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Narayana Health

Low-cost hospitals with a heart

Sector: Futurehealth

Narayana operates a dual business model, one funding the other. Whilst knowledge and equipment are not compromised, the growth in medical tourism subsidises low-cost heart surgery for the poor.

TO GO WITH India-health-hospital,FEATURE by Adam Plowright This picture taken on February 20, 2013 shows staff in a ward in Narayana Hrudayalaya, cardiac-care hospital in Mysore. What if hospitals were run like a mix of Wal-Mart and a low-cost airline? The result might be something like the chain of "no-frills" Narayana Hrudayalaya clinics in southern India. AFP PHOTO / Manjunath KIRAN

Narayana Hrudayalaya is a leading network of hospitals based in the Indian city of Bengalura. Founded in 2000 by a 40 year old Indian heart surgeon, Dr Devi Shetty, it has operated a record-breaking15,000 surgeries on patients from 25 countries, with a relentless pursuit of extending access for more people to more services, at low cost.

Narayana is perhaps most famous for its heart hospital on the outskirts of Bangalore, one of the largest in the world, and with a particular focus on children. where the average open-heart surgery costs less than $2,000, a third or less what it costs elsewhere in India and a fraction of what it costs in western countries.

By thinking differently about its role, scale and partner benefits, the hospital can achieve huge economies of scale. The company (owned by Shetty’s family plus a few investors including JPMorgan) negotiates for better prices and buys directly from manufacturers, cutting out distributors. Starting with cardiac care, an equipment-intensive specialty, made it easier for the hospital group to expand into other areas that require the same infrastructure.

Shetty recognised that most Indian hospitals are exclusively for the wealthy. “My hospital is for poor people, but we also treat some rich people. So we’re mentally geared for people who are shabbily dressed and have trouble paying. We don’t look at them as outsiders. We look at them as customers.”

He has grown the Bangalore hospital into what he calls a “health city,” a series of huge medical centres specialising in eye, accident, and cancer care spread across 35 acres. There are also hospitals in 14 other Indian cities.

The “telemedicine” practice, where each surgeon has Skype on his laptop, reaches across the developing world, including 50 partner locations in Africa, offering support at no charge. His latest initiative, dispersing 5,000 dialysis machines, will make the company the country’s largest kidney-care provider.

Beyond low costs, Narayana Hrudayalaya finds creative ways to make its economics work. The company started a micro-insurance business that enables 3 million farmers to have coverage for as little as 22 cents a month in premiums. Patients who pay discounted rates are effectively subsidised by those who pay full price or chose additional services. These “premium” customers include foreigners for whom a $7,000 heart operation, access to an experienced specialist, and a deluxe private room seems like a bargain.

Every day surgeons receive a profit and loss statement of the previous day that describes their operations and the various levels of reimbursement. The data allows them to manage the mix of payment levels. “When you look at financials at the end of the month, you’re doing a postmortem,” one administrator told The Times of India “When you look at it daily, you can do something.”

Pivot points for Dr Shetty in “changing the game” of low-cost healthcare were:

  • Think: Have an inspiring vision as to how you can make the world a better place
  • Explore:  Build a reputation in one area first, to refine the model and grow reputation
  • Design: Explore new business models, including subsidies between segments
  • Impact: Embrace new technologies as emerging markets change quickly for commercial edge, and social benefit.

In 2012 Dr Shetty received the Padma Bhushan, one of India’s top three public honours. He was also voted Entreprenuer of the Year by the Economic Times, and The Economist’s innovation award for business processes. The Wall Street Journal called him “the Henry Ford of heart surgery”.

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