South-Western College Publishing - Economics  
I'll Replace That Hip for $49.95!
Subject India's Hospital Provides Cater to Foreign Nationals at Reduced Prices
Topic Supply and Demand; Profit Maximization and the Firm
Key Words

Demand, Health Care, Profit, Hospitals

News Story

Apollo Hospital Enterprises in India now boasts a new service in its 37 hospitals spread across Southeast Asia: providing cut-rate health services to foreign individuals looking to save money.

In the last 20 years, Apollo Hospitals has grown to become one of the leaders in global health care. In the West, hip replacement can run close to $20,000, but Apollo only charges ¼ that amount. By taking advantage of the significant cost of health care administration in places like the United States, Apollo appeals to those individuals looking for a fast treatment. In fact, Apollo engages not only in cut-rate surgeries, but also clinical trials with global pharmaceutical companies, processing insurance claims for US insurers, and evaluating X-rays and CAT-scans.

While Apollo seems to be another Indian firm destined to take jobs away from U.S. individuals, the company benefits significant numbers of individuals from other countries. It isn't, therefore, just another off-shoring company. It is now a global player in health care, opening marketing offices in major cities worldwide, and forging new technological levels in its hospitals.

While currently foreigners only constitute approximately 8% of Apollo's patients, that number is expected to expand overall by about 20%, and the outsourcing should make up about 25% of total net profit for Apollo. While foreign patients are certainly a focus of the hospital, it has not yet turned a blind eye to the poor. A number of the beds in the hospitals are set up for free care; a financial trust has been set up for the needy, and new technologies allow medical professionals from Apollo to see poor individuals remotely: something that couldn't have happened before.

(Updated July, 2004)

Questions
1.

What has happened to the overall demand for health care, allowing Apollo to make such inroads into the market? Illustrate using a graph of supply and demand. Does this represent a change in quantity demanded or a shift in demand?

2. Suppose an individual in the U.S. needed a liver transplant, and was not satisfied with the wait that would exist in the U.S. for such a procedure. Given that this individual's procedure would be covered by insurance only if done in the US, what advantage would exist for this individual to fly to India to have it performed? What would have to be true about this individual's price elasticity of demand for health care?
3. Why would Apollo engage in raising the technological level of its care and in opening new offices, both of which would amount to increasing costs?
Source Jay Solomon. "India's New Coup in Outsourcing: Inpatient Care." The Wall Street Journal. 26 April 2004.

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