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Apollo mulls medical business outsourcing
By Suren Gnanaraj
The 350-bed Apollo Hospital in Colombo, which commenced operations in June this year, has just completed its Initial Public Offering, which was heavily oversubscribed. The chain of hospitals was started two decades ago by Dr. Pratap C. Reddy, an eminent cardiologist, after he lost a patient in India because he could not afford a trip to Texas, USA for an open-heart surgery.

Driven by this urge to provide affordable excellent medical facilities in India, Dr. Reddy set up the first Apollo Hospital in Chennai (Madras) in 1983. Today, the Apollo Hospitals Group has a combined turnover of over $100 million. Dr. Reddy, Chairman of the Apollo Hospitals Group, was in Colombo last week, attending a joint conference between the boards of Apollo Hospitals Colombo, Chennai and Bangalore. Below are excerpts from an interview with him:

How does Apollo in Sri Lanka rank amongst its other Apollo hospitals?
Many patients say that this hospital is much better than that in Chennai. They keep thanking me, for building such a beautiful hospital in Sri Lanka. In fact, I promised the people of Sri Lanka that this hospital would be similar to that in Chennai, but today the costs here are much cheaper than that of Chennai. In fact a heart surgery would cost $3,000 (Rs. 288,000) in Chennai, but it only costs Rs.275,000 in Sri Lanka. I am truly satisfied with my decision to set up this hospital in Colombo, which has eliminated the amount of anxiety that patients go through when having to travel abroad for treatment. It also allows people to make a tremendous saving in costs, because in Asian countries you usually get three or four relatives accompanying a patient and travelling charges are quite high these days.

Technology plays a vital part in today's health care sector. Where does Apollo in Sri Lanka stand in this respect?
I have made sure that this hospital has been equipped with the most cutting edge technology. I recently bought a state of the art CT scanner, and a Gamma camera (nuclear scanner), the first of its kind in Sri Lanka, which can detect tumours and focus on any part of the body such as the kidney, liver and the lungs.

Cancer is still claiming many lives. What are the facilities available at Apollo to treat cancer patients?
Cancer is curable. In fact, the new radiation equipment, which I have bought for Apollo in New Delhi hits the cancer cells with 100 percent accuracy without any complications, unlike previously, where radiation would considerably damage the surrounding tissues.

Presently in Sri Lanka, we have highly skilled oncologists and haematologists, both medical and surgical, who can help detect and treat patients with cancer in the initial stages. However, we do not have facilities yet, to provide radiation and chemotherapy. The government of India has promised the Sri Lankan government a grant of $7 million to set up a cancer centre alongside Apollo hospitals, which we will run at no profit. It will be ready in six months.

Does this mean that cancer is 100 percent curable now?
Yes it is, provided that people go for regular check ups. When cancer is detected in stage 1 and 2, it is 100 percent curable, but it is 50-50 when treating patients with cancer in later stages. In fact, treatment for cancer patients with stage 1 cancer would only cost Rs. 1,000, whereas treatment would increase by ten fold when detection is delayed.

In developing countries such as Sri Lanka people do not have time to take medical check ups. Does Apollo offer a better alternative?
That is where the problem lies. If your car was to stall even once, you would immediately have it checked the next day, but when anything happens to your health, such as a mild chest pain, we ignore it.

Why do you think that death due to breast cancer is lower in America than in developing countries? There is no difference between females in America and females in India and Sri Lanka. The only difference is that the American would constantly have medical check ups, while the Asian would be too busy providing for her family.

We have set up a 'Well woman' screening programme on specific days between 5-8 p.m. taking in to account the times convenient to the career woman. I expect every woman to use this facility, and we are providing it at a cost of only Rs. 900. I have made it a priority to provide quality medical facilities for women.

Cost has often been a big obstacle in terms of accessibility to good health care facilities. What are your thoughts on this?
What many people are not aware of is that prevention is less costly than cure. Today, good health care is so advanced, sophisticated, and unfortunately very costly. But that's why health insurance is so important. I am still pleading with the Indian government to make health insurance mandatory.

How can people below the poverty line afford health insurance?
The process has to begin from a child's school days, where each student is taught the importance of separating a small amount of money, every month, for his future medical expenses. We made this suggestion to most Indian schools but only two have implemented this idea.

A school bus of one of these schools met with an accident and the parents were able to spend for the costly operations because they had a health insurance scheme in place. People do not have large sums of money to spend instantly; therefore, they need to share that burden over a considerable amount of time. If mandatory health insurance is a success in Korea, I do not see why it cannot work in our countries. I am not a reformist, just a compassionate cardiologist with a heart.

Does Apollo offer any financial concessions to its patients?
We give discounts on our services such as scans, x-rays but not on medicines, because the hospital has to purchase these medicines from abroad.

