From bedside to balance sheets: A post-lunch conversation

This afternoon, after lunch, a group of us infection specialists, working in various hospitals across the country, found ourselves engaged in a discussion we rarely dive into: hospital business strategies. One of my colleagues had shared a news article comparing the Average Revenue Per Occupied Bed (ARPOB) of several hospital chains in India, and the numbers were intriguing. Despite vastly different business models, hospitals like Apollo Hospitals and Narayana Hrudayalaya (NH) had reported similar ARPOB figures.

Apollo Hospitals, known for its premium services, reported an ARPOB of Rs 56,823 per bed per day, while NH, recognised for its affordable care, had a comparable ARPOB at Rs 50,000 per bed per day. This piqued our curiosity: How could two institutions with such different approaches to healthcare achieve similar financial outcomes?

As infection specialists, our daily concerns usually revolve around issues like infection control, antibiotic stewardship, and the global challenges posed by infectious diseases. Rarely do we delve into the economics of healthcare or discuss revenue models. But this comparison of Apollo and NH’s ARPOB led me down a path to better understand the strategies behind these two hospital chains, and how they achieve similar financial outcomes despite contrasting business models. To gain deeper insight, I reached out to several healthcare strategists across the country, who provided invaluable perspectives on how these institutions operate. The insights I gained were eye-opening, not just for understanding healthcare finances but also for appreciating the broader connection between medicine and policy-making.

How can Apollo Hospitals and Narayana Hrudayalaya achieve similar ARPOB?

Apollo Hospitals and Narayana Hrudayalaya stand as towering figures in the Indian healthcare landscape, each carving out distinct paths that cater to diverse sections of society. Founded in 1983 by Dr Prathap C. Reddy, Apollo has become synonymous with premium, high-end healthcare. It serves not only affluent patients and international medical tourists with its specialised services and advanced medical treatments but also reaches the middle-class populace of India, ensuring a broader spectrum of society benefits from its healthcare solutions. In contrast, Narayana Hrudayalaya, established in 2000 by Dr Devi Shetty, champions a different cause—democratising access to high-quality healthcare at affordable prices. It is particularly renowned for its high-volume specialties like cardiac care, making essential treatments accessible to the masses.

Yet, despite these different models, both hospitals have managed to achieve nearly identical ARPOB figures. Apollo’s stands at Rs 56,823 per bed per day, while NH’s is Rs 50,000 per bed per day. This raises the question: How can two hospitals with such different strategies produce comparable financial outcomes?

Efficiency vs. Premium pricing

The first major factor in understanding how Apollo and NH achieve similar ARPOB lies in how they generate revenue. NH operates on a high-volume, low-cost model, treating a large number of patients at a lower cost per individual. Specialising in high-volume procedures, particularly cardiac surgeries, NH performs thousands of life-saving operations each year at a fraction of the cost charged by other hospitals. By standardising procedures and maximising the use of its resources, NH manages to drive down the cost per patient while maintaining substantial overall revenue. Its high efficiency allows it to handle large patient volumes, making up for the lower price point with high throughput.

In contrast, Apollo’s model is built around high-margin, premium care. The hospital offers specialised services, such as organ transplants, oncology treatments, and robotic surgeries, which attract patients willing to pay for cutting-edge medical treatments. By investing in advanced technology, such as proton therapy for cancer and robotic surgical systems, Apollo can charge significantly higher fees per patient. This high-margin approach ensures that Apollo can maintain a high ARPOB even with lower patient volumes compared to NH. Both models, though different in approach, optimise revenue by either increasing patient volume (in NH’s case) or raising the cost per treatment (in Apollo’s case), leading to similar ARPOB.

Specialisation and service focus

Another key factor contributing to similar ARPOB is each hospital’s focus on specialised services. Narayana Hrudayalaya has developed a strong reputation in cardiac care, performing a large number of heart surgeries daily. By focusing on a specific, high-demand area of healthcare, NH can streamline its operations and significantly reduce costs. This high volume of repetitive surgeries allows NH to keep overheads low while maintaining high-quality care, contributing to its overall financial success.

