Analysis Analys is of Fortis Healthcare Ltd L td Submitted to: Prof. Neeraj Dwivedi On 22 nd August 2010 Submitted by: Group No
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11 (Section-B)
Kavinder Negi
:
PGP 25022
Rajiv Kumar
:
PGP 25039
Sanjeev Misra
:
PGP 25046
Kaushik Vats
:
PGP 25072
Kamaljeet Singh Virk
:
ABM 06021
Table of Contents Background ................................................................................................................................................... 3 PEST Analysis of Healthcare Industry: ........................................................................................................... 3 Political / Legal environment: ................................................................................................................... 3 Lower Public Expenditure ..................................................................................................................... 3 Private Investment ................................................................................................................................ 4 Economic Environment ............................................................................................................................. 4 Growing incomes .................................................................................................................................. 4 Significant investment opportunities for private sector ....................................................................... 4 Socio-cultural Environment ...................................................................................................................... 5 Increased life expectancy and an ageing population ............................................................................ 5 Shift to lifestyle-related diseases to drive higher healthcare spends ................................................... 5 Higher Population and Literacy ............................................................................................................. 5 Overburdened health infrastructure & high costs in the West ............................................................ 6 India’s low cost of medical care and Quality service ............................................................................ 6
Conclusion ................................................................................................................................................. 7 Porter’s Five Forces Analysis of Healthcare Industry .................................................................................... 7 Buyers’/Customers’ Power ....................................................................................................................... 7
Demand is Exceeding Supply ................................................................................................................ 7 Medical Tourists Reducing Dependence on Local Customers .............................................................. 7 Suppliers’ Power ....................................................................................................................................... 8
Equipment Players Competing on Price ................................................................................................ 8 Rivalry among Competitors ...................................................................................................................... 8 Increasing Competition ......................................................................................................................... 8 Low Competition from Public Sector .................................................................................................... 8 Threat of New Entrants ............................................................................................................................. 8 Encouraging Government Reforms ....................................................................................................... 8 Barrier for Foreign Firms ....................................................................................................................... 9 Threat of Substitutes................................................................................................................................. 9 Alternative Medicines ........................................................................................................................... 9 Opportunities & Threats posed by external environment on Industry ........................................................ 9 Medical Tourism ....................................................................................................................................... 9 Huge market opportunity ....................................................................................................................... 10 1
Slow adaptation of IT .............................................................................................................................. 10 Emergence of China as new low cost and quality healthcare destination ............................................. 10 Conclusion ................................................................................................................................................... 10 MAJOR COMPETITORS ................................................................................................................................ 10 Strategy of the Company ............................................................................................................................ 11 Vision – .................................................................................................................................................... 11 Operating Goals – ................................................................................................................................... 11 Fortis’s Strengths .................................................................................................................................... 12 Fortis’s weaknesses................................................................................................................................. 13
Value Chain ............................................................................................................................................. 13 Business Strategy .................................................................................................................................... 14 Core Competencies ................................................................................................................................. 14 Corporate Strategy...................................................................................................................................... 16 Mergers and Acquisitions ....................................................................................................................... 16 International Partnership ........................................................................................................................ 16 Future prospectus evaluation: ................................................................................................................ 17 Bibliography ................................................................................................................................................ 18
List of Tables Table 1: Life Expectancy ................................................................................................................................ 5 Table 2: Comparative medical care cost ....................................................................................................... 6 Table 3: Cost of Key HealthCare Procedures ................................................................................................ 7
Table of Figures Figure 1 Major Milestones ............................................................................................................................ 3 Figure 2: Cost of Treatment and Hospitalization (2004) ............................................................................... 4 Figure 3: Strategic group of Fortis .............................................................................................................. 11 Figure 4 Healthcare System ........................................................................................................................ 13 Figure 5: Diseases Profiles - India versus other countries, (Million treatments) ........................................ 15 Figure 6: Inpatient Treatment Profiles for 2001 - Patient Share versus Market Share (Percent) .............. 15
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Background
F
ortis Healthcare Ltd is one of the largest private healthcare companies in India. The company is having a network of 28 Hospitals, Satellite Centers and Heart Command Centers with about 3300 beds capacity. These hospitals include multi-specialty hospitals as well as super-specialty centers providing tertiary and quaternary healthcare to patients in areas such as cardiac care, orthopedics, neurosciences, oncology, renal care, gastroenterology and mother and child care. They are delivering quality healthcare services to patients in modern facilities using advanced technology. Fortis Healthcare Ltd was incorporated on February 28, 1996. The company was started by two brothers Mr. Malvinder Mohan Singh and Mr. Shivinder Mohan Singh. The company commenced their commercial operation by setting up the Fortis Heart Institute and Multi-Speciality Hospital at Mohali in the year 2001. Up to 2010, company is operating a chain o f Fortis Hospitals (around 14) in various cities in India including Amristar, Chennai, Faridabad, Jaipur, Kota, Mohali, Navi Mumbai, New Delhi, Noida, & Raipur. The company has also shown its global ambition by acquiring the majority stake in Fortis Clinique Darné, Mauritius. Further, the company has stake in a no of private hospitals in India including Khyber Medical Institute, Srinagar and the primary role of company is to leverage its expertise in operation and maintenance of these hospitals. During the year 2007-08, the company successfully completed an initial public offer of 45,996,439 equity share of Rs 10 each at a premium of Rs 96 per share. The Company intends growing in an aggressive manner to have a pan India presence with bed strength of 6000 through 40 hospitals by the year 2012.
