Medical Tourism Final

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INNOVATION STRATEGY
AND ENTREPRENEURSHIP

FINAL PROJECT

PROFESSOR RON ADNER

Rakesh Rekhi
Kumaran Sasikanthan
Arnaud Descamps
Cesar Sanchez Fernandez
Nicolas Macquin
Lucas Evans

February 17, 2005
TABLE OF CONTENTS .

1. INTRODUCTION
1. 1 Definition of Medical Tourism

2. INNOVATION IN CONTEXT
2.1 Indian Health Care Sector
2.2 Indian Tourism Sector
2.3 Emergence of Medical Tourism
2.4 The Value Chain

3. APOLLO HOSPITALS CASESTUDY
3.1 Overview
3.2 Strategy
a. An Integrated Player
b. Resource Generalist Strategy
c. Resource Allocation and Capabilities
3.3 S.W.O.T Analysis
a. Strengths
b. Weaknesses
c. Opportunities
d. Threats
4. INNOVATION ANALYSIS (4I)
4.1 Initial Market
4.2 Internal Risks
4.3 Interdependence
4.4 Integration

5. CONCLUSION
5.1 Demand Side Outlook
5.2 Supply Side Outlook
5.3 Role of Government
5.4 Recommendations
5.5 Challenges
5.6 Closing Remarks
6. REFERENCES
MEDICAL TOURISM: ADVANTAGE INDIA
1
1. INTRODUCTION .

Medical tourism in India holds great promise. This report examines the
business concept of "medical tourism with a focus on how it is being
brought to market in India. To evaluate the opportunities, challenges and
current context of this emerging sector, we use Apollo Hospitals as an
illustrative case to examine the ways in which the opportunity is being
structured and exploited.

We explore the present state of affairs in the Indian medical tourism
industry, its future potential and key challenges. Analysis through a
strategic framework highlights the levers of Indias existing advantages and
unique proposition. Low cost, high quality, brand positioning and fascinating
tourist getaways are some factors fueling growth.

1.1 DEFINITION OF MEDICAL TOURISM
The concept of medical tourism is actually thousands of years old. In
ancient Greece, pilgrims and patients came from all over the Mediterranean
to the sanctuary of the healing god - Asklepios, at Epidaurus. In the 18th
century, wealthy patients from Europe traveled to spas in the Nile. Today,
relatively low-cost jet travel has resulted in thousands of patients seeking
treatment outside of their home countries.
In its modern avatar, medical tourism takes more than one form. In one
sense as its name suggests, it involves combining world-class health
treatment at nominal costs when compared with Western countries, with a
holiday. In another, it is simply outsourcing healthcare to lower cost
destinations. Currently, the most sought after treatments include dental
care, eye care, heart care, heart surgery, cosmetic treatment and
orthopedic surgery. Countries that actively promote medical tourism include
Cuba, Costa Rica, Hungary, Israel, Jordan, Lithuania, Malaysia, Thailand and
2
most recently India. A detailed destination guide to some of the most
sought after medical tourist destinations follows:

[Exhibit 1] - The World of Medical Tourism, Nations actively Promoting the Concept

3

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2. INNOVATION IN CONTEXT .
Here, we examine the industry structure and how it is facilitating the
growth of medical tourism. To do this we must study some key trends in the
Indian health care and tourism sectors.
2.1 INDIAN HEALTHCARE SECTOR
Market Size and Key Trends
Currently, the Indian healthcare industry is undergoing phenomenal
expansion. Some important market information includes:

The Indian Healthcare market is today worth US$ 18.7 billion. This
number will reach US$ 45 billion by 2012.
65% of healthcare is serviced by the private sector
The industry is growing at 13% annually and this figure is expected
to reach 15% over the next five years.

The demand for quality medical treatment has resulted in a vast healthcare
network mushrooming across the country. The following is a snapshot of
key statistics of the healthcare sector in India.

[Exhibit 2] - Key Statistics for the Healthcare Sector in India

4
Private hospitals and continued investment in public health programs are
driving the boom in Indian healthcare. It is important to note that the
primary driver is internal not external - Indias own 300 million strong
middle class.

As a result, Indias expenditure on health in terms of percentage of GDP, is
among the highest in the world for developing countries - 5.1% in 2001 and
is expected to reach 8.5% by 2012.
[Exhibit 3] -Healthcare Expenditure as % of GDP (2001)

The Indian Government has incentivized private hospitals to create and
upgrade medical infrastructure. Recent measures taken to this effect
include:

Infrastructure status conferred on the healthcare industry allows tax
breaks to financial institutions lending to this sector resulting in
access to cheaper long-term capital.
Reduction in import and customs duty on medical equipment from
25% to 5%.
Increase in the rate of depreciation from 25% percent to 40% for life-
saving medical equipment - to encourage imports.

5
Information Technology
An important and positive development in the healthcare sector is the use
of information technology for upgrading the delivery of healthcare services
and improving efficiency levels. Some examples include:

- Computerization of medical records
- IT Networking across various departments in hospitals
- Providing telemedicine services

The following exhibit illustrates how Apollo Hospitals uses IT to support its
business strategy.

[Exhibit 4] - Apollo's Technology Initiative Encompasses Various Areas

6

In 2005 alone, four
million tourists visited
India
Foreign Alliances

A growing number of Indian hospitals have formed alliances with foreign
healthcare providers. Most aim at leveraging their international partners
skills, knowledge and experience in devising and implementing improved
medical care services. This goes beyond the scope of just capital infusion.
For example, Max Healthcare and Singapore General Hospital are
collaborating in medical practice, research, training and education. Apollo-
Gleneagles Hospitals Ltd is a 50:50 joint venture between Apollo Hospitals
Ltd and Parkway Group of Singapore. Some other select foreign alliances in
the Indian medical care sector include:

[Exhibit 5] - Indo-foreign Healthcare Alliances

2.2 INDIAN TOURISM SECTOR
A Booming Industry
India is currently among the fastest
growing tourist destinations in the world.
Strong government support has played an
important role in boosting tourist arrivals.
According to World Travel and Tourism
Council [WTTC], Indian tourism is
projected to grow at 8.6% between 2006 and
2015 and earn up to US$ 24 billion in foreign currency
by 2015. Furthermore, travel and tourism in India is projected to
generate an additional US$ 44.7 billion of related economic activity.
7

In 2005, Indian
airlines were the
biggest aircraft
purchasers in the
world
Key Trends

Hotels: There has been major improvement in tourist infrastructure. Hotels
in cities like Bangalore, Mumbai, Hyderabad and Delhi have experienced a
huge inflow of business travellers while cities like Goa and Jaipur witness
higher inflow of leisure tourists.
Increasingly, hotels are interested in the medical circuit. Today, many offer
special rates to patients. Probably the first initiative in such strategic tie-ups
was taken when a southern Indian state government formed a first of its
kind Medical Tourism Council consisting of members from hospitals, travel
agencies and hotels.

Air Travel: Massive growth has been
taking place in the Indian skies.
Deregulation in the sector has had a
major impact - increasing access to cities
and towns all over India. Intense
competition between airlines has resulted
in lower airfares. A major development
was the commencement of operations of
Indias first low-cost no-frills airlines
company - Air Deccan, in 2003. By expanding its nationwide network and
offering very low fares, it stimulated competition in the industry. This will
undoubtedly provide further impetus to the growth of tourism in India.

2.3 EMERGENCE OF MEDICAL TOURISM

Growth Galore
Positioned as a combination of healthcare and tourism, medical tourism is
being cited as the next big boom in India. The central government has
already increased its commitment towards health tourism and even state
governments are catching onto the trend.
8

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t to ou ur ri is sm m m ma ar rk ke et t i in n
m ma ar rk ke et t i in n I In nd di ia a i is s
w wo or rt th h $ $5 50 00 0 m mi il ll li io on n

Many government and consulting studies suggest
that medical tourism will be the next big success
story out of India. From less than 10,000
patients visiting India for medical treatment in
2000, the medical tourism market is today worth
US$ 500 million. Current estimates claim that in
2005, about 170,000 foreign patients sought
medical treatment in India. A joint study by
McKinsey and the Confederation of Indian Industry [CII] shows that at its
current pace of growth [30%] - healthcare tourism alone can rake in over
US$ 2.2 billion of additional revenue by 2012.

India has the potential to attract 1 million medical tourists per annum,
which would contribute $5 billion annually to the economy. A study done by
CII revealed that Thailand with a population of 60 million has been
successful in attracting 1 million health tourists last year - primarily due to
the development of world-class infrastructure. According to CII, Thailands
success is due to aggressive international marketing. CII recommends that
India should replicate the Thai model and capitalize on its inherent
strengths to become a world player in medical tourism.

Increasingly, travel firms are devising medical tourist packages with
hospitals to make the stay of patients and their families more comfortable.
Take for example, Cox and Kings India, an Indian travel company. It chalks
out itineraries for patient recovery including bookings to quiet and scenic
tourist locations such as Goa and Kerala. National carrier - Indian Airlines
has teamed up with leading city hospitals in Kolkata to give air passengers a
30% discount on diagnostic and therapeutic services in city hospitals. The
government has appointed officers in 13 Indian consulates in foreign
countries to promote India as a global healthcare destination.

9
The Cost Advantage

Indias healthcare costs continue to be attractively low as evidenced by the
fact that Apollo Hospitals was able to conduct a bone marrow transplant in
absolutely sterile conditions for just US$ 19,000 - one-fifteenth the cost in
the UK or the US. More such examples abound. Refer to the following tables
for:

A comparison of the prices of medical treatments in India and other
countries.
Wait-list times of patients seeking medical procedures in the US and UK.

