Biggest Innovations: Narayana Health has successfully married affordability, quality health care Business Today
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Home Business Today COVER STORY May 25, 2014 Story
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Compassionate heart, business mind
Narayana Health has successfully married affordability and quality health care.
N. Madhavan
Follow @madhuta
Edition:May 25, 2014
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Dr Vivek Dharwar (left) performing a surgery at Narayana Health's hospital in
Bangalore Photo: Nilotpal Baruah
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Hands that serve are more sacred than lips that pray." The words of Mother Teresa
had a profound effect on Dr Devi Shetty, who was the late Nobel laureate's personal
cardiac surgeon in the early 1990s. Dr Shetty then worked at the Birla Heart
Foundation in Kolkata (Calcutta then). At the time, he would see over 100 heart
patients daily. Most needed surgery but never came back for it. This intrigued him.
He soon found out that the high cost of cardiac surgery (Rs 1.50 lakh then) was the
reason. He realised that almost 80 per cent of healthcare expenses in the country
were borne out of pocket. Even worse, 47 per cent of rural and 37 per cent of the
urban population either borrowed money or sold assets to pay for medical
expenses. Indians are genetically three times more vulnerable to heart attacks
compared to Caucasians. Yet only 120,000 heart surgeries were performed annually
when the need was for two million. "It was clear costs had to come down," says Dr
Shetty.
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INSIGHT
Quality health care and affordability did not go hand
in hand. Those seeking affordability had to be content
with government hospitals, while quality seekers had to
spend their way into private hospitals. Dr Shetty began
searching for a model that would marry affordability and
quality. "I was certain of one thing though charity is not
scalable while a sound business model is," he says.
What started as a
280bed hospital
has, in the last 13
years, grown to
become a 26
hospital network
with 6,900 beds
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Biggest Innovations: Narayana Health has successfully married affordability, quality health care Business Today
In 2001, he founded Narayana Hrudayalaya (later
across 16 cities
renamed Narayana Health or NH) in Bangalore with a
employing 13,000
mission to take affordable health care to the people.
people and 1,500
What started as a 280bed hospital then has, in the last
doctors
13 years grown to become a 26hospital network with
6,900 beds across 16 cities employing 13,000 people and 1,500 doctors. It has so far
performed over 100,000 cardiac surgeries and 250,000 cath lab procedures. The
group performs 150 major surgeries (including 44 cardiac surgeries) daily. NH says
about 12 per cent of all cardiac surgeries done in the country are performed at its
hospitals and 50 per cent of its patients are from the economicallyweaker sections.
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FULL COVERAGE: Biggest Innovations This CenturyNH has been able to
achieve this by bringing the cost of surgery down. According to an article by Vijay
Govindarajan, innovation guru and Coxe Distinguished Professor at Tuck School of
Business at Dartmouth College, US, in Harvard Business Review, NH's average cost
of a bypass surgery is $1,500 (Rs 90,000) compared to $1,44,000 in the US,
$27,000 in Mexico and $14,800 in Colombia. Interestingly, NH's cost of cardiac
surgery is significantly lower than what it was in India 13 years ago.
The lower cost has not come at the expense of quality.
NH's mortality rate (1.27 per cent) and infection rate (one
per cent) for a coronary artery bypass graft procedure is as
good as that of US hospitals. Incidence of bedsores after a
cardiac surgery is globally anywhere between eight and 40
per cent. At NH, it has been almost zero in the last four
years, points out Dr Shetty.
The focus on both cost and quality has not hurt NH's
financials either. While NH's revenues grew by over 200
per cent in the last five years to Rs 827.35 crore in
2012/13, its earnings before interest, taxes, depreciation,
and amortisation (EBITDA) margin is a healthy 13 per
cent. (NH's EBITDA for 2012/13 stood at Rs 97.79 crore.)
Private equity funds JPMorgan and Pine Bridge have
picked up a 24 per cent stake in NH. They clearly believe
NH is creating longterm value for investors.
How did Dr Shetty manage to successfully tie
affordability and quality together? "The most
important reason for NH's execution success is its
commitment to purpose. Organisations that pursue bold
dreams can inspire their employees to achieve the
impossible. NH attracts doctors, nurses and other staff
who buy into this vision that they must provide high tech,
high quality care to all, irrespective of means," says
Govindarajan.
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Commitment to purpose is just one reason. Dr Shetty came up with a model that
leveraged economies of scale. He built large hospitals and attracted large number of
patients through innovative schemes such as microinsurance and telemedicine.
