Apollo Hospitals’ takeover of Nova Specialty : what it means #indiahealth

Earlier this month, Apollo Health and Lifestyle Limited (AHLL), owned by the Chennai-based Apollo Hospitals group, acquired Nova Specialty Hospitals, a chain of short-stay surgery hospitals, from Nova Medical Centres. The deal piqued my interest for more than one reason. I spoke to Neeraj Garg, CEO, of AHLL, and Mahesh Reddy, co-founder and director of Nova Medical Centres about the deal. Here’s the takeaway.

First, some background about Nova. It was the first hospital chain exclusively focused on short-stay surgeries – procedures that are low-risk, don’t need expensive support systems, and can be turned around quickly with the patient sent home, hopefully, within the day. This would include relatively minor procedures such as appendectomies, or bariatric surgery but exclude heart or brain surgery.

As I wrote in an article for Businessworld in 2010, “To patients who have to undergo minor surgeries Nova promised what large, tertiary care hospitals were struggling to deliver – speed, economy and convenience. And, cheaper as a result. On average, Nova claims to bill 15-20 per cent lower than a large tertiary care hospital since, with no in-patient stay, its costs are lower.”

Nova’s entrance was ahead of its time but only slightly; advances in healthcare allowed quicker turnaround and post-operative recovery even as health insurers had started looking at ways to curtail in-patient costs.  Also, there was a burgeoning worry about hospital-acquired infections that could be, to some extent, addressed by sending patients home faster.

Yet, doctors and patients were used to and expected a certain pace of healthcare delivery. So Nova adapted, quickly jettisoning the initial terminology of “day-care” surgery and adopting “short-stay” instead.  The way Nova defined it, from admission to patient discharge would take about 24 to 72 hours.

Nova got its concept right. By 2010, large corporate hospitals were drafting plans in this area. Nova even tied-up with one of them – Max Healthcare – in New Delhi.

However, Nova had issues with scaling up. While it had planned 25 such centres by end-2012 it fell well short.


The first Nova surgical unit began operating in Bangalore in 2009. At the time of being sold to Apollo, Nova Specialty owned 11 centres with 350 beds and 45 operating theatres. It will close this fiscal with revenues in the range of Rs 115 to 125 crore.  The deal pegs the enterprise value of Nova Specialty at Rs 135 to 145 crore which Garg considers “fair” given the value of the business and the acquired assets.


Globally, there is a push to move some part of healthcare delivery from tertiary care hospitals to smaller, ambulatory units and closer to home, if not at home. This is motivated by rising healthcare costs and enabled by technological advances such as remote monitoring and the growth of paramedical services such as home nursing. In line with this trend, Apollo Hospitals has been growing the primary care aspect of its business for the last three years, said Garg. As an experiment, it began a short-stay surgical unit in Chennai in 2012 which has been “doing extremely well,” Garg said. “Our approach is to do a test pilot, get it absolutely right before scaling up.”

As the time for that approached, the Nova opportunity presented itself.

What did Apollo see in Nova? “High quality centres, good clinical and employee teams across 8 cities,” said Garg. And, equally important, the possibility of scaling up its own plans rapidly at a “competitive price.” Importantly, he highlighted an insurer-approved ‘single-line billing’ package as one of the unique strengths of the acquired units. Two-thirds of the procedures performed in the acquired centres are covered by insurance and “insurers trust the way billing happens,” he said.

Discussions between the two sides went on for about 9 months and organic expansion was put on hold until the deal took place, Garg said.


Nova Medical Centres had entered the assisted reproduction business in 2012 under the Nova IVI brand. This is a far less capital-intensive proposition than short-stay surgery centres. Reddy said that a Nova IVI unit’s set-up cost was roughly a quarter of a short-stay surgery unit’s. It turned cash-flow positive in six months on average. In under three years, there were nearly as many Nova IVI units as there were short-stay surgery units in almost twice that long.

In contrast, as Reddy explained, Nova’s surgical units were not doing uniformly well. Three of them, in Mumbai, Delhi and Chennai respectively, were losing money.  There was top leadership churn (including the high-profile entry and quiet exit of a bunch of top managers hired en masse from corporate hospital network Fortis Healthcare in 2012) and costs were out of whack at the head office in New Delhi which controlled all the units. Growth which had been encouraging, began to plateau in 2014, he said. Nova Medical decided not to expand this part of the business and eventually to sell it altogether in favour of growing Nova IVI.

I asked him about the leadership churn. “There were a few issues in retaining the right talent,” Reddy said. “Probably, one of the things where we faltered, we didn’t allow each centre to run on its own; managing them from a central office was not the best way to do it.” However, he evinced confidence in the short-stay surgery model calling it the best structure for small-to-medium surgeries. “By and large, there was patient satisfaction, doctor satisfaction and insurers were happy.”

Garg shared his own views on the subject. “This business has a few levers – building a large clinical team,  (creating) systems, processes, clinical protocols that are very essential, a strong brand to attract patients to come in, and management capability to run. All these levers have to grind (for it to perform),” he said. “Where they were struggling is getting the right mix of all four and which is where we, as Apollo, can really add value.”


The centres will be relaunched with the Apollo name leading to a significant enhancement of footfalls, Garg said. Every centre will have a core set of specialties that are common across all namely ear-nose-throat surgery, laparoscopic surgery, general surgery, gastrointestinal and colo-rectal surgery, and lap band (gastric binding). Right now, some centres do and others don’t. Then, they will have centres of excellence in a few specialties led by  marquee doctors.

Apollo will also drive outpatient volumes into these centres using its Apollo Health Check diagnostics plan and Apollo Sugar diabetes clinics thus building a strong combination of out-patient and in-patient services, he said. Garg sees potential for checking costs by levarging Apollo’s network for sourcing, and for services such as pharmacies and laboratories.

Nova Medical, for its part, will deploy the proceeds from the sale to double the Nova IVI centres to 20 inside three years, said Reddy.


The arrival of Apollo was opportune for Nova. Healthcare delivery is complex at any time, but more so when you’re a new brand trying to sell a relatively novel concept. Given that Nova had substantial venture capital and private equity funding – venture capitalist GTI co-founded it with Reddy and private equity funds NEA and Goldman Sachs invested in it later – a change in investors was a matter of time.

Nova’s existing management and investors did well to accept that they could take it this far and no further. Apollo brings to these units, its brand name, its clinical expertise and the experience of running hospitals.

It is important to continuously add to that precious commodity, patient – and payer – choice and to keep experimenting with different models to improve both reach and efficiency. Nova did attempt that and, to some extent, demonstrated the way forward for healthcare delivery in this age of rising costs and greater insurance penetration. If it has made mistakes along the way then that is for it, and others, to learn from. As they say, if you haven’t failed, you haven’t tried.




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