[Exhibit 6] - Medical Treatment Cost Comparisons

Comparative Price List
Surgery US ($) Thailand ($) India ($)
Bone Marrow Transplant 400,000 62,500 30,000
Liver Transplant 500,000 75,000 40,000
Open Heart Surgery (CABG) 50,000 14,250 4,400
Knee Surgery 16,000 7,000 4,500
Cranio-facial Surgery and skull
base
18,000 4,300
Neuro-surgery with Hypothermia 21,000 6,500
Complex spine surgery with
implants
13,000 4,300
Simple Spine surgery 6,500 2,100
Simple Brain Tumor
- Biopsy
- Surgery

4,300
10,000

1,000
4,300
Parkinsons
- Lesion
- DBS

6,500
26,000

2,100
17,000
Hip Replacement 13,000 4,300

10
[Exhibit 7] - Approximate Waiting times for Patients in the US and UK

Approximate Waiting Times
Surgery
Periods in USA / UK
(in months)
Open heart Surgery 9 - 11
Cranio-facial Surgery and skull base 6 - 8
Neuro-surgery with Hypothermia 12 - 14
Complex spine surgery with implants 9 - 11
Simple Spine surgery 9 - 11
Simple Brain Tumor
- Biopsy
- Surgery

6 - 8
Parkinsons
- Lesion
- DBS

9 - 11
Hip Replacement 9 - 11

Complements

Historically, India has always been a nation with a wide menu of alternative
and natural medical systems. With yoga, meditation, ayurveda, allopathy
and other holistic practices - India offers a unique basket of complementary
services - a competitive advantage that other countries will find difficult to
replicate. Also, clinical outcomes in India are at par with the worlds best
centers.

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2.4 THE VALUE CHAIN

To create and capture value, medical tourism providers need to offer high
quality services and products for foreign patients. Right from diagnosis to
final delivery of treatment, quality standards must be of the highest caliber.
In this high stakes industry, a low cost proposition cannot trade off
with high quality - the consumer would not accept it.

Travel
Agencies
Provide information
on hospitals core
competencies,
insurance coverage,
travel packages &
local tourism
arrangements in India
Arrange for Visa
and travel
facilities
Patients
Contact Travel
Agents, Hospitals
for information
Discuss medical needs
through
email/phone/video
conferencing
Hospitals
Work towards
getting
certifications such
as ISO 9000, 14000,
JCI
Provide medical
services such as
critical surgeries,
general health
checkups, cosmetic
surgeries etc
Tour
Operators
Arrange for trips to
tourist attractions,
final drop off at
airport etc
Arrange for
stay at resorts and
hotels
Follow-up
Services
Provide long term
follow-up services
via tie ups with local
hospitals in foreign
countries, tele
medicine etc
Provide follow up
services such as
consultations,
checkups while on
tour.
Insurance
Coordinate Insurance
arrangements [if any]
Inform Insurance
company

Additionally, greater innovation is needed. Often when a patient is
discharged after a medical procedure, there is little follow-up on the part of
hospitals and doctors. Value added services such as follow-ups not only
enhance quality levels but could also create new revenue streams. By
providing "aftercare treatment, medical centers can grow the much hyped
about medical treatment model of telemedicine [treatment via
videoconferencing].
12

Apollo is the largest
medical corporation in India
with 32 hospitals and over
5,000 medical personnel

Apollo Hospitals has treated
10 million patients in the last 3
decades alone

3. APOLLO HOSPITALS .
3.1 OVERVIEW
We will now examine Apollo Hospitals - a leading super-specialty network of
hospitals in India, which has treated 95,000 international customers
over the last 3 decades. Latest statistics reveal that last year alone Apollo
Hospitals treated 40,000 medical tourists.

Apollo was one of the first players
to move into medical tourism. In
addition, it provides overnight
computer services for American
insurance companies and
hospitals and collaborates with
international pharmaceutical
companies. In the spring of 2004, Apollos Chairman began negotiations
with the UKs National Health Services [NHS] to subcontract medical testing
for British patients at a fraction of the prices that it would cost in England.

Apollo Hospitals began to experience rapid growth in the 1990s with the
deregulation of the Indian economy. Tariffs imposed on imports of modern
medical equipment were reduced. Usually, the first patients were
Indian expatriates who returned home for treatment.
Next, patients from Europe, the Middle
East and Canada began to
arrive. Apollo now has 37
hospitals, with about 7,000
beds. The company is in
partnership with hospitals in
Kuwait, Sri Lanka and Nigeria.
According to Citigroup analysts, Apollo is expected to achieve a
20.3% recurring EPS CAGR through 2008. This growth is a function of
both increased efficiency and occupancy rates at existing medical facilities.
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Demand is expected to rise significantly as a result of both domestic and
international patients taking advantage of the favourable cost structure of
Indian medical care.

3.2 STRATEGY
A. AN INTEGRATED PLAYER
As a company, Apollo allocates its resources to pursue a full-scale
healthcare provider strategy. It has hospitals, clinics, outpatient facilities,
pharmacies, telemedicine centers, insurance offerings and even nursing
colleges in its network. From an infrastructure perspective, Apollo is a
complete package with the ability to offer its patients superior facilities,
many of which are ISO certified. With Centers for Excellence which
specialize in more complicated procedures, Apollo clearly has the breadth it
needs in order to achieve its strategic goal. Apollo is making a concerted
effort to continually improve its underlying core by updating its information
systems and investing in the latest medical technologies.

[Exhibit 8] - Apollo is an integrated healthcare provider

14
Extending beyond Apollos Indian operations is its network of international
partners and alliances. It uses this network to source international patients
for its medical tourism business. To this end, a key advantage is its
vertically integrated structure. Apollo truly is the leader in its field,
integrating its services with a number of insurance providers and travel
agencies - a means of both cultivating the medical tourism industry and
establish itself as the premier healthcare provider.

