Aravind Eye Care Case Study

Aravind Eye Hospital

Contents Situational Analysis ................................................................................................................................. 3 Problems ................................................................................................................................................. 4 Critical Success Factors ........................................................................................................................... 4 Action Plan .............................................................................................................................................. 5

Executive Summary The present case concerns Aravind Eye hospital which is a privately owned hospital and provides free services to the poor and needy people. Dr. Venkataswamy who is the founder of the hospital wants to expand Aravind Eye hospital to all parts of India, Asia, Africa and rest of the world so that quality and free eye services can be provided to the poor and needy people who have curable blindness but can’t afford to pay for their treatment. Dr. V is interested in knowing how this expansion can be achieved through the franchisee model. The case writer has been hired as a consultant to advice Dr. V as to how to realize his dream. The case writer observes that there are various problems which need to be looked at if the expansion plan is to become a success. These include ensuring that the model is self-sustainable and the franchisee is able to recover his cost of capital, to ensure that the main purpose of the hospital of providing free services to the poor and needy is not compromised, quality man power is available to ensure smooth functioning of the franchises and to address the social cultural and legal issues while expanding outside India. The case writer suggests that the expansion should be held out in phases with the expansion starting from the three southern states of Karnataka, Kerala and Andhra Pradesh in the first year and then expanding towards the northern states including Uttar Pradesh, Madhya Pradesh. West Bengal, Bihar and Maharashtra. This phase would be completed in a period of 3 years. The Aravind Eye hospital would provide franchisee rights to suitable bidders for free and provide their expertise to the franchisees. In return, the franchisees have to ensure that at least 50% of the patients treated are for free and the quality of service is not diluted. Aravind eye hospital would also help the franchisee in administrating the hospital for first year. For expansion outside India, the case writer suggest that once the expansion in India is complete after 3 years, Aravind Eye Hospital would partner a prominent NGO each from countries in Asia and Africa and set up their own flagship hospitals there along with the NGO. To ensure that Aravind Eye has enough capital to do this expansion, the case writer suggests that Aravind eye should partner with an FMCG company which will advertise their products to the rural patients and in return pay a fees to Aravind eye. This would ensure that Aravind eye has enough capital to go ahead with the expansion plans. Once the flagship hospitals in each country have gained credibility, Aravind eye can give franchisees of their hospital to suitable bidders of those coutries.

Situational Analysis The Aravind Eye Hospital is a privately owned eye hospital which started as a 20 bed hospital in 1976 and has now grown into a 1224 bed hospital with facilities in Madurai, Tirunelveli and Theni. It is one of the biggest hospitals of its kind in the world. The model of Aravind Hospital is unique as it treats the well-off patients charging a fees in the Main hospital building and provides cross-subsidy by giving free of cost treatment to those who can’t afford it. Statistics reveal that as of 1992, there 30 million blind people in the world with 6 million in Africa, 20 million in Asia, 2 million in Latin America and the rest in Europe. While age related macular degeneration, diabetic retinopathy and Glaucoma were the dominant causes in developed countries, cataract was the major cause of blindness in the developing countries, accounting for nearly 75 % of all cases in Asia. More than 80% of the cataract cases were age-related. Dr. Venkateshwaran (Dr.V) who is the founder of the hospital has a vision to bring eyesight to the masses of poor people with curable blindness in India, Asia, and Africa and all over the world. The case writer has been appointed as a consultant by the hospital administrator of the Madurai facility of the Aravind Eye Hospital to advice Dr. V to facilitate attainment his vision in the next 3 years. Dr. V wants the case writer to advise him whether he can opt for a franchisee model in the lines of McDonalds and BurgerKing. This will enable him to realize his goal faster and wouldn’t involve any additional capital spending on his part. The case writer decided to study how Aravind Hospital functions. There were 2 Hospitals- The Main Hospital and The Free Hospital. The Main Hospital provided paid services to patients while the Free Hospital provided free services to the poor and needy patients .The poor and needy patients came to the hospital through eye-camps organized by the Aravind Eye Hospital or through Walk-ins. By following this model, the eye hospital at Madurai was able to earn a profit of over 51% during 1991-92.