Figure 1 Major Milestones
PEST Analysis of Healthcare Industry: Political / Legal environment: Both public and private sectors have a role to play in the delivery of healthcare in India; Lower Public Expenditure Public expenditure on health is lower than in other developing countries and hence, the healthcare
industry is dominated by the private sector. The Government greatly facilitates the functioning of the 3
industry and helps attract foreign investors through investor-friendly policies and tax incentives. Consequently, it hopes to provide innovative drugs, expand healthcare insurance, as well as provide modern medical equipment and better services. By implementing Telemedicine, one of the biggest healthcare projects in the world, it aims to revolutionize the delivery of healthcare services using information technology and communication. Private Investment The Government is also encouraging public-private partnership and promoting medical tourism. It is
aiming to modernize the healthcare system and through greater collaboration with the healthcare industry. It is working toward delivering effective and affordable healthcare services to the vulnerable sections of population residing in rural areas through its common minimum program and national rural health mission. The political establishment plays a critical role in prioritizing the healthcare industry in the development agenda of a country. The country’s recognition of product patent for pharmaceuticals is expected to lure more foreign investors into using the outsourcing opportunities in the country. The Government’s initiative of setting
up additional hospital schemes will create further opportunities for the industry. For these reasons, India’s healthcare industry is anticipated to grow tremendously in the next five to ten years.
Economic Environment Growing incomes Much of India’s healthcare expenditure comes from private patients’ pockets, primarily the higher -
income households. Tertiary-care treatments tend to be expensive. The top 33 % income earners in India accounted for 75 % of total private expenditure on healthcare in 2004. Rich households (the top 8 %) paid US$ 578 per treatment and hospitalisation in 2004, three times the overall average of US$ 191. The proportion of households in the low -income group has declined significantly. Rising incomes are expanding the rich and middle-income groups, and they are expected to form 49 % of total households in financial year 2010, as compared with 33 % in financial year 2004, thus driving growth. A survey by NCAER, an independent economics research agency, suggests that per-capita expenditures on healthcare rise with higher education levels. 30000 25000 20000 15000 10000 5000 0 Rich
Average
Figure 2: Cost of Treatment and Hospitalization (2004)
Significant investment opportunities for private sector Limited government investment provides significant opportunities for private healthcare service providers as large investments are required to scale up the country’s healthcare infrastructure. India’s
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healthcare infrastructure needs substantial investment. By certain estimates, to reach even half of China’s current beds per 1,000 population over the next 10 years, India would need an additional 920,000 beds entailing an investment of between US$ 32 billion and US$ 49.1 billion, assuming that 20 % of those beds would be in the tertiary-care segment. The government is likely to meet only 15-20 % investment in hospital beds, assuming it increases expenditures by 6-7 % from the current base. Assuming 10-15 % commitment from international donors, there would be a shortfall of 70 %, which could be funded by private companies. At present, the majority of healthcare services in India are provided by the private sector. Presently, the public spending is at a level of 1.3 % of the GDP. Public spending on healthcare will continue to rise, but the prospect of large and sustained increases is low. It is expected to increase to 3 % over the next few years.