B. RESOURCE GENERALIST STRATEGY
Apollo has positioned itself as a one-stop shop for medical services. By
selling the advantages of Indian medical tourism [lower costs, quality of
care, reduced waiting times, English-speaking staff and unique vacation
getaways], Apollo is leveraging its position as market leader to create and
capture more value. However, what is truly innovative about Apollos
proposition is its ability to push its core competency - medical treatment -
to two distinct market segments using two very different selling
propositions:

Proposition 1
o Target: The Domestic market
o Offering: Best Quality in India
[Apollo as a Differentiator, by holding product resource]

Proposition 2
o Target: The International market
o Offering: Low Cost
[Apollo as Cost Leader, by holding a process resource]

By holding a product and a process resource simultaneously and achieving
cost and differentiation advantages successfully, Apollo pursues a Resource
Generalist strategy [as opposed to Porters generic strategy definition that a
firm needs to be either the quality leader or the cost leader].

15
C. RESOURCE ALLOCATION AND CAPABILITIES

Apollo Hospitals recently restructured its medical tourism initiative. The
Group has combined telemedicine and information centres in international
markets with clinics that are floated through the franchisee route. The
entire business rests under its wholly owned subsidiary - Apollo Health and
Lifestyle Ltd (AHLL). It intends to highlight its high standards of medical
care through its clinics. The Group is currently looking at overseas markets
where there is a sizeable Indian population to help its brand building efforts.

Because of the sheer reach and breadth of Apollos network, the firm is able
to allocate significant resources to its business units to realize its "complete
healthcare provider strategy. In order to appeal to medical tourists, Apollo
invests in a number of capabilities that make it attractive and competitive.

People

First, by adhering to international health care standards and employing a
staff where more than 70% of its physicians have either worked or trained
in the West, Apollo has made a conscious effort to create an environment
where medical tourists feel comfortable.

Partners

Second, by partnering with international insurance companies, Apollo is able
to both leverage the credibility of its partners and drive business to its
facilities where patients can receive cost effective, high quality treatment.
By pairing with several major travel agencies both in the West and in places
like Singapore, Malaysia, and Japan, Apollo is able to literally package
vacations with procedures for its clients.

16
Capacity
Apollo has been in an expansion phase for some time now, adding
approximately 850 beds over the last three years. Today its market share of
35% stands tall among corporate hospitals in India. With 6,158 beds, the
Groups scale of operations is much larger than the competition

[Exhibit 9] - Apollo has 35% of all Tertiary Care Private Hospital Beds in India

Treatment of "First world Diseases"

Most of Apollos hospitals offer a broad range of services, including
cardiology, oncology, nephrology, laboratory services, radiology and
imaging, maternity, general surgery, as well as diagnostic and emergency
services. Apollos hospitals also offer outpatient services, including
consultation for a range of ailments, preventive health screening, laboratory
services, radiology, and imaging.

An important trend in India is that there is a shift from infectious diseases
to lifestyle diseases - in line with trends in more developed economies. With
its rich intellectual capital, Apollo manages to introduce surgical techniques
17
to treat these ailments within six months of their introduction in the West.
This means that increasingly, Apollo can easily perform procedures and
treat conditions that are more common in developed nations.

[Exhibit 10] -Shift from Infectious to Lifestyle Diseases - in Line with the West

3.3 S.W.O.T. ANALYSIS
A. STRENGTHS
Leading player
As Indias leading independent healthcare organization, Apollo is a
forerunner in developing medical tourism strategy, having already treated
thousands of overseas patients. Over the years, the company has
diversified its operations across various dimensions of the healthcare
18
business, including hospitals, pharmacies, telemedicine and medical tourism.
Due to this position it has strong bargaining power when it comes to
negotiating competitive rates with vendors - allowing it to further build on
its cost advantage.
Large integrated network
The company's vertical structure and widespread geographic presence
provide it with a competitive advantage when compared to other Indian
players. This serves to attract foreign patients as they find "greater peace of
mind when they seek treatment in a large institution with a vast array of
capabilities.
Strong brand recognition
Apollo has strong brand equity, which drives growth in admissions and
patient visits and helps win both domestic and international management
contracts. The Independent Superbrands Council, comprised of Indias
leading marketing and advertising professionals, recognized Apollo as a
"Super Brand of India in the healthcare sector in 2003 and 2004.
Additionally, Apollo flaunts the JIC
1
certification - one of the worlds most
respected accreditations in the medical arena from the American Healthcare
Services Certification body/
Best doctors

One strength that Indian doctors possess in abundance is experience.
Owing to India's huge population, its doctors treat twice the number of
patients in their tenure as doctors when compared with their peers in the
West. Indian clinical talent is well recognised globally. Approximately 30%
of the doctors in the US are of Indian origin. This has a positive spill over
effect on foreign patients who maybe inclined to question the quality of
health care in India.

1
JCI is the international arm of the Joint Commission on Accreditation of Healthcare
Organizations, which evaluates quality standards of US hospitals.