How has Apollo fared in Sri Lanka?
Our first 100 heart surgeries in Sri Lanka were successful. Nowhere in the world would you get a 100 percent success rate. The fact that our IPO was heavily oversubscribed and the fact that every HNB branch across the island had applications for shares, is proof that the country appreciates what we are doing for the local health care sector. In fact many Sri Lankan doctors in the USA were not sure whether I would succeed in setting up this hospital in the country, given the security situation, but the peace process has ensured our success.

But I must admit, the first 40,000 patients to our hospital were not satisfied with our service because we hadn't fully equipped our hospital. To those people, I extend my apologies. But the next 75,000 were delighted with our services, because by then, we were fully equipped. I must also add that our hospital has the lowest infection rate in the world of 0.02 percent, which ensures that patients recover faster.

Is the staff mainly Indian?
Currently, the majority of doctors is from India and are highly qualified in their respective fields. We have also brought in some Sri Lankan doctors from Australia, USA and the UK. I need another 150 doctors, which I intend getting from overseas.

Where is the next Apollo hospital going to be?
We are opening a hospital in Dubai on December 15 and another in Dhaka in nine months time. We are also looking at building hospitals in Saudi Arabia, Tanzania and Ghana.

Why not more profitable areas like in the USA?
It's easy for me to set up a hospital in the USA and make tonnes of money. First, I want to improve the standard of health care in my own country and other countries with similar circumstances. Once I conquer Asia and Africa, then I will conquer the USA. I will definitely go there someday.

Any more ambitious plans for Apollo?
We have identified our potential in medical business outsourcing. Since IT in India is very good and since we have the hospital domain knowledge, our hospital information systems (HIS), using international medical diagnostics, can be considered as one of the best in the world. We have begun offering this service to a New York hospital and we feel that we can do the same for many more hospitals in the USA, whose standard in HIS is much lower.

Revival of the economy - highlights and prospects
Though the Sri Lankan economy began to show signs of recovery in 2002 it is still considered to be below the original expectations, according to a Central Bank report on recent economic developments.

This stresses the need to push for continued reforms in order to accelerate the economy on a higher sustainable growth path. With the implementation of the 2002 budget proposals there are strong signs of improved business confidence. Some of the main reasons for signs of economic recovery were the cessation of the civil war, a comparative degree of political stability, capital inflows, decline in interest rates and some recovery in the world economy.

Three major economic issues like inflation, unemployment and poverty need to be addressed urgently. In the short run these adjustments and policy reforms may require the temporary imposition of burdens on some sections of society which will reap long term benefits to society.

The labour market
With the increases in employment, unemployment which rose to a peak of 8.7 percent in the first quarter of 2002 is expected to go down by the end of 2002 and stabilise at around 8.5 percent in 2002.

There is an increase in the labour force participation, with the increase in the number of employed by around 450,000 and the unemployed by around 115,000. The main feature in the increase in the participation of the labour force in the first quarter of 2002 is the increase in the female participation rate in the labour force. While the male participation rate increased from 66.8 percent to 67.8 percent in the first quarter of 2002 the female participation increased to 35.9 percent from 31.9 percent during the same period last year.

Foreign employment progressed during the first half of 2002 in comparison with 2001. Based on this progress the annual expectations for foreign employment placements in 2002 are around 198,000 as opposed to 184,000 in 2001.

The Sri Lankan Bureau of Foreign Employment (SLBFE) records that the registered number of departures for foreign employment in the first half of 2002 was at around 90,000 in comparison with 87,000 in the first half of 2001. This trend is to continue uninterrupted and the second half of 2002 is expected to record around 108,000 employment placements as opposed to 97,000 in the second half of 2001.

In the first half of 2002 the share of female employees decreased to 66 percent from 68 percent in the first half 2001. The share of housemaids in total foreign employment placements continued to record the highest in all categories of employment and was at 55 percent in the first half of 2002.
The private sector remained the major source of employment in the country while there was a decrease in the contribution of the public sector.

Agriculture
There was gradual recovery of the agricultural sector from the drought of the previous year. However, the recovery may not be as fast as expected as the improvements in climatic conditions were not as expected.

Tea production, which was at 158.7 million kg during the first half of 2001, increased by 0.3 percent to 159.2 million kg in the first half of 2002. The average price of tea at the Colombo auctions showed a marginal improvement of 2 percent to Rs. 157.67 per kg.

This, however, was a decline of six percent in terms of US dollars. Annual tea production is projected to increase by 1.7 percent to 300 million kg in 2002 with hopes of a better output in the second half of 2002. A further increase in tea output is expected in 2003 with an increase by about two percent to an impressive record of 306 million kg.

The rubber sector has recovered and output is estimated to have increased by two percent to 45 million kg during the first half of the year. There was also an increase in the prices of rubber in the second quarter of 2002 due to a global shortfall in supply. With the expectation of improvement of the prices of rubber in the international market, output is expected to improve by five percent to 90 million kg in 2002. If the situation prevails there will be a further increase in the output by two percent to reach 92 million kg in 2003.