Socio-cultural Environment Increased life expectancy and an ageing population In the domestic market, health spending will be sustained by two demographic trends: increased life expectancy and an ageing population. Life expectancy, which averaged 63.3 years in 2000-04, is expected to increase to 65.1 years in 2005-09 and to 66 years in 2006-10. The proportion of the population aged 65 years and over is also on the rise, and will increase from 4.7 % in 2000 to 5.3 % in 2005 and 5.8 % in 2010. Although the rate of ageing in India is slower than the developed world, the large population makes any increase significant in terms of absolute numbers, and therefore also in terms of market potential. Table 1: Life Expectancy
Particulars Life Expectancy (average in Years)
Life Expectancy 2004 2005
2006
2007
2008
2009
64
64.3
64.7
65.1
65.4
65.8
Healthcare spending (in $ bn)
34.9
40.4
45.7
52.1
56
60.9
Healthcare spending (% of GDP)
5.2
5.3
5.3
5.4
5.4
5.5
Healthcare spending ($ per Capita)
32
37
41
46
49
53
Shift to lifestyle-related diseases to drive higher healthcare spends The shift in disease profiles from infectious to lifestyle-related diseases is expected to raise expenditures per treatment. In 2001, the average inpatient cost for lifestyle-related diseases (cardiac problems, digestive issues etc.) was US$ 658 compared to US$ 91 for infectious diseases. Based on demographic trends and disease profiles, lifestyle diseases - cardiovascular, asthma and cancer have become the most important segments, and in-patient spending is expected to represent nearly 50% of total healthcare expenditure. In the inpatient market, the share of infectious diseases is expected to decline from 19% in 2004 to 16% in 2008. The number of cardiac-disease-related treatments in India is expected to grow from 1.5 million to 1.9 million per year over 2004-08, which would constitute 5.1 % of all treatments, The spend share of inpatient cardiac treatment is estimated to grow to 19 % of the total in 2008 from 16 % in 2004. This would drive a 13.4 % CAGR in the inpatient cardiac care market from US$ 1.2 billion in 2004 to US$ 2.04 billion in 2008. Higher Population and Literacy India has the 2nd largest population in the world and it is estimated that by 2050 we will be having the largest population in world. This displays a huge opportunity for the health sector in terms of sheer 5
volume. Also there is huge urban shift in India the private hospitals are mainly located in the urban areas and there is rural to urban shift of 26% which greatly increases the size of the target market for the private players. Literacy rate in India is at 52% and growing which has resulted in a much more educated and aware market which realizes the importance of hospitals instead of neem-hakeems which are prevalent in rural areas. Rising literacy in India is improving health awareness, especially about lifestyle-related diseases which tend to be more costly to treat than infections.
Global Environment and Technological environment Overburdened health infrastructure & high costs in the West The healthcare systems in Europe and the United States are under severe pressure; particularly the National Health Service (NHS) in the UK, which has a long list of patients waiting for over a year for surgery. In the US the healthcare crisis has a different dimension. Around 50 million citizens are uninsured, with even the insured having to pay dearly for treatment. Further, the shortage of paramedical professionals such as nurses has aggravated the situation. Patients from the US are now regularly beating a path to India, as many of their insurance companies have entered into tie-ups with private Indian hospital chains. India’s low cost of medical care and Quality service India offers highly cost-competitive medical treatment and technological advances in areas such as cardiology, cosmetic and orthopaedic surgery, dentistry, eye care and preventive health checks. India offers world class cardiac bypass surgery, hip replacements, organ transplants, cosmetic, dental surgery and vision correction. Costs of comparable treatment in India are on average one eighth to one fifth of those in the West. Likewise, the associated costs of surgery are also low. Not only are skilled Indian surgeons available for less, they are also less susceptible to costly litigation. The cost of malpractice insurance in New York is around US$ 100,000 but only US$ 4000 in India. This brings down the overall cost of treatment. With diagnostic tests in India being inexpensive, India also has the potential to emerge as a hub for preventive health screening. At a private clinic in London a health check-up for men that includes blood tests, electrocardiogram tests, chest X-Rays, lung tests and abdominal ultrasound costs around £350. In comparison, a comparable check-up at a clinic operated by Delhi-based healthcare company Max Healthcare costs US$ 84. A Magnetic Resonance Imaging (MRI) scan costs US$ 60 at Escorts Hospital in Delhi, compared with roughly US$ 700 in New York. Table 2: Comparative medical care cost
Surgery Bone marrow transplant Liver transplant Open Heart Surgery (CABG) Hip Replacement Knee Surgery Hysterectomy Gall Bladder removal
Thailand US$ 62500 US$ 75000 US$ 14250 US$ 6900 US$ 7000 US$ 2012 US$ 1755
India US$ 30000 US$ 40000 US$ 4400 US$ 4500 US$ 4500 US$ 511 US$ 555
Cost is not the only factor weighing in India’s favour. Escorts Hospital, for instance, is one of the only handful treatment facilities worldwide that specialise in robotic surgery. The death rate of coronary bypass patients at Escorts is 0.8 %. By contrast, the 1999 death rate for the same procedure at New York-Presbyterian Hospital was 2.35 %,
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Conclusion In Conclusion it can be said that Indian environment provides a very good opportunity for private players in healthcare. The growing population with a much deeper pockets and low government participation has lead to higher demands where people are willing to pay high costs for proper medical care. India’s unmet demand for healthcare facilities, rapidly changing demographics, increasing private spending on healthcare, and a readily available intellectual pool are fuelling the growth of the healthcare industry and making it highly attractive for investors.
Porter’s Five Forces Analysis of Healthcare Industry Buyers’/Customers’ Power Demand is Exceeding Supply The growth of the Indian economy, with India's changing demographic profile, rise of middle class, shift in the disease patterns and growing awareness of health and fitness are the main factors driving the growing demand for healthcare services in India. The demand for healthcare services in the country has grown from Rs 25,000 crores in 1991 to Rs 175,000 crores in 2006, indicating a compounded annual growth rate (CAGR) of more than 16 %. The contribution of high standards of health and universal access to quality healthcare infrastructure to the economic growth of a country is significant and yet India falls woefully short on various key health indicators. For example, India's life expectancy is still low at 68.6 years. India's hospital beds per 1000 population stands at a little over 0.7 as against Russia's 9.7, Brazil's 2.6, China's 2.2 and the world average of 3.96. While the demand for healthcare in India has been growing rapidly, there is a serious and conspicuous mismatch between demand for and supply of healthcare infrastructure and services, with demand far outstripping the supply.
The above facts underline the urgent need for India to gear up investments and resources towards improving the healthcare infrastructure that will lead to improvement in the health levels and productivity of our masses. As an illustration, if India has to increase the number of beds per 1,000 population to only 1.7 (compared to the current level of 0.7), it needs to create capacity of over a million new beds. Medical Tourists Reducing Dependence on Local Customers Medical tourism is one of the major external drivers of growth of the Indian healthcare sector. The emergence of India as a destination for medical tourism leverages the country’s well educated, Englishspeaking medical staff, state-of-the art private hospitals and diagnostic facilities, and relatively low cost to address the spiraling healthcare costs of the western world. India provides best-in-class treatment, in some cases at less than one-tenth the cost incurred in the US (see chart). Table 3: Cost of Key HealthCare Procedures
Cost of Key HealthCare Procedures Currency: USD US cost x of US Cardiac surgery 50,000 14,250 4,000 12.5 Bone marrow Transplant 62,500 62,500 30,000 13.33 Liver transplant 500,000 75,000 45,000 11.11 Orthopaedic surgery 16,000 6,900 4,500 3.56 –
Source: India Brand Foundation Report, IBEF Research
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According to a joint study by the Confederation of Indian Industry and McKinsey, Indian medical tourism was estimated at $350 million in 2006 and has the potential to grow into a $2 billion industry by 2012. An estimated 180,000 medical tourists were treated at Indian facilities in 2004 (up from 10,000 just five years earlier), and the number has been growing at 25-30% annually. India has the potential to attract one million medical tourists each year, which according to the Confederation of Indian Industries could contribute $5 billion to the economy.
Suppliers’ Power Equipment Players Competing on Price Leading international companies market most high value medical equipment, while only consumables and disposable equipment are made locally. Many international companies have expanded their operations in the Indian market in recent years and established manufacturing facilities to assemble equipment for the domestic market and export sales. The competition is expected to intensify with the entry of more global firms into the medical equipment marketplace. The government is encouraging the growth of this market, through policies such as a reduction in import duties on medical equipment, higher depreciation on life-saving medical equipment (40%, up from 25%), and a number of other tax incentives. All this is making the competition more intensive and hence beneficial for hospitals.