19

B. WEAKNESSES

Lack of trust/knowledge [foreign patients]

While there is no denying that Apollo enjoys strong brand equity among
those who are familiar with it, a lack of trust/knowledge about the quality of
care exists among foreign patients from developed nations in particular.
This is due to low brand awareness among this target segment

Fixed-cost intensive

Apollo is a fixed-cost intensive business with high operating leverage. As
such, the inability to scale up hospital bed occupancy rates could depress
capital efficiency. Although it just issued a successful US$ 70 million GDR in
July 2005, the firm remains committed to an aggressive capital expenditure
plan. Given its current gearing ratio of approximately 1.0x [leverage], the
firm may face a strain on its capital base until the new investments can
begin to show positive returns. During this period, Apollo will be somewhat
vulnerable to rival initiatives as it will not have an optimal level of flexibility.

Replication of business model

Another obvious weakness is the potential ease of replication of Apollos
business. Provided that there is an influx of adequate investment, the
model does not present any truly insurmountable challenges that other
leading healthcare providers cannot mimic. As the Indian government
continues to create favorable market conditions, regulatory barriers for new
entrants will continue to decrease.

C. OPPORTUNITIES
Despite its current success, Apollo can still benefit from a number of
opportunities that would permit it to maintain its current earnings growth
trajectory by improving its position in higher margin segments. Specifically,
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growth segments include medical tourism, primary and secondary care
segments, all of which are less capital intensive than tertiary care and offer
higher returns.

Strong Market Growth

Apollo is undertaking a number of initiatives that are helping the company
to seal its competitive advantage in this space. In order to prepare itself to
capture the maximum possible share of the medical tourism sector, Apollo
is undertaking several strategic initiatives that will allow it to better serve
international clients. These include the opening of a brand new health
facility in the resort town of Goa which will make Apollo the most attractive
option for medical tourists in India.

One of the primary challenges for medical tourism, aside from the initial
sourcing of international patients is adequate follow-up care. This is often
necessary either in the form of consultations or additional visits to the
doctor. To this end, Apollo can create greater opportunities to increase the
number of telemedicine centers where physicians and patients meet and
consult via videoconference. This service is certainly a point of
differentiation and if Apollo can continue to improve this part of its
treatment package [perhaps through relationships with insurance networks
in patients home countries], it could continue to innovate down the value
chain and create even more opportunity for growth.

High Demand for Healthcare [India]
Private health care in India is a burgeoning market. Greater life expectancy
is a key factor that is impacting this phenomenon. The growth in affluence
of over 300 million strong middle-income consumers is creating demand for
higher standards of healthcare. In the period between 1993 and 2001,
aggregate household expenditure on health services increased at an annual
compounded rate of 9.3% [creating upward pressure on the demand side.]
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D. THREATS
Interdependence liabilities
With every extra player in the value chain, Apollo Hospital is exposed to
incremental liabilities. Each player must play his part in order for medical
tourism to succeed. Currently, the capabilities of individual players differ
and strong brand identity remains an issue. If one player fails to deliver the
requisite amount of value the whole industry suffers.

Increased Competition
While Apollo has clearly thrived in recent years, its success has attracted
the attention of formidable rivals, foremost among which is Max Healthcare,
a public company with the backing of US private equity goliath Warburg
Pincus. Today, Max replicates Apollos service offerings, but does not enjoy
the same reputation and relationships with Western insurance companies
and travel agents. Other competitors include Wockhardt Hospital which has
a relationship with American insurer BlueCross-BlueShield and a tie-up with
Harvard University. As these relationships develop over time Apollo may
find its pricing power challenged. Based on the expected growth forecasts,
there may well be enough room for two large players, but Apollo needs to
realize that its advantage is only as large as its ability to continuously
improve itself and maintain its status as the market leader.

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Cost Pressures [long run]
In the long term on a socio-economic level Apollo will face pressures from
rising wages and operating costs as the standard of living in India rises.
This will result in reduced margins.

[Exhibit 11] - Apollo SWOT Analysis

STRENGTHS

LEADING PLAYER

LARGE INTEGRATED NETWORK

STRONG BRAND RECOGNITION

BEST DOCTORS

WEAKNESSES

LACK OF TRUST/KNOWLEDGE
AMONG LARGER FOREIGN
POPULATION

FIXED-COST INTENSIVE

REPLICATION OF ITS MODEL

OPPORTUNITIES

GROWTH IN MEDICAL TOURISM

INCREASING DOMESTIC DEMAND
FOR HEALTH CARE SERVICES

THREATS

INTERDEPENDENCE LIABILITIES

INCREASING COMPETITION

RISING WAGES [LONG TERM]

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4. INNOVATION ANALYSIS [4i]
Those who say that business success is all about execution are often wrong.
Choice of product market, technology, geography and timing are
critical components of long-term economic success. For medical
tourism and Apollo to succeed it must identify and ride the currents of the
environment around it by developing strategies to navigate them.
For perhaps the first time in history, geography is not the primary
constraint on the boundaries of social and economic organisation. More than
a transformation in technology itself, medical tourism is an opportunity
created by a shift in demand, supply and purchase behaviour. Apollo needs
to understand the implications of various trends alongside customer needs
and competitive developments. Based on this it must align its strategies to
them in order to succeed.
In order to evaluate the innovation we call medical tourism, we must
analyse the opportunities at large and see if it will meet market
expectations. Hence, we must study interdependencies and integration
requirements to predict if the concept will be a success or not.
We use the following scale to determine whether a particular outcome is
probable or not:
Certain = 1.0
High = 0.75
Medium = 0.50
Low = 0.25

