business models in global health: MedPlus Health Services

by admin on January 8, 2011

 

(Needs review or Delete)

by Jeongyeon Shim, Anne Wang, Nicole Zenel

In late 2010, a small team of MIT students took a look at the organization from the outside and, as a course assignment, prepared an executive summary aimed at its board of directors. This article presents their overview and assessment of the organization, and their thoughts on challenges and opportunities. Keep in mind that this a class assignment drawing largely on publicly-available materials and in some cases direct, though limited, interaction with the organization. We share the student’s work in the hopes that others will build on it in keeping with the creative commons license.

Overview of the organization

Established in 2006, MedPlus is a pharmacy chain operating across five states in India.  Set as a for-profit pharmacy, the company was created to reduce the use of counterfeit medicine. As the company grew, its scope of operation has expanded, and now includes three business lines:

  • Pharmacies: supply medicines with genuine active ingredients, stored in appropriate condition
  • Laboratories: provide pathology testing services collecting samples at the pharmacy locations or at the patient’s home, and processing them at a centralized processing laboratory.
  • Clinics: provide office-based services ranging from primary care to specialties such as cardiology and gynecology, with all locations sharing a common electronic medical record system.

MedPlus is funded in part by venture capital firm Peepul Captial, a large firm whose assets sum to $625M.  Med plus’s value proposition to its customers is: Quality, Convenience, and Low Prices.

Accounting for success

Since it opened its first store in 2006, MedPlus has grown to 800 stores in five states with an employee headcount of 5,000.  During its most rapid pace of growth it added 150 stores in three months.  The pharmacy of MedPlus collectively processes about one million transactions each month.

Although MedPlus has experience rapid growth over the past few years it faces some significant challenges for growth going forward:

  • Competition is stiff and many competitors have similar value proposition.  MedPlus must establish points of differentiation with its competitors.
  • Market is very fragmented with Mom and Pop shops comprising 98% of the pharmacy market
  • There are significant challenges involved with growing the chain to provide access to a broader population, both geographically and socio-economically.
  • MedPlus must remain financially sustainable as it continues to grow and expand.  They must realize economies of scale through increased purchasing power or consolidated supply chains and logistics.

Looking ahead: student thoughts

Our recommendations for MedPlus address three key challenges/opportunities: Access, Differentiation, and Financial Sustainability.

Access

  • Manage speed of expansion: consider franchising with existing pharmacies (Mom & Pop shops)
  • Quality Control: qualification of franchisees and mechanisms to maintain service and product quality
  • Enabling Infrastructure: manage expansion of supply chain and inventory management system.

Differentiation

  • Sustain current differentiation with traditional pharmacies through pathology lab and clinic
  • Focus on  serving a market underserved by organized pharmacies
  • Focus on mechanisms to pull customers—e.g., insurance, lab service

Financial sustainability

  • Consider developing different store formats for different markets
  • Leverage rapid growth to increase bargaining power
  • Establish chain of custody, especially for franchises
  • Plan expansion to efficiently manage transportation/supply chain investment required
  • Potentially co-develop cold chain distribution with other industries i.e. food services

MedPlus presents a promising business given the size and growth of the Indian market.  However, it must address the challenges of access, differentiation, and financial sustainability.  In addition, although it may have been founded to address the needs of the poor it will struggle to balance those goals with profitability, especially with a venture capital firm as a large shareholder.

 

Post-project update from the students

In conducting our research for this project we attempted to contact Apu Gupta, one of the founders and former COO.  We finally managed to track him down at his new company but due to the holiday were unable to have a conversation with him until after our presentation.  We gained the following insights from our conversation that were not part of our presentation but fascinating nevertheless:

  • Margins drove the move into labs and clinics.  The pharmacy is a low margin business and labs have a two to three times higher margin.  The clinic was added to create volume for the pharmacy and generate business for the lab.  The lab business is the most capital intensive and relied on the clinics to drive volume.
  • In India prescriptions are written for brands not compounds as they are in the US, so having a clinic allowed them to prescribe prescriptions they knew they had available or prescribe their private brand.
  • One point of differentiation we were not aware of, but relates to quality, is temperature control.  Most Mom and Pop shops do not have A/C so their supplies of prescriptions are subject to the Indian heat.
  • They did not have a target customer base per se in terms of middle class vs poor.  Most prescriptions tended to not be that expensive but they didn’t have much purchasing power and were able to provide only a little downward pressure on price. 
  • Convenience rules the day and customers want smaller shops that stock the medicines they need; this is a “need” not a “want” item that people enjoy browsing for.
  • Some of the challenges he mentioned were:
    • This is an operationally complex business with low margins and high operating costs so it is incredibly challenging to manage and run at a profit.
    • There exists a talent gap at middle management and they need individuals with business experience.  However, the competition for the few experienced middle managers in the job market is intense and they struggle to compete with the salaries tech firms can offer.
    • In some location they grew so large that they were running into issues with quotas and limits on the amount of drugs they could order so managing the supply chain became more complex.

The final point he made was they while they like to import best practices, it does not work to import a business model.  They fashioned some of their business practices to the likes of Walmart and McDonalds but had to design a business model that was unique to India.  This business model would not travel well and would be unsuccessful in the US.  This is an important consideration if MedPlus every considered expanding into Africa or other developing markets.

Download the accompanying student presentation on MedPlus Health Services (pdf).

Was this article useful to you? Please give us feedback on how to improve sharing our work by leaving us a comment or e-mailing us at ghd.projects.lab@mit.edu.

Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License.

 

Leave a Comment

Previous post:

Next post: