Published December 24, 2008

Parkway doing a Ritz-Carlton in hospital world?

By CHEN HUIFEN
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PARKWAY Holdings' announcement to manage a new hospital in Abu Dhabi may come across as unexciting to some. After all, it is only natural for a seasoned health care operator to export its expertise. It is already doing so in other countries such as Malaysia and Brunei. Other listed medical services providers such as Pacific Healthcare and Thomson Medical Centre are doing it as well.

What makes Parkway's latest move momentous is that . . . it is not taking any equity interest in the property.

What makes Parkway's latest move momentous is the fact that, for the first time, the group is not taking any equity interest in the property. In all its previous expansion overseas, the group had always formed partnerships to own the hospital assets.

In Malaysia, for instance, Parkway manages eight hospitals held under Pantai Holdings Berhad, in which it has a 40 per cent stake. It also holds equity interests in two other medical centres operating under the Gleneagles name in Kuala Lumpur and Penang.

In Brunei, it manages and operates the Gleneagles JPMC Cardiac Centre, of which it owns a 75 per cent interest. In India, it operates the 50 per cent owned joint venture, Apollo Gleneagles Hospital. Over in China, the Shanghai Gleneagles International Medical and Surgical Center is 70 per cent owned.

With the tried and tested model reaping success, why the shift to an asset-light strategy then?

Capital access could be a reason. In view of the credit tightening conditions, it would be tough to get the go-ahead for any major infrastructure investments. Not to mention that the group is already committed to a new hospital in Novena and a greenfield project with India's Koncentric Investments to build a 500-bed hospital in Mumbai.

And with declining medical tourists, management contracts provide an added source of revenue by making use of existing resources. Besides, the health care sector is usually a protected segment in various jurisdictions, with a cap on foreign ownership. The asset-light approach provides a meaningful way to expand the group's brand overseas without the need for any capital expenditure.

Which brings to mind the way hotels are managed. Many hotel groups such as Ritz-Carlton and Hilton manage properties that they do not own. They usually receive a management fee that could amount to a certain percentage of the revenue received, depending on the contractual agreements inked with individual hotel owners. With this model, hotel guests and owners are assured of the quality associated with the respective brand, and the hotel chains get to expand its name without the high cost of property development.

On hindsight, Parkway could have planned for that kind of positioning. It has already spun off its Singapore hospital properties into a real estate investment trust (Reit) last year, kick-starting its asset-light approach.

In the past 12 months or so, the group embarked on a corporate rebranding exercise that stressed on what it calls 'value-based integrated health care', with 'ParkwayHealth' becoming its master brand. The group then launched its new logo and brand name through an extensive marketing campaign in the local media as well as in major inflight magazines.

Sealing the deal on Monday to manage the new US$200 million Danat Al Emarat Women's & Children's Hospital is significant. It signals recognition of its name as a brand model. As the hospital owner United Eastern Medical Services revealed at a press conference, there were initially eight to 10 international names shortlisted. But Parkway was the top choice because of its quality clinical outcomes, and of course, its experience in dealing with global patients, which the new hospital wants to attract.

Now that Parkway has got the job, the question is how it intends to preserve its brand name in the new outfit. Key to that will be consistency in clinical and service quality. And perhaps it should also think about implanting its 'ParkwayHealth' name into the project - just like major hotel chains do when they manage hotels for the owners.