches the best in the world. Though health care as an industry enjoys government and institutional support, a more intensified focus could hasten our progress.

In the next five years, I see Apollo Hospitals taking a leadership role in India’s journey towards global leadership in health care. We have, and will continue to spearhead, several efforts in clinical medicine, infrastructure, IT, research, technology and innovative services such as disease management and preventive health care. Most importantly, we want to bring transnational medical [care] for the benefit of patients.

Knowledge@Wharton: Apollo has one of the busiest transplant centers in the world. Can you tell us about the group’s organ transplant program?

Reddy: Since its inception, the Apollo Institutes of Transplant have completed more than 12,000 kidney transplants and over 1,280 liver transplants. In 2013, the Apollo Transplant Institutes conducted 1,456 solid organ transplants thereby making it the busiest program of its kind outside of the U.S. The Institutes are located at more than 14 locations offering a mix of services that are equipped to take care of the entire spectrum of liver, kidney, nephrology and gastrointestinal diseases. With a 90% success rate, our program is a beacon of quality and hope for patients from across the world.

“Modern medicine combined with India’s 5,000-year-old traditional therapies can offer to the whole world an unbeatable healing package.”

India does not have a national registry to match organ donors with recipients, unlike in the U.S. and the U.K. This compelled us to start the Gift A Life initiative to promote organ donation across the country in November 2011. India currently ranks abysmally in organ donation rates as compared to the developed and developing world. In Spain, 33 people in a million come forth to donate their organs, while in France the number is 23. In India, this figure is a paltry 0.1 people per million. There are various impediments to increasing the number of voluntary organ donations. From perceived religious taboos to a lack of social acceptance, all play a part in the number of organ donors being low. Going forward, Gift A Life will work with like-minded partners to create more awareness. It will also focus on the creation of a national registry to help in matching donors with recipients.

Knowledge@Wharton: What is your current scale of operations in India and outside? Going ahead, what areas do you plan to focus on and what are your expansion plans?

Reddy: At present, we have more than 10,000 beds across 55 hospitals (51 in India and four in Dhaka, Tanzania, Oman and Mauritius), more than 1,500 pharmacies, over 100 primary care and diagnostic clinics, 115 telemedicine units across nine countries, health insurance services, global projects consultancy, 15 academic institutions and a research foundation with a focus on global clinical trials, epidemiological studies, and stem-cell and genetic research.

Our clinics are operational in 10 to 12 cities predominantly in Tier I markets. In total, we have 100 clinics including franchisees and the number is expected to go up to 250 in the next five years. These will act as feeders to the hospitals and will reach out to over 25 to 30 cities in Tier II markets. We are also operating 36 dental clinics at present. This is likely to increase to 100 over the next three years.

The clinics form part of what is termed as “retail.” We believe that this has a potential to become a Rs.1,000 crore ($160 million) business over the next five years and [we are looking at] investing Rs.350 to Rs.400 crore in this retail business. We are also planning to invest approximately Rs.2,000 crore to set up 15 hospitals and 2,800 beds over the next three years. So the overall proposed investment is estimated to be Rs. 2,500 crore ($400 million). The funding is being done from both debt and internal accruals.

Knowledge@Wharton: Kohlberg Kravis Roberts and Co. recently invested in Apollo Hospitals. What is the nature of the investment and what will the funds be used for?

Reddy: The partnership involves Rs.550 crore ($88 million) in long-term investment by Kohlberg Kravis Roberts and Co. together with its affiliates and select investors in PCR Investments, the holding company for Apollo Hospitals Group. The investment is in the form of a five-year callable security that consolidates existing debt at PCR and initiates a partnership in the health care sector across the two firms. This transaction is the culmination of very involved deliberations with the clear intent of working together to create long term value for the group and reflects our philosophy of partnering with players who have a long term view and deep understanding of the health care space.

Knowledge@Wharton: Your four daughters form the core management team at Apollo Hospitals. Preetha Reddy is managing director, Suneeta Reddy is joint managing director, Sangita Reddy is executive director and Shobhana Kamineni is executive director of new initiatives. Have you drawn out a succession plan?

Reddy: Everyone wants an institution he has built with his blood and sweat to grow and flourish. [At] Apollo [we have] formed a family council. We have gone to experts who are advising us. Nothing much has happened on that front. As far as my daughters are concerned, they synchronize very well; they look after four different activities but are connected to each other very well and therefore connect beautifully with the rest of the Apollo family.

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