Rivalry among Competitors Increasing Competition As per data released by the Department of Industrial Policy and Promotion (DIPP), the drugs and pharmaceuticals sector has attracted FDI worth US$ 1.66 billion between April 2000 and January 2010, while hospitals and diagnostic centers have received FDI worth US$ 761.18 million in the same period. At present, market is fragmented with a no of private hospitals with only a few major chain including Apollo and Fortis. Fortis Hospitals plans to invest US$ 53.7 million, to expand its facilities pan-India. Asia's leading hospital chain, Columbia Asia Group, which already has six hospitals in the country, plans to ramp-up its operations in India by opening eight more multi-specialty community hospitals with a total capacity of 800 beds by mid-2012. The group has earmarked a total investment of US$ 177.1 million for the 14 hospitals. Low Competition from Public Sector Government spending on healthcare is estimated at only about 0.87 % of GDP as compared with US, UK, etc who spend as much as seven percent of GDP on healthcare. The share of the private sector in healthcare spending is as high as 78 % in India, most of which is out-of-pocket which brings untold misery to poor families. Currently India has approximately 860 beds per million populations. This is only one-fifth of the world average, which is 3,960, according to the World Health Organization. It is estimated that 450,000 additional hospital beds will be required by 2010 an investment estimated at $25.7 billion. The government is expected to contribute only 15-20% of the total, providing an enormous opportunity for private players to fill the gap.
Threat of New Entrants Encouraging Government Reforms The Indian Government neither has the financial strength nor the appetite for large scale investment in the Healthcare sector. With the Government expected to pitch in with only 15-20 % of additional investment required in healthcare, the majority of the required investment will need to come from the private sector.
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Government has tried to reform its health care policy to attract both domestic as well as foreign investment. These policy changes have started to show some results. It is estimated that several major Indian healthcare players have planned expansions that will entail investments of over Rs 25 billion over the next three to four years. Foreign players such as Singapore General Hospital, Pacific Healthcare Holdings, Singapore and Parkway Group Healthcare PTE Ltd, Singapore are also expected to set up base in India to capitalize on the vast opportunity in this sector. Despite these known investments, there still remains a huge gap in the private sector investment in Indian Healthcare. Barrier for Foreign Firms Despite the opening up of hospitals to 100 % FDI participation without prior approval, there are very few FDI hospitals in India. Other forms of foreign funding are more prevalent than FDI. This preference towards non-FDI forms of financing suggests that there are factors which make it less attractive to make a long-term investment commitment in Indian hospitals. In particular, the long gestation period of investment in hospitals and the relatively low rates of return (compared to that in many other highgrowth sectors like software) impede FDI in Indian hospitals.
Threat of Substitutes Alternative Medicines Alternative Medicine is a kind of diagnostic technique and method of treatment whose theory develops from accepted medical methods. Alternative medicine is often treated as a substitute of conventional medical treatments. Alternative medicine includes treatments like Ayurveda, Homeopathy, Osteopathy, Unani and more. The advantages of alternative medicine are that they are often safe, without side effects and effective. However, the certain disadvantages are that the alternative medicines are not tested for efficacy. Delay in seeking results is another common problem with alternative medicines.
The numbers of those choosing to pursue treatment from alternative medicine practitioners seem to be on the increase as disdain grows with the existing medical methods of treatment. This is especially apparent in India although the trend has crossed the pond and is now becoming evident within the western countries as well. Why this trend has occurred is unclear, but an overall dissatisfaction with Western medicine seems to be the primary cause; another reason why this growth in alternative medicine has occurred could be the large waiting lists for treatments.
Opportunities & Threats posed by external environment on Industry Medical Tourism Medical tourism has gained momentum in India over the past few years, a trend underpinned by India’s low-cost advantage and the emergence of new high-quality healthcare service providers. In India, approximately 1,80,000 patients arrived in 2004 from across the globe for medical treatment. The medical tourism market in India, estimated at US$ 333 million in 2004 grew by about 25 per cent and is predicted to become a US$ 2 billion-a-year business opportunity by 2012. India is seeing a surge of patients from developed countries as well as from countries in Africa and South and West Asia that lack adequate healthcare infrastructure. The emergence of low-cost, high value specialist medical care territories in India has been noteworthy. For instance, New Delhi has emerged as a prime destination for cardiac care, as has Gujarat. Similarly, Chennai has established a niche for quality eye care, while Kerala and Karnataka have emerged as hubs for state-of-the-art ayurvedic healing. These “medical hotspots” are beginning to witness an influx of health tourists from non-traditional geographies. Among others, foreign health travellers to India comprise a large number of Non Resident Indians (NRIs). 9
Huge market opportunity A growing population, changing patterns of diseases, rising income levels, unmet clinical needs, growing awareness about health issues, increasing demand for quality healthcare at affordable prices and the growth of medical tourism are all expected to further drive the potential for hi-tech devices. The demand for hi-tech devices in India is growing between 12-15 per cent annually. Some foreign companies conduct the first 500 surgeries in India after approval of a medical device or surgical treatment by US FDA. The penetration of medical services is still shallow. India has 60 doctors per 1000 people, as compared to it china has 106, whereas developed countries like Australia has 247. Apart from this the distribution of services is also uneven, with rural regions suffering most. This scenario provides and ample space for growth in the Indian healthcare sector in future.