Apollo, in contrast, positions itself as a leader in tertiary care, providing a wide array of specialised treatments across multiple departments, such as neurology, oncology, cardiology, and organ transplants. These treatments are complex and often life-saving, and therefore come with a high price tag. While Narayana Hrudayalaya (NH) typically handles a higher volume of specific procedures, Apollo Hospitals also maintains robust patient volumes across a broader range of specialised services. The complexity and depth of Apollo’s offerings ensure that each treatment not only meets the highest standards but also contributes significantly to its revenue. This approach allows Apollo to achieve an ARPOB comparable to NH’s, despite the differences in their operational scales.

Cost efficiency and resource management

Cost efficiency plays a significant role in how both hospitals manage to maintain financial stability. NH operates with a lean, functional infrastructure. Its focus is on providing necessary care without the added cost of luxury services. NH’s hospitals are designed to be cost-effective, with an emphasis on functionality rather than luxury. By avoiding unnecessary frills, NH keeps its overhead costs low while providing essential, high-quality care. This frugal approach allows NH to deliver affordable healthcare while remaining profitable.

Apollo, on the other hand, justifies its higher operational costs through its premium pricing strategy. The hospital offers luxury services, such as private rooms, concierge care, and personalised medical attention, which cater to patients seeking a high-end healthcare experience. While these amenities increase overhead, they also allow Apollo to charge significantly more for treatments. By creating a premium healthcare environment, Apollo attracts affluent patients and medical tourists who are willing to pay for the added comfort and specialised care. This premium service offering helps Apollo balance its higher operational costs with increased revenue, maintaining a competitive ARPOB.

Medical tourism and diversified revenue streams

One of Apollo’s significant advantages in maintaining a high ARPOB is its focus on medical tourism. As one of India’s leading destinations for international patients, Apollo attracts individuals from around the world who seek specialised treatments at lower costs than in their home countries. These international patients, often seeking complex procedures like organ transplants and robotic surgeries, generate substantial revenue for Apollo. The hospital’s reputation for advanced medical care, coupled with its ability to offer cutting-edge treatments, ensures that its ARPOB remains high. 

NH, while not as focused on international medical tourism, has built a strong domestic presence, particularly in rural and underserved areas. By expanding its services into Tier 2 and Tier 3 cities, NH has tapped into a large population in need of affordable healthcare. This broad reach allows NH to increase patient volumes and sustain its financial stability even though it charges lower fees per treatment compared to Apollo.

Cross-subsidisation and public-private partnerships

NH’s cross-subsidisation model is another critical factor in its financial success. Wealthier patients who opt for premium services subsidise the cost of care for poorer patients, allowing NH to provide affordable treatments to a broader population. This model ensures that the hospital can maintain its financial sustainability while fulfilling its mission to make healthcare accessible to all. In addition, NH benefits from various public-private partnerships (PPP) and government schemes that subsidise healthcare costs for low-income patients, increasing patient volumes and contributing to its overall revenue.

Apollo’s revenue model is more diversified, with partnerships extending to international healthcare institutions and corporate collaborations. These partnerships enable Apollo to offer cutting-edge treatments and maintain its position as a leader in specialised care. By leveraging its strong brand reputation and collaborating with global healthcare providers, Apollo can attract high-paying patients and generate substantial revenue from premium services.

Why understanding these strategies matters for doctors

As doctors, especially those in public health and infectious disease specialisations, we must appreciate the significance of healthcare strategies. Apollo’s premium care model and NH’s high-volume approach demonstrate that different strategies can yield similar financial outcomes while serving different patient demographics.

By understanding how these hospitals function, we gain insight into how healthcare can be optimised to serve both the affluent and the underprivileged. This knowledge is crucial for healthcare professionals involved in policy-making, advisory roles, or simply those aiming to improve patient care on a larger scale.

As William Osler said, “Politics is simply medicine at a larger scale.” Understanding the strategies and economics of hospitals is just as important as mastering the science of medicine.