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4.1 INITIAL MARKETS
Some marketing initiatives being employed by Apollo hospitals to attract
initial target customers includes setting up information centers in various
countries, partnering with insurance companies and creating alliances with
hotel and travel operators. The reasons international patients choose India
for treatment include:
The required treatment was not available in their country
Treatment in India are more affordable in India with costs being one-
tenth of similar procedures in the US and UK
For some, it is the allure of combining a vacation with their treatment

Our estimates of initial target markets and the likelihood for trying out
medical tourism include:

Countries Key Points
Expatriate
Indians
[Probability 1.0]
Various Indian citizens who have settled abroad
Are familiar with Indian health care
standards
Prime targets as they are convinced of
Indias medical capabilities
Visit India frequently for vacation
anyways
Uninsured and
underinsured
foreigners
[Probability .50]

USA Seek low costs
Are quality conscious

Patients on
Medical waitlists
[Probability .50]
Canada / UK Canadians who are frustrated by long
waiting lists for medical procedures
English patients who are waitlisted for
free treatment under the National British
Healthcare Services. The UK recently
invited private tenders to treat 250,000
NHS patients a year

Patients lacking
access to quality
health care in
home country
[Probability .75]

Africa / South
Asia / Middle
East

Lack of medical expertise in home
country

25
4.2 INTERNAL RISKS
Rising wages and costs [Probability 0.25]
In the long run, maintaining a cost advantage will prove increasingly
difficult as salaries, cost of equipment and utilities in India rise. In the short
run, this will not happen soon enough hence the immediate risk is low.

Qualified Personnel Leaving [Probability 0.25]
There is tremendous stock of intellectual capital on the supply side when it
comes to Indian Doctors. However, the system faces some constraints in
terms of qualified personnel such as specialist nurses, paramedics and
qualified hospital administrators. Several private hospitals have invested in
nursing education, but are concerned about loyalty - trained nurses often
leave India, attracted by the higher wages offered in other countries. The
CII-McKinsey study points out that specialist nurse training will become vital
as the number of super-specialty hospitals increase. Retaining quality
employees involves investing in training, strong management, attractive
corporate culture and eventually higher wages.

Credibility Crisis [Probability 0.5]
The most important challenge faced by the Indian medical tourism industry
is establishing a healthcare brand synonymous with safety, trust and
excellence. Credibility of Indias healthcare in foreign countries has
increased over the last years as proven by the following facts:

Independent credit rating agency CRISIL has assigned a grade A
rating to some Indian hospitals
The UKs National Health Services has indicated that India is a
favoured destination for surgeries
The British Standards Institute has now accredited some Indian
hospitals
Some hospitals in India have achieved certifications such as
ISO 9000, ISO 14000 and JCI (US Gold Standard)
26

Furthermore, Indian hospitals are building strong reputations based on their
high treatment success rates.

Indian specialists have performed over 1.5 million surgeries with
success rates at par with international standards
The success rate of over 43,000 cardiac surgeries in India in 2002
was 98.5%
India's success rate in 110 bone marrow transplants is 87%
The success rate in 6,000 renal transplants is 95%

Apollo Hospitals regularly sends representatives to international
symposiums to showcase these high success rates. However, the CII-
McKinsey study notes that apart from a few big players, providers in the
Indian healthcare system are still plagued by a lack of standardization and
accreditation. As various countries fight for a greater share of the medical
tourism sector, India needs to carve out a distinct niche for itself by
leveraging its existing strengths and offering a unique value proposition.
Indias healthcare players should undertake an international marketing
campaign targeted at select countries besides establishing informational
centers in key markets to encourage the inflow of foreign patients.

4.3 INTERDEPENDENCE

City Infrastructure [Probability 0.25]

While medical staff and health facilities at leading Indian hospitals may be
on par with the worlds best, the general environment and city
infrastructure such as roads, traffic, pollution, sanitation, etc. are some of
the immediate obstacles that disincentivizes medical patients from choosing
India. However, the industry players have no direct control over these
issues other than putting more pressure on the government to improve
these conditions.
27
Language [Probability 1.0]

With English being spoken widely in India, the industry enjoys the
advantage of conversing easily in the universally accepted international
language for business. This is important not only for doctor-patient
conversations but also in other stages of the process such as travel
bookings, accommodation and post medical care.

Media Coverage in Target Markets [Probability .50]

Just type "medical tourism success story in an Internet web browser and
you will be flooded with search results. Media reports portraying Westerners
being treated successfully in India are common. When a US television
channel aired a primetime documentary on Medical Tourism, demand from
westerners seeking treatment instantly increased at the hospital. All the key
players such as Apollo are increasingly using such advertisements to woo
patients. However, the media can equally be a liability if there was a case of
medical neglect in an Indian hospital. Hence, we refrain from giving this a
very high score.

4.4 INTEGRATION

Like any emerging innovation, Medical tourism must integrate the value
chain within which it operates to emerge as a success. Following are our
estimates of the probablities for success in integrating the value chain.