Slow adaptation of IT Indian healthcare industry remains very slow in the early adaptation of IT. Still, only a few percentages of elite hospitals (super speciality hospitals) are using well developed IT infrastructure. Therefore, there is an urgent requirement for development of IT infrastructure in healthcare Industry to cope up this threat.
Emergence of China as new low cost and quality healthcare destination China is fast emerging as a desirable destination for individuals seeking medical care in a wide range of medical specialties, including cardiology, neurology, orthopedics and others. A number of private and government hospitals in major cities have established international departments. Many leading hospitals provide treatments integrating Traditional Chinese Medicine with Western medical technology and techniques.
Conclusion In Conclusion it can be ascertained that consumers have very little power in India due to huge amount of demand and also the suppliers don’t have much power as there are quite a few manufacturer of medical equipment. The huge demand also negates the effects of the threat of competition or substitutes. Overall the healthcare industry provides a tremendous opportunity.
MAJOR COMPETITORS The Apollo Group of Hospitals: The Apollo group is India's first corporate hospital, the first to set-up hospital outside the country and the first to attract foreign investment. With 2600 beds, Apollo is one of Asia's largest healthcare players. The recent merger between its 3 group companies, Indian Hospitals Corporation Ltd., Deccan Hospitals Corporation Limited and Om Sindoori Hospitals Limited, will help the group raise money at a better rate and by consolidating inventory; it will save around 10% of the material cost. The group is planning to invest Rs.2000 crore, to build around 15 new hospitals in India, Sri Lanka, Nepal and Malaysia. Max India: After selling of his stake in Hutchison Max Telecom, Analjit Singh has decided to invest around 200 crores, for setting up world class healthcare services in India. Max India plans a three tier structure of medical services - Max Consultation and Diagnostic Clinics, MaxMed, a 150 bed multispecialty hospital and Max General, a 400 bed hospital. The company has already tied up with Harvard
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Medical International, to undertake clinical trials for drugs, under research abroad and setting up of Max University, for education and research. Escorts: EHIRC located in New Delhi has more than 220 beds. The hospital has a total 77 Critical Care beds to provide intensive care to patients after surgery or angioplasty, emergency admissions or other patients needing highly specialized management including Telecardiology (ECG transmission through telephone). The EHIRC is unique in the field of Preventive Cardiology with a fully developed programme of Monitored Exercise, Yoga and Meditation for Life style management. The strategic group of Fortis hospital on basis of pricing & service level is provided at figure 2 below. Figure 3: Strategic group of Fortis
High Services
Low Services
Public Health
Private nursing
Centre Govt
homes
Low Pricing
High Pricing
As it can be seen both Fortis and Apollo provide high services but they also charge a high premium for it. There are other hospitals like A.I.M.S or PGI etc which also provide high services but at much lower cost.
Strategy of the Company Vision
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“To create a world-class integrated healthcare delivery system in India, entailing the finest medical skills combined with compassionate patient care”
Fortis healthcare has a vision of setting up world class super specialty hospitals linked with a larger network of multi specialty hospitals to provide high quality healthcare to people of India through a hub and spoke model. Fortis wants to be premier healthcare provider in the India driven by quality and patient centric services.
Operating Goals – 1. To improve primary care - supporting enhanced services in GP practices 2. To develop alternative services - where new services are needed Fortis will always engage in creating, sustaining and growing successful businesses based on quality products and services, in all the countries it is operating. It understands its social and community 11
responsibilities of the region it is operating in and maintains no political inclination whatsoever, strictly as its policy.
Fortis’s Strengths 1. Specialty Chain: Focus of multi-specialty hospital chain of international standard. a. Fortis Mohali is the region’s leading multi -specialty hospital, with a super-specialty in Heart. The world-class environment is nurtured by an affiliation with one of the world’s leading health delivery systems- Partners HealthCare System Inc. (PHS), USA. b. With the addition of the Escorts Heart Institute and Research Centre, Fortis Healthcare Limited today runs amongst the largest Cardiac Program in the world with over 6000 surgeries, 5000 Angioplasties and 14000 angiographies on an annual basis. The competencies of the two systems jointly will help in enhancing service delivery capability c.