External trade and tourism
During the first half of 2002, export earnings went down by about 17.3 percent to $2,012 million compared with a decline of only 1.5 percent during the first half of 2001. Some of the major contributors to the decline were textiles and garments, machinery and mechanical equipment. Export growth is expected to be around 18 percent in 2003 as the global economy is expected to grow at a higher rate of about 2.8 percent in 2003. The major thrust for the high growth in exports is expected to come from industrial exports, including apparel exports.

Gross earnings from tourism in the first half of 2002 were $109 million. This, however, was a decline from the first half of 2001 which recorded an earning of $143 million. The ongoing peace process, which it is hoped will build confidence among foreigners and domestic service suppliers, will improve the market for the tourist industry during the latter half of the year as well as into 2003. Tourist arrivals are projected to grow by 18 percent to 450,000 in 2003.

Industry
The output of the industrial sector went down by 2.4 percent in the first half of 2002, the main reason being the lower performance in the export market oriented industries.

However, on the basis of confirmed export orders received by the major manufacturers and expected expansion of domestic demand, industrial output is expected to increase by 8.1 percent during the second half, resulting in a 2.9 percent annual growth in 2002. Power cuts in mid-May 2002 affected industrial activities of several small and medium scale manufacturing industries and energy intensive industries such as ceramics, cement and glass.

The output of the food, beverages and tobacco category increased by 2.8 percent during the first half of 2002. The output of this category in expected to increase by 5.2 percent in the second half of 2002 due to the peace process which has encouraged consumer and investor confidence. The output is expected to grow by four percent in 2002.

Fiscal sector performance
The fiscal performance, as indicated by the overall deficit during the first half of 2002, remained the same as in 2002 at 4.5 percent of the GDP. The overall budget deficit in 2002 is estimated to go up to 8.9 percent of GDP compared to the original aim of 8.5 percent of the GDP.

The budget deficit in 2003 is expected to be reduced to about 7.5 percent of GDP in keeping with the medium term fiscal consolidation process. The withholding of tax on interest is also expected to be a significant source of revenue in 2003 as a result of a policy decision to issue longer term maturities in government marketable securities which will result in higher up front collection of taxes.

There is expected to be a decline in total government expenditure as a ratio of GDP in 2003. However, the overall improvement of the fiscal sector in 2003 is dependent on the implementation of strong fiscal adjustments and a recovery in the economy. The hopes for improvements in this sector are also based on the assumptions of the continuation of the peace process, no general elections and no ad hoc incentive packages.

Government debts and debt servicing
The government's debt stock is expected to grow at a faster rate than the rate of growth in nominal GDP. Therefore the debt stock is expected to reach 105.3 percent of GDP at the end of 2002 in comparison with the 103.6 percent of GDP at the end of 2001.

The amortisation payments of Rs. 168.5 billion and the interest payments of Rs. 117.6 billion add up to a total debt service payment of Rs. 286 billion which is 18.3 percent of the GDP. Amortisation payments in 2002 have significantly increased over 2001 due to the bunching of maturities, the amortisation payments in 2002 would be significantly lower than budgeted.

The unsustainability of this level of debt and the need for strong fiscal adjustments and a prudent debt management strategy has been recognized by the government.
The privatization programme of the government and the planned divestiture of state-owned enterprises would help reduce the national debt and lure foreign investors.
Interest rates

With the Central Bank's cautious reduction of its main policy rates in the first half of the year and the increase in market liquidity, all market rates, particularly short-term rates, declined. Deposit and lending rates of commercial banks came down by 100-150 basis points from December 2001 to August 2002. The prime lending rate, which was at 14.31 percent at the end of June 2001 went down to 14.04 percent in June 2002 and further declined to 12.57 percent at the end of September.

General lending rates of commercial banks also declined but still remain high. The main reasons for this being high spreads caused by inefficiencies, high non-performing loans and litigation delays in the loan recovery process.

As the fiscal outlook and balance of payments surplus are expected to improve, interest rates are likely to ease further in 2003, adding liquidity to the market.

Output and economic growth in 2003
The economy is expected to grow at a rate of 5-6 percent reflecting a recovery in major sectors such as agriculture, industry and services. Inflation is also expected to continue to go down in 2003, reflecting the benefits of increasing domestic agricultural supplies, rising productivity, greater stability in the exchange rate and prudent monetary policy.

In 2003 the economy is expected to grow by about 5.5 percent, which exceeds the long-term average growth rate of five percent. The expected donor assistance for the rehabilitation of the North and East will also bring in economic activities that would boost overall growth. The major growth areas in 2003 will be industry and services. Infrastructure is also expected to pick up in 2003.- (RC)

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