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

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

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

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

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

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

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

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

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

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

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

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

Pic courtesy The Apollo Clinic website

The Silly Question of RoI in Healthcare Marketing

The other day I was with Dr. Jadhav who heads the Marketing function at the well known Narayan Hrudayalaya in Bangalore. Dr. Jadhav was keen to use radio for his hospital’s communication needs and I was hoping to persuade him to advertise with Fever 104, the radio station owned by The Hindustan Times, my current employers. Narayan Hrudayalaya, which is a well-known cardiac hospital thanks to the famous Dr. Devi Shetty and his pioneering initiatives, has recently started a Cancer Centre as well as a Multi Speciality hospital and wanted to promote these. The aim of the communication was to tell the citizens of Bangalore about these services available at Narayan Hrudayalaya and to drive ‘footfalls’.

While I discussed the plans with Dr. Jadhav, I could not help but notice his concern about the RoI on his marketing spends. Dr. Jadhav was very clear that if he spent Rs. 100, he needed 3 times the sum in revenue, which could be directly attributed to this activity. I could easily relate to this because this is exactly the kind of expectations the management teams had of me, when I headed the Marketing function at Max Healthcare and Artemis Health Institute.

I wish calculating RoI on healthcare spends was this easy. While there are many websites, which help one calculate RoI on marketing spends using complex formulae and spreadsheets involving the lifetime value of a customer, the cost of capital and what have you, I believe quite often the best way forward is a subjective gut feel and patience.

Measuring the success of a healthcare marketing campaign by merely counting the number of queries/walk ins generated in the hospital OPD is a great folly. The hospital business is unlike any other business and one must remember that exciting marketing communication alone will not lead to people walking in to check out the services of the hospital. This can happen for a new restaurant or a movie theatre, but for someone to visit a hospital he must have a pressing need.

Tactical communication involving discounts, freebies and the like should be handled with care. I am not sure I would prefer to go to hospital for cardiac surgery because there is a discount being offered on the surgery, or I would like to go under the knife at a particular time just because the hospital is offering a deal. Come to think of it, I would be downright suspicious of the hospital if it tries to hustle me into a medical procedure by making a commercial offer.

Marketing spends in a hospital must be looked upon as an investment in the hospital brand and the values it stands for. The customers should be informed about the services of the hospital, the experience and training of its doctors, the robustness of its systems and processes and above all the promise of the experience the hospital hopes to deliver to its customers. It can highlight its ease of access, competitive pricing vis-a-vis other hospitals and superior services. The hospital must showcase medical excellence, send out stories of success against great odds and constantly remind its customers what it truly stands for. It needs to communicate all or some of these over time before it should even attempt to measure the RoI.

A hospital’s brand equity is built over many years and much as hospital marketers would like to hurry this up, there are just no shortcuts. A hospital must set aside a small sum of money (7% of sales in the first years tapering to 2-3% in later years) year on year to spend on connecting with its patients and the local communities it hopes to serve. It should diligently spend this money informing, educating and reinforcing its brand values.

A few years later, the hospital will find itself buzzing with patients and no one would really be interested in the RoI on marketing spends.

My experiences at the Indraprastha Apollo Hospitals

The other day I landed at the Indraprastha Apollo Hospitals, a stone’s throw away from my residence in New Delhi. My wife needed a test and our doctor at Max Healthcare asked us to get it done at Apollo as the equipment at Max was out of order. The moment I walked in I felt as if I was on a railway platform. The hospital was full of patients as everybody appeared to be in a mad rush. In the OPD area, the ladies at the reception were busy, chatting amongst themselves, while patients and their caregivers waited for their attention. They wore no uniforms and for some strange reason, they were also collecting cash from the patients (apparently for the doctor’s consulting charges) and handing out receipts scribbled on small chits, which did not even have the hospital’s name on it.

Strangely, I was than directed to a cash counter to pay for the tests.

Since my wife needed some injections we were asked to go to the pharmacy and buy them, bring them back to the treatment room in the OPD area, where a nurse would help us with the shots. As we wound our way back to the Pharmacy we discovered that buying medicines is a huge chore. We submitted our prescription at a counter in the pharmacy and were handed over tokens and asked to wait. There was no place where one could even stand, without being pushed around. After being jostled around for 30 mins, we managed to buy the medicines, only to discover that we also needed to buy the disposable syringes, which the doctor had forgotten to mention on the prescription. So lo and behold the charade of the tokens was repeated.

During all this I counted 18 people inside the pharmacy store and the two guys who handed me the medicines and accepted my cash kept chatting with each other in a south Indian tongue, without bothering to pay any attention to me whatsoever.

We returned to the OPD and were directed to room no. 15 for the shots. This room was locked and we were than directed to a paediatric immunisation room full of anxious parents and bawling kids. This is where my wife managed to get the shots she needed. We wasted more than an hour in all this and ran around the hospital OPD trying to get some very basic services. The staff was uniformly disinterested in us, poorly trained and too busy to attend to us. Fortunately, the test my wife needed was routine and she is in good health. I can just about imagine the plight of patients and their care givers flocking to this hospital and being shunted around by a callous system, which barely works.

And now here is what happened when I came to collect her reports two days later.

I called up the hospital to check if the reports were ready. On being informed that I could collect these by 8 PM, I agreed to stop by to pick these up. As I walked in at about quarter to 8 in the evening I discovered a security guard merrily locking up the report collection area. He directed me to take another door into the radiology reception and 5 minutes later, when I walked in I found the lights switched off, the guard had also disappeared and there was not a soul to be found. Perplexed, I walked into another adjacent room and found someone busy on the phone.

As I explained my predicament, this gentleman informed that I was late and that the staff usually left 15-20 minutes earlier than closing time! Amazed and incensed at all this I asked to be directed to someone, whom I could lodge a complaint with. Much to my disbelief I was told to approach the Emergency Medical Officer in the Emergency!

At the reception in the Emergency, I found myself explaining my situation to a young man, who was simultaneously trying to answer questions from an anxious gentleman, whose father had just been brought in with severe chest pain!!! The emergency medical officer, who was supposed to record my complaint was predictably busy with a patient and I was asked to wait. After about 30 minutes of watching the bedlam of a busy Emergency room with no one paying me the slightest attention, I raised my voice (and in the process added to the chaos) and demanded to see the highest ranking hospital official to record my complaint.

I was than informed that the Night Duty Manager will now attend to me soon. Another wait of about 15 minutes followed and yet no one showed up. I again screamed at someone and in another 10 mins a nurse walked out looking for me. She understood my problem, asked me to wait and went to fetch my reports. She returned in a while with my reports and gently admonished me for being so late and irresponsible in collecting my documents.

This is a true story of Delhi’s only JCI accredited hospital. God help us all!!!