and set benchmarks for the way healthcare is delivered in India. Buying some good hospital brands overseas is helping Fortis to earn the trust of overseas
patients. 2. Brand Image: Fortis is promoted by Ranbaxy which is India’s one of the top brand in the pharmaceutical industry. This helped Fortis to build their brand image very quickly since their inception. 3. High Capital: Easy access of capital from promoters provided Fortis financial muscle power to acquire a no of hospitals in India and abroad and help them to grow rapidly in the Indian market as well as foreign market. 4. HR Management: Hiring of best doctors on Fortis payroll for example, Dr Ashok Rajgopal is one of India’s most experienced Orthopedic Surgeons and Dr A. K. Singh; Director-Neuro Sciences is credited as one of the best neuro-surgeon. 5. Quality: Focus on Quality control / best international practices on service delivery. a. In just about five years since the first hospital, Fortis Hospital Limited is rated amongst top two in India in terms of: Cardiac Procedures, Total Knee Replacement, Total Hip Replacement and in Neuro Sciences. b. Strict adherence to best international clinical protocols in Patient Handling, Operation Theaters, ICU Management and Emergency Care. c.
Providing International Patients with the highest level of service quality from arrival to departure in India with seamless registration and discharge with an element of warmth. This also helped Fortis to attract foreign patient.
6. Use of latest information technology. For example Fortis are communicating with their consumers and target market by using facebook, twitter and youtube which is a quite new concept and considered as modern communication tools. In the facebook account, they publish their achievement in the medical field and publish information about latest development in the medical science. This helped a lot in Fortis brand building. It is observed that Indraprastha Apollo hospital, Max Healthcare, Escort hospital, Wockhardt Hospital has not yet even started use of these modern tools.
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Fortis’s weaknesses 1
Structure: Complicated corporate structure and therefore, quite vulnerable to mismanagement or sudden collapse of whole organization in the absence of strong leadership.
2
3
4
5
High Investment: Fortis faces risks as high capital intensity, long gestation periods for projects, technological obsolescence given its focus on super-specialty segments, and inability to effectively integrate any acquisition. At present there are three separate litigations in progress related to Fortis' Escorts acquisition. There are also a series of litigations related to the Vasant Kunj (Fortis Flt. Lt. Rajan Dhall Hospital) and Jeevan Mala hospitals, challenging Fortis' right to run the hospitals. An adverse verdict in any of these litigations could be a dampener for the company's growth prospects and valuations. High Costs: Fortis’ business entails significant fixed costs and has high operating leverage. Its profitability and capital-efficiency ratios are contingent upon occupancy rates and realizations per bed. If occupancy rates decline or Fortis is unable to scale up occupancies in its new hospitals, then margins could come under pressure and capital efficiency could suffer. Too Much Focused Approach: Fortis focuses on high-end super-specialty segments in most of its hospitals. As such, it has made significant investment in high-end medical equipment. Changing technology and emergence of new medical techniques could make equipment redundant earlier than budgeted, and could necessitate investment in new equipment. Although any hospital company would generally budget for some obsolescence, in case the actual hit is higher than what is provided for, it could be a drag on the company's cash flows and impair its other investment plans. Further, since most of the high-end equipment is imported, currency fluctuations could have a bearing on earnings as well. Acquisitions form a key part of Fortis’ future growth strategy. The acquir ed hospitals may not be of the same standard as Fortis’ own facilities and the company may have to spend time and money to get them up to the minimum required standard. Any delay or inability to effectively integrate any of the acquisitions could put undue strain on already strained capital efficiency.
Value Chain The typical components of the value Chain of a health care system consists of following services given in the Figure below
Figure 4 Healthcare System
Being a hospital the core or the primary services of Fortis are mainly related with Emergency services, Diagnostics and Surgeries. These services form the core of the Fortis hospitals around which the other support services such maintenance etc are done. In Fortis Information technology has also been given a 13
very high importance, enormous efforts are made to integrate the most modern infrastructure and IT services in the Chain. Fortis is known for providing the very high quality of the Healthcare system where focus is on acquiring the best doctors and which are supplement by one of the most modern Informational system present in India.
Business Strategy Based on the Value chain it can be ascertained that primary services of Fortis are diagnostics and emergency etc but it has to differentiate itself by providing specialized services with a focus on
On high Margin medical facilities which cater to a. Cardiac Issues b. Knee replacement c. Neurological Sciences In fact Fortis has acquired special status in terms of Cardiac issues. Fortis Healthcare Limited today runs amongst the largest Cardiac Program in the world with over 6000 surgeries, 5000 Angioplasties and 14000 angiographies on an annual basis. And in this way Fortis differentiates itself by providing a narrow focus in terms business activates and providing those services at a high costs. And based on its business strategy it has developed its core companies.