Higher volumes cut per unit cost of surgeries. "Henry Ford taught us this simple
principle over 100 years ago. Automobiles went from craft to mass production. Dr
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Biggest Innovations: Narayana Health has successfully married affordability, quality health care Business Today
Shetty has transformed open heart surgery to mass production using industrial
organisation's execution playbook," says Govindarajan. "By the way, when you
perform open heart surgery on an assembly line, not only does the cost go down but
quality goes up. Performing a medical procedure repeatedly improves a doctor's
skill and reduces errors."
Dr Shetty then leveraged the hierarchy of medical talent in optimising surgical
procedures. At NH, doctors operate as teams. Each team has a specialist, junior
doctors, trainees, nurses and paramedical staff. "A bypass surgery typically takes
about five hours. The critical part, which is the actual grafting, takes only an hour.
The specialist does that while harvesting of the veins/arteries, opening and closing
of the chest, suturing and other procedures are done by junior doctors. The
preparation of the patient is handled by nurses and paramedical staff," says Dr
Lloyd Nazareth, President and Group Chief Operating Officer at NH. This process
leaves the specialist free to perform more surgeries. At NH's Bangalore facility, a
surgeon, on average, performs four surgeries a day, six days a week, taking his
weekly tally to 24. NH says this is far higher than the number performed in any
hospital globally, and dramatically reduces cost.
Also, frugality is the watchword at NH. It does not buy
all its equipment. It leases some on a pay per use basis.
This keeps capital costs low. Great emphasis is given to
maintaining equipment and extending its life. The
buildings are designed to keep costs low, too. NH's
Mysore Hospital was designed and built at a cost of Rs
18 lakh per bed, when the thumb rule cost of a similar
hospital is Rs 50 lakh to Rs 1 crore a bed.
At times, no doubt, the frugal approach did not work.
The concept of zero inventory, for instance, was one
such. NH did not store consumables and got suppliers
to deliver them just in time. There were problems and
the measure was reversed, and an inhouse store set up.
"An important element of innovation is to accept
failures and take corrective measures," says Dr A.
Raghuvanshi, Vice Chairman and Group CEO, NH. The
hospital has set up a central buying unit (CBU) and
standardised purchase of consumables and devices.
Close to 80 per cent of all purchases are through the
CBU. This has cut inventory costs by 15 to 40 per cent
and ensured quality.
NH also adopted technology to aid information flow. Here too the frugal mindset
came into play. It deployed its enterprise resource planning (ERP) on the cloud
rather than setting up data centres. This not only cut initial costs but was easily
scalable. The IT system helps NH in many ways. An sms is sent at noon daily to
senior doctors and administrators informing them of the previous day's revenue,
expenses and EBITDA details. This enables the management to decide quickly
when requests for free or subsidised surgery come. "This is our way to not turn
away such requests and at the same time keep our noses above water," says Dr
Shetty. "Also, looking at the P&L (profit and loss) account at the end of the month is
like reading a post mortem report."
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Biggest Innovations: Narayana Health has successfully married affordability, quality health care Business Today
NH also mines data to raise quality levels. Its business intelligence model throws up
real time data on 30 different parameters that the management may want to track
for improving efficiency. Those related to clinical outcomes are then discussed at
the weekly Mortality Morbidity Meeting held every Thursday where all major
clinical procedures are discussed among doctors and best practices shared.
"Through business intelligence, we are trying to map the performance of each
doctor in terms of clinical outcome and financial data such as consumable used
during surgery, time patient has spent in ICU and duration of stay in the hospital,"
says Dr Raghuvanshi.
Dr Dinesh Raju (right) of Narayana Health preparing a patient for surgery in Bangalore
NH has also been open to experimenting. When it set up a 104bed hospital at
Cayman Islands in the Caribbean, it chose to use the cold water available from the
sea to replace the energy intensive refrigeration system. Energy savings, as a result,
were as high as 90 per cent. This is significant considering that power cost in the
islands was three times that of the US. NH's decision to set up oxygen plant there
rather than source them will soon be implemented in its other hospitals as the plant
pays back in just six months.
There are challenges, of course. Cash flow is always a problem as over 50 per cent of
the outstanding is from the government. "We never have money," says Viren Shetty,
son of Dr Shetty and Vice President (Strategy and Planning) at NH. This has forced
the hospital to shift to an asset light model for expansion. "We prefer not to invest
in land or building but just in equipment," he adds.
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NH, meanwhile, continues to grow and Dr Shetty's target is to reach 30,000 beds.
He is confident that India will soon become the first country in the world to
disassociate health care from affluence. "The wealth of a nation has little to do with
quality of health care its citizens can enjoy," he says. Not many will disagree.
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Tags: Narayana Health | India Innovation | Devi Shetty | Helathcare | Affordable Healthcare
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