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Professor Regina Herzlinger, Executive Director Esel Çekin (Istambul Research Center), Senior Researcher Natalie Kindred (Case Research &
Writing Group), and Research Associate Gamze Yucaoglu (Istambul Research Center), prepared this case. It was reviewed and approved before
publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the
company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary
data, or illustrations of effective or ineffective management.
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R E G I N A H E R Z L I N G E R
E S E L Ç E K I N
N A T A L I E K I N D R E D
G A M Z E Y U C A O G L U
Acıbadem Healthcare Group
In 1993, Mehmet Ali Aydınlar, now CEO of Acıbadema Healthcare Group, bought a small,
unprofitable community hospital and began relentlessly working to build a best-in-class health care
and. By 2011, it was Turkey’s only premium nationwide hospital network when it was acquired by
International Healthcare Holdings Berhad (IHH), the world’s second-largest publicly listed health
care group (after U.S.-based HCA) and a private hospital leader in its home markets of Singapore and
Malaysia. In 2015, IHH had a presence in 10 Asian and Middle Eastern countries.1 Aydınlar remained
Acıbadem’s CEO and held 25% of its equity, in addition to 3.5% equity in IHH.
Acıbadem and Parkway-Pantai, which managed IHH’s Asian holdings, shared corporate
ownership, leading market positions, premium reputations, and aspirations for regional expansion—
ut, to date, they operated largely separately. Aydınlar and IHH Managing Director and CEO Dr. See
Leng Tan were considering areas for collaboration and synergies, but cultural and operational
differences posed ba
iers. For example, the entrepreneur- and manager-led Acıbadem network
operated under a single
and and was highly integrated, while IHH’s Asian assets used multiple
ands, were more decentralized, and were doctor-led.
Aydınlar and Tan wanted Acıbadem and Parkway-Pantai to seize opportunities in their respective
egions to expand internationally. They sought to capitalize on Turkey’s uniquely advantageous
location among Europe, Asia and the Middle East, su
ounded by transitional markets with
inadequate health care systems and growing upper classes eager for better health care options.
Acıbadem could tap these markets by expanding regionally, and by drawing foreign patients to its
Turkish facilities. But should Acıbadem first focus expansion on the Middle East and the Gulf, Russia,
Central and Eastern Europe, or Western Europe? What growth model should they pursue —building
full-service hospitals, specialized chains, or outpatient centers; seeking a public-private partnership
for hospitals or staying independent; working with governments to serve publicly insured patients or
serving only private payers; channeling patients back to Turkey or serving them at home? And how?
a Pronounced a-hch-bah-dum.
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XXXXXXXXXXAcıbadem Healthcare Group
2
How should they balance regional ambitions with the significant potential to grow Acıbadem in
Turkey and serve domestic patients?
Turkey
Covering 784,000 square kilometers at the intersection of Asia, Europe, and the Middle East,
Turkey had a population of 76.4 million, of whom roughly 75% was ethnic Turkish and 18% Kurdish.
The median age was 29. About 73% of the population lived in u
an areas, including 14 million
people in Istanbul and 4.6 million in the capital, Ankara. After a decade of economic and political
eforms, Turkey’s largely liberalized economy had grown at 4.1% in 2013 and, despite unrest on its
Syrian border, continued attracting substantial foreign investment.2
Turkey was a country in transition. Traditional agriculture accounted for 25% of employment.
Income inequality was great. The bottom 10% of households controlled just 2% of overall income. But
GDP per capita had increased from $4,600 to nearly $11,000 between 2003 and XXXXXXXXXXA strong
entrepreneurial tradition was expanding and transforming the industrial and service sectors.4 A
NATO member and associate member of the European Community, Turkey entered talks to join the
European Union (EU) in 2005, but a membership agreement had stalled, in part due to concerns over
interference by Turkey’s government in the country’s press and judiciary.5 (See Exhibit 1 for a map of
the region, Exhibit 2 for a cu
ency chart, Exhibit 3 for economic data, and Appendix A for a
ief
ecent political and economic history.)
