Corporate: Max's Organised Health Foray

DIVERSIFICATION
Calling Dr MAX

A cash-rich Analjit Singh is attempting to storm the organised healthcare market in India.

By Suveen K. Sinha

On April 23, 1998, Analjit Singh, the 46-year-old promoter of Max India (Max), received a call on his cellular phone that Project Krishna had been successfully concluded. The caller, Ashwini Windlass, the then-Managing Director of Max Telecom Ventures, was merely communicating to his boss that the Rs 561-crore deal to reduce Max's stake-from 51 per cent to 10 per cent-in Hutchison Max was through. Even as Singh distributed ladoos to celebrate the deal at his office in Delhi's Lajpat Nagar, he realised that he had a big task ahead of him: utilising the money to enhance shareholder value.

Sure, he could have deposited the money in a debt instrument and earned nearly Rs 100 crore a year, or Rs 45,000 a minute. Or he could have re-distributed the largesse among his shareholders; in fact, Max did give an interim dividend of Rs 100 per share (face value: Rs 10) this year. But there was a larger question that weighed on Singh's mind. A question that Ron Lemmons, Partner, McKinsey, asked him: how would he like his own obituary to read? Two years later, Singh has the answer. Says he: ''As an individual and a businessman, I have a strong desire to do something different.''

Focus on Dr max

And what's that? A three-pronged strategy crafted around the area of healthcare services-projected by McKinsey to become a $8-billion market by 2010. The gameplan:

Setting up a branded network-informally named Dr Max even as the Bangalore-based brand consultancy Ray & Keshavan is finalising the brandname-of 35-40 primary-care clinics, four diagnostic centres, two medium-sized hospitals, and a state-of-the-art large hospital.
Establishing four or five centres for clinical research across the globe to fulfill Singh's ambition of ''having a global business.''
Entering the life insurance business through a tie-up with New York Life-requiring an investment of Rs 200 crore over 12-18 months-and diversifying into health insurance once the Indian government opens up the sector for private enterprises.
Acquiring software companies in the US. A sum of $7 million has been committed to buy a 22 per cent stake in Healthcast, which sells software solutions to hospital chains, and an additional $4 million to purchase a 15 per cent stake in MindCrossing, an infrastructure-provider for b2b portals.
Developing coding and billing systems for hospitals and offering them medical transcription services.

The most ambitious of these plans is the healthcare network that is expected to eat up an investment in the region of Rs 250-350 crore over the next four years. The success of the business model, developed by Max in association with Harvard Medical International (HMI), a non-profit subsidiary of Harvard University, hinges on primary clinics that will channel the flow of patients to the company's labs and hospitals. That apart, primary clinics will also take care of the volumes aspect of the business. Agrees Nripjit Singh Chawla, 51, CEO, Max's healthcare business: ''Sixty five per cent of the medical need is at the primary level, and only 10 per cent of the patients need an apex hospital's services.''

India does not possess a standardised medical network that offers a complete range of services. Says Robert K. Crone, 53, CEO, HMI: ''Although there are excellent physicians throughout India, there is a relative dearth of organisations that are in a position to institutionalise the practice of high-quality medicine.'' Adds Naresh Trehan, 52, Executive Director & Chief Cardiac Surgeon, Escorts Heart Institute, who doubles up as an advisor to Max: ''There is an opportunity because the existing quality is poor. Thus, there is a need to get into standardised care.''

What probably interests Singh most about his new-found strategy is the bottomline. Both, large, single-unit hospitals and local clinics make a lot of money. To cite an example, in 1998-99, Apollo Hospitals Enterprise, which owns six hospitals across India, earned net profit of over Rs 9 crore on a turnover of just around Rs 100 crore. Max too is aiming for net margins between 20 per cent and 25 per cent over the next 10 years. Says Yogi Mehrotra, 67, CEO, Rajiv Gandhi Cancer Hospital (managed by the Apollo Group), which too has plans to set up primary clinics: ''There's business potential in branded primary care.''

Fraught with risk

However, like any good medicine, there is a lingering after-taste to the Dr Max blueprint. For instance, an article in McKinsey Quarterly (Hospital, Heal Thyself) concludes that the business model of channelising patients to hospitals through primary clinics has not succeeded in the US. The study, which analyses the impact of takeovers of primary clinics by hospitals in the 1990s, finds that ''hospitals failed to improve their economic performance through the ownership of primary-care physician practices...'' The main barriers-and these are applicable in India too-include the fact that primary-care patients are not familiar with specialists, and also unwilling to travel long distances to see them.

There are other problems that need to be ironed out. The most critical one relates to the cost of acquiring real estate for the clinics and hospitals. Existing laws say that any premise, whether residential or commercial, can be used as a nursing home if not more than 33 per cent-or a maximum of 6,000 square feet-of the total area is used for that purpose. That leads to wastage of space.

But Max is banking upon a proposed change in regulations that will allow commercial complexes-serviced with a wide road-to have nursing homes without the 33 per cent restriction. But no one's sure when it will be enacted. Real estate requirements for the two mid-size hospitals too are causing headaches. Earlier, Max was looking at a 10-acre plot in Delhi's Dwarka neighbourhood. However, with this plot now on the auction block with a reserve (minimum) price of Rs 1.80 crore per acre, it would be economically unviable for Max to invest in it.

That's why Dr Max is looking for acquisitions to build its network. ''We are negotiating with hospitals that are not doing well,'' admits Chawla. And BT learns that Dr Max is interested in buying Dr Lal's Path Labs, which has a network of 40 blood-collection centres and a centralised laboratory. But, as the American experience of the 1990s shows, an acquisition-led strategy could easily become a case of bad medicine.

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