Core Competencies 1
2
Leading player Fortis has scaled up through organic and inorganic measures, and has built strong brand equity in India. Fortis has the skills and scale to pursue further growth opportunities in India and beyond Super-specialty focus. a. Fortis' focus on super-specialty care bodes well for the company. Super-specialty hospitals have higher profitability and shorter gestation periods than general hospitals. 14
The trend toward lifestyle diseases in India means hospitals focused on high-end care would benefit. It is believed that the cardiac-care market to grow rapidly in India, driven by a shift in the country's disease profile. India's disease profile to follow the pattern of developed economies and shift from infectious to lifestyle-related diseases. This is expected to lead to rapid growth in the cardiac care market in India. As per McKinsey report, it is expected that the spend share of inpatient cardiac treatment to grow to 19% of the total in 2008 from 16% in 2004. The number of cardiac-disease related treatments to grow from 1.5m to 1.9m per year over 2004-08, which would constitute 5.1% of all treatments, still lower than 16% in Thailand, 19% in Brazil and 19% in the US (2001). Figure 5: Diseases Profiles - India versus other countries, (Million treatments)
b. Cardiac care segment is attractive in more ways than one. While the overall market should grow rapidly in volume terms due to the growing shift toward life-style diseases, it also involves higher realizations and profitability compared to most other segments. The average realization per inpatient for cardiac-related treatment is much higher than for other disease segments. Cardiac inpatient treatment in India accounted for 4% of treatments in 2001 by volume and for 14% of market expenditure. Figure 6: Inpatient Treatment Profiles for 2001 - Patient Share versus Market Share (Percent)
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Corporate Strategy The corporate strategy of the Fortis is based on steady expansion in the new markets. It has adopted a strategy of market development where the business seeks to sell its existing products into new markets. There are many possible ways of approaching this strategy; Fortis has adopted the strategy of Mergers
And Acquisitions which are explained below:
Mergers and Acquisitions According to Wall Street Journal, Fortis Healthcare was in process of buying 10 hospitals in India, for 9.09 billion rupees ($187 million). And this move was a part of overall strategy of Fortis healthcare to expand rapidly in the hospital chain sector. These acquisitions will get Fortis to mark of 38 hospitals with capacity of 52,000 beds across India. In addition to this 10 additional hospitals were added after the Wockhardt’s deal.
International Partnership Fortis Healthcare is affiliated with some of the world’s best in the fields of infrastructure, technology, and medical treatments to deliver world class healthcare services in the region. It continuously strives to provide the hassle-free healthcare services to patients from all over the world. In order to make treatments seamless, over the years Fortis Healthcare has developed alliance with the top-notch global service providers in the fields of healthcare, insurance, medical tourism, travel, and other sectors. Which include likes of, Aetna, Bupa, Cigna,GMCserviceetc.
The alliance with international partners ensures seamless healthcare coverage for members patients while living, studying or travelling throughout India and in the Asia -pacific region. Thus ensuring a larger network of hospital will be there to support its customer base. The alliance with the service provider facilitates timely access to world-class healthcare 16
services, medical expertise, and other healthcare related services. This is how Fortis meets its quality service goals.
Future prospectus evaluation: Fortis is relatively new entrant in healthcare industry. However, in addition to hospital business, they have also entered into retail pharmacy business and also entering into old age home business. Over a five period of time, the growth in the super specialty hospital business are likely to stagnant therefore, it will be like a cash cow of BCG matrix. The cash generated thru’ cash cow will be used for developing old age home which is relatively new and high growth product (Star in BCG matrix). The hospitals which are not able to generate cash (even though other hospitals are growing) will be like problem child and it would be better to sold those hospitals and invest in Star. Being a relatively new player, there is no dog in their portfolio. The details of various phases on life cycle of product and BCG matrix are show below:
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Bibliography 1) http://www.marketresearch.com/map/prod/1526938.html 2) http://www.frost.com 3) http://www.ibef.org/industry/healthcare.aspx 4) http://www.indiahealthstat.com/default.aspx 5) http://en.wikipedia.org/wiki/Medical_tourism#Asia.2FPacific 6) http://www.fortishospitals.com 7) http://www.informationweek.com/news/global-cio/showArticle.jhtml?articleID=57704040 8) http://www.rediff.com/money/2008/apr/07panel.htm 9) PROWESS
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