Acıbadem Background
Building a Hospital Network
In 1990, a group of doctors approached Mehmet Ali Aydınlar, an accountant by training, for
advice about establishing a hospital in Istanbul. At the time, Aydınlar was immersed in his role as the
founding head of a 30-employee accounting firm in Istanbul serving 130 corporate clients. The timing
was fortuitous: he had been looking for new investments. He decided to take a 10% stake in the new
venture: a 50-bed hospital built from scratch and filled with second-hand equipment. Opened in 1991,
the hospital was named Acıbadem after the district in which it was located. It was among the lower-
quality hospitals on the Asian side of Istanbul. (Bosporus is a strait connecting the Black Sea and Sea
of Marmara in Istanbul, while dividing Istanbul into the better-developed European side and the
Asian side.) Over the next two years, the doctor group built three more hospitals and acquired a
fourth, with Aydınlar, a silent partner, holding stakes of 4% to 15% in each. As was standard in
Turkey, the doctors managed the hospitals.
By 1993, as the doctors who owned the hospital were struggling under $1.5 million in high-
interest debt, Aydınlar proposed that he buy the flagship Acıbadem hospital based on a total
enterprise value of $2 million. To fund the purchase, he sold his stakes in the other hospitals, took
two mortgages, and sold his car, his wife’s car and jewelry, and an investment property.b But
financing was just one of many challenges. As Aydınlar—who lacked any health care management
experience—began working to make Acıbadem profitable, an economic crisis rocked Turkey, causing
a 5.5% real GDP contraction and inflation spiking to 100%.6 In a period du
ed “Turkey’s lost
These figures were converted from Turkish Lira to USD at the average 1993 rate of 5,151 via, likeforex.com accessed May
2015.
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This document is authorized for use only by ATUL GUPTA in 2021.
Acıbadem Healthcare Group XXXXXXXXXX
3
decade”7 Aydınlar decided to devote his career to the hospital business, which he viewed as a way to
contribute to Turkish society while also building long-term value for his family.
His first major decision—to formalize Acıbadem’s finances—outraged the hospital’s medical staff.
According to Aydınlar, at the time, all Turkish hospitals operated in a grey economy, keeping no
ecords of patients’ payments or physicians’ earnings. When he declared that all revenues would be
ecorded—and taxed—the physicians threatened to quit. In an impassioned speech, Aydınlar pitched
Acıbadem as a new model for Turkish health care: it would be managed professionally and
transparently,c and the institution’s needs would come before those of its physicians. His vision of
industry leadership and growth that would benefit all who committed convinced most of the
physicians.
To spark Acıbadem’s turnaround, he made another provocative decision: to target high-income
patients—customers of the top hospitals on the European side of Istanbul—by positioning Acıbadem
as best-in-class in quality and service. At the time, all of Istanbul’s hospitals offered similar prices,
following twice-yearly price increases set by one of the leading hospitals. When Aydınlar announced
a 400% increase in Acıbadem’s prices over the industry standard, its physicians again balked, wo
ied
that demand would plummet. The following month, Acıbadem’s capacity utilization fell 20%, only to
climb back to full capacity within a month. The price increase also facilitated increased profitability,
through which Aydınlar funded the company’s growth.
But by mid-1994, low
and awareness limited Acıbadem’s appeal to the A+ patient segment. To
olster the
and, Aydınlar opened an Acıbadem-
and outpatient clinic on Bagdat Street, the Asian
side’s high-end shopping and commercial district. The clinic’s location increased visibility for its
and, and its success prompted him to open two more outpatient clinics by 1998, including one on a
high-end commercial street on the European side. He also overhauled the Acıbadem hospital,
quadrupling its size and filling it with
and new medical equipment. In 2000, he opened a second
hospital by renting its facilities in a half constructed state as the hospital group renting the facilities
efore had to vacate them due to financial difficulties. “We were doing very well,” he recalled. “All
our facilities had consistent quality, and our customer profile had improved dramatically.” He added
that despite Acıbadem’s strong performance, he was financially conservative: “I try to play it safe
ecause Turkey has a very tu
ulent economy. I keep a strong capital base, with reserves for
operating costs.” As Acıbadem’s fortunes grew, so did Aydınlar’s appetite for growth.