Successful integration with the TRAVEL INDUSTRY [Probability 1.0]

For patients who are already suffering from their ailments a cheap, safe and
convenient travel option is a must. Obtaining visas, buying air tickets to
unknown places and staying in hotels are additional stresses that are
28
worrisome to say the least. Thus the industry needs to work closely with the
travel industry to offer integrated services which address all these issues to
make travel concerns a non-issue. In general, Indian cities and towns are
well connected by road and air. Additionally, tourism is in an advanced
stage meaning that patients can get access to tourist spots easily. A recent
success story has been the partnership between Apollo Hospitals and
several travel companies such as Sita Travels - the largest travel agent in
India. However, the government can help by simplifying immigration
procedures such as setting up fast track application counters.

Successful integration with HEALTH INSURANCE [Probability .50]

Today most medical insurance companies do not pay for treatment abroad.
Unless issues such as affordability and long waiting lists hinder medical
access, people who have insurance will not volunteer for overseas
treatment. Successful integration opportunities exists more so in the US
than in Europe. American insurance providers such as HMOs are cost
conscious and maybe willing to collaborate with medical tourism providers
to reduce expenditures. Another positive externality is the shrinking social
security net in the US which is fast running out of funding. The growing
support of medical insurance is very important in determining the scale that
medical tourism can grow to.

Successful integration with FOREIGN DOCTORS [Probability .25]

Medical tourism providers need a network of partner foreign doctors that in
order to diagnose and refer sick patients to India. This network needs to be
extensive, well informed, trustworthy and convincing. It is highly unlikely
that independent or affiliated doctors in developed economies will welcome
this. Rather institutions such as Apollo will need to start from scratch and
build this network ground-up.

29
Successful integration with FOLLOW-UP PROVIDERS [Probability .25]

Many patients need short term post-operative care and stay in the
destination country. Hospitals such as Apollo have setup clinics in many
places within India. Here medical tourists can get immediate follow-up care.
However, there is a lack of mechanisms in place to provide long term follow
up-care once the patient returns to his/her home country. At present,
telemedicine and video-conferencing are being used to try fill in the gaps for
this purpose. More of an effort in terms of strong alliances between Indian
and overseas providers is needed to follow-up care concerns.

[Exhibit 12] - 4i Analysis

4 i's

Probability Weight Weighted
Probability

Initial Target Markets
Expatriate Indians 1.00 0.50 0.50
Under & Uninsured patients 0.50 0.20 0.10
Patients on Medical Waitlists 0.50 0.10 0.05
Patients lacking access to quality
health care in home country
0.75 0.20 0.15 0.80

Internal Risks
Rising wages and costs 0.25 0.25 0.06
Qualified Personnel Leaving 0.25 0.25 0.06
Credibility Crisis 0.25 0.50 0.13 0.75*

Interdependence
Infrastructure 0.25 0.40 0.10
Language 1.00 0.20 0.20
Media Coverage 0.50 0.40 0.20 0.50

Integration
Medical insurance companies 0.50 0.25 0.13
Travel Agencies 1.00 0.25 0.25
Doctors in the foreign countries 0.25 0.25 0.06
Follow-up care providers 0.25 0.25 0.06 0.50

Probability of Success 0.15

* Internal Risk = 1 - weighted probabilities i.e 1 - 0.25

30
For each 4i variable we multiplied the expected value of success by the
weight we assigned based on our perceived importance of each variable. We
then added up all the weighted probabilities for each category [Initial target
Markets, Internal Risks, Interdependence and Integration].

The Final Probability of Success [0.15] was calculated by taking the product
of probabilities of each "i. We believe that the value of 15% is a healthy
indicator as it was based on 14 independent variables. It is common
business lore that when an innovative product or service is launched
investors and the market are overly optimistic. However, they fail to realize
that there can be several problems which can spell the demise of an
innovation. The probability of delays in integration and interdependence
always exist before mass adoption. For example, even though from a purely
"numbers point of view it makes sense for medical insurance companies to
pay for the expenses of medical tourists, they may choose not to embrace
the innovation. This could be due to a variety of reasons such as political
lobbying, academic debates and the boundaries of the state and welfare.
These delays can be extended and may delay the growth of medical tourism.

31
5. CONCLUSION .
5.1 DEMAND SIDE OUTLOOK
Domestic demand for healthcare services in India plays a critical role in
defining the medical tourism industry. Strong underlying demand growth
from Indias own 300 million plus middle class means that health care in
India is being continuously upgraded. When one considers this combined
with the impact of tremendous growth in the private health insurance sector
in India [currently, only 0.35% or 3.5mn of Indias population is covered
under private insurance], the prospects look favourable. As a result, the
Indian Healthcare services industry is expected to more than quadruple
over the next ten years [CAGR of 16%] and drive growth in the healthcare
market.
Patients in high cost developed countries are benefiting from this demand
pressure in India. A large base of uninsured and underinsured people in
developed countries are flocking to India to receive quality treatment, often
at one tenth the cost in their home countries. In the US alone, more than
40 million people are uninsured, creating a large potential market for the
medical tourism industry.

Furthermore medical resources in developed nations are being stretched to
the limit - patients have to wait in long queues for years for even simple
medical procedures. These customers should be targeted by Indian
hospitals in the medical tourism sector.

5.2 SUPPLY SIDE OUTLOOK

On the supply side, the quality of healthcare offered by players in the Indian
medical tourism sector is fast improving. Hospitals in India have access to
the best doctors. Further these hospitals are fast gaining accreditation to
industry standards such as ISO and JCI - adding to their credibility. Finally,
32
for many westerners, traveling to India in itself is alluring and combined
with the opportunity to get cheaper medical treatment, maybe even more
so. Innovation in service has resulted in alliances with previously unrelated
industries. Today we see a growing convergence of purpose among
hospitals, insurance companies, tour operators, airlines and governmental
agencies such as the UKs National British Health Services.

5.3 ROLE OF GOVERNMENT

Of late, the Indian government too, has increased its commitment towards
the healthcare sector. The central government has recently slashed import
duties on foreign medical equipment in order to reduce infrastructure costs,
thus enabling hospitals to offer world-class facilities at affordable costs.
Mechanisms to enable quicker visa grants to medical tourists on the lines of
"fast track green lanes in Malaysia, where patients can contact the
Immigration Department head at point of entry for quick clearance are
gradually being evolved. Tax incentives for players taking part in medical
tourism and committees to promote and foster medical tourism are some
initiatives that are being worked on. The government is also working on
developing support infrastructure such as transport services to facilitate
tourism in the country. Various state-level governments in India are also
jumping into the fray and competing with each other in order to gain a
larger share of the medical tourism pie.

5.4 RECOMMENDATIONS

Players in the medical tourism sector should develop country specific
strategies to attract medical tourists to India. For each segment of medical
tourists, positioning strategies and value propositions should be developed
based on a study of their needs. In general Indian health services can be
positioned to cater to two different segments: Alternative vs Mainstream.

33
While traditional holistic medicines have been of interest to the West for
long, this is a completely different market from mainstream medicine. There
should be a clear distinction in terms of positioning between the two as they
appeal to different target audiences.

[Exhibit 13] - Positioning: Alternative vs. Mainstream Healthcare in India

5.5 CHALLENGES

Despite an overall positive outlook, this industry offers critical challenges for
India and may lead to social pressures [such as the poor being unattended
to] and regulations that slow growth in this sector.

As discussed, one concern of medical tourists is the lack of availability of
follow-up services. In most cases once the patient departs for his/her
home country post-treatment there is little follow up on the part of
Indian hospitals/doctors. Value added follow-up services up services
could be a point of differentiation.

Managing "negative externalities on domestic healthcare [for Indian
patients] is key. As things stand, many private players such as Apollo
who got large government subsidies to setup shop in lieu of providing
34
medical care for a specific number of Indian poor patients every year,
have not honored their commitments.

Increased demand pressures on private hospitals due to medical tourism
may result in these hospitals trying to "steal away good doctors from
the public sector. Even today many specialists in private hospitals such
as Apollo are senior doctors drawn from the public sector. Medical
tourism is likely to further devalue and divert personnel from the public
sector rather than strengthen it.

5.6 CLOSING REMARKS

In this report we analyzed whether medical tourism can sustain its current
competitive advantages of cost and quality. On the demand size there is a
large and yet to be tapped market. Those flocking to distant shores to seek
medical treatment are early adopters. Value for them is created by
satisfying their lower willingness [ability] to pay. On the supply side India
and Apollo are creating value by offering quality health care through
performance improvements and increased acceptability and credibility.
The fundamental concern for medical tourism is the sustainability of
resource rents. The question of how value created for patients continues to
evolve in the future is not still clearly defined. While it is unknown if the
trajectory that medical tourism will follow will eventually threaten traditional
health care in developed economies, we believe this is not possible.
Medical tourism, while shifting market boundaries will not become a
disruptive technology simply because health policy is too closely
tied to national policy in most countries.
In concluding we believe that Medical tourism in India holds great promise -
an industry for the future. Three factors - low costs, high quality and quick
responses have been key in fuelling the phenomenal growth witnessed in
the Indian medical tourism industry. Despite the mentioned challenges, the
industry is doing well and is expected to grow in the future. This is reflected
35
in the conclusions of the joint study by McKinsey and the Confederation of
Indian Industry [CII] which claims that medical tourism is poised for
explosive growth and will contribute up to 25% of all revenues of private
up-market players such as Apollo.

36
6. REFERENCES

Ron Adner and Peter Zemsky (2004) -"A demand-based perspective on
sustainable competitive advantage - Strategic Management Journal

CII - McKinsey & Company (2002) - "Healthcare in India: The road
ahead

Graham Hankinson (2004) - "The brand images of tourism destinations:
a study of the saliency of organic images - Journal of Product & Brand
Management, Vol. 13, No. 1

Graham Hankinson (2003) - "Relational network brands: Towards a
conceptual model of place brands - Journal of Vacation Marketing, Vol.
10, No. 2

Cygnus Economic & Business Research (February 2004) - "INDUSTRY
INSIGHT - INDIAN HEALTH CARE

Cygnus Economic & Business Research (September 2004) - "INDUSTRY
MONITOR - HEALTH CARE, Vol. 10

INGRES (ICRA Information, Grading & Research Service) (September
2003) - "Industry Comment: Indian Healthcare Sector, Indian Medical
Care Industry

Ganapati Mudur (2004) - "Hospitals in India woo foreign patients - BMJ,
Vol. 328, 5 June 2004

http://search.epnet.com/

www.mckinsey.com

www.ibef.org

www.indiamedicaltourism.net

www.cbc.news

www.apollohospitals.com

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