Problems 1. Risk of franchisees not treating the poor people for free: Even if Aravind Eye Hospital grants franchise to open up branches of Aravind eye hospital in other parts of India and abroad, the risk is that the franchisee would not offer quality service to the poor people and would only try to make profit 2. Not able to provide enough manpower for the new branches: It would be difficult for Aravind Hospital to find so many qualified ophthalmologists for their new centres. The private sector pays much more than what Aravind Hospital offers to their doctors. Thus it will be difficult to find qualified and good doctors who would be ready to work at the salaries given by Aravind eye hospital. 3. Building a sustainable model: A sustainable business model must be envisaged before going for the expansion plans. This should be a lesson learn from what happened with the hospital at Tirunelveli. Though the cash flows and margins are acceptable, it is becoming difficult to repay the cost of Capital. 4. Social, cultural and legal issues while expanding outside India: While expanding outside India, the Aravind Eye Hospital would have to deal with various social, cultural and legal issues. If the workforce is hired from India and sent to the foreign countries, then it would be a challenge to get Visa for so many doctors, supporting staff and Nurses. Furthermore, there will be issues as the staff would need to be taught the language of the country and made familiar with the cultural differences there. There might be legal issues if Aravind Eye Hospital themselves try to open the facilities outside India.

Critical Success Factors 1. Quality of Health Services provided to free patients: The hospital cannot compromise on the quality of health services [provided to the patients being served for free. 2. Repaying Cost-of-Capital: Repaying cost of capital is critical to ensure that the model is sustainable and can be replicated to other parts of the world . 3. Charitable Services: The hospital should not fail in its mission of providing charitable services - the goal for which it was formed. 4. Revenues: Being a charitable hospital, having a constant stream of revenues and maintaining a good profit margin is critical to the success of the hospital. By using the surplus the hospital can become self-sufficient and keep on improving the infrastructure.

Action Plan 1. Franchisee Approach: a. The Aravind eye hospital should go for a franchise approach .It should be in a phased manner and the roadmap should be for 3 years for expanding in India and 6 years for expanding abroad. While expanding in India they should first concentrate on the 3 southern states of Karnataka, Andhra Pradesh and Kerala and invite bids for franchisees from there. Then they should start expanding towards the northern parts of India and target the states of Uttar Pradesh, Madhya Pradesh, Bihar, West Bengal and Maharashtra first. This should take 3 years to achieve. b. They should give the franchise rights to an appropriate candidate and the rights should be given for free. The franchisee would be responsible for bearing the cost of the infrastructure and Aravind eye hospital would lay the guidelines for the infrastructure. c. There would be a clause in the agreement which mandates to the franchisee that a minimum of 50% patients being handled would be for free. This would ensure that the main objective of giving the franchise is served. In case the franchisee is unable to ensure the 60% criteria, a penalty would be levied to the franchisee and in case of severe discrepancy the franchise rights can be revoked from them subject to discretion of Aravind Eye hospital Management’s discretion. If the franchise decided to walk away after the hospital is functional or his franchise rights are revoked, then in those premises it would not be allowed for the franchisee to open another medical facility. d. The franchise will not be forced to improve the infrastructure of the hospital until it recovers its initial cost. Post recovery of cost of capital, the franchise would be mandated to spend at least 20% of its profits in a year for improving the infrastructure of the hospital. e. Aravind Eye hospital would help in training the staff of the employee for free for a period of 1 year. The hospital administrator would also be nominated by Aravind Eye Hospital under whom an assistant would be trained who will take over the responsibility after a period of 1 year. The assistant would be nominated by the franchisee and the salary of the administrator nominated by Aravind Eye’s management and the assistant would be borne by the franchisee. f. Aravind Eye Hospital would help the franchisee in sourcing doctors, support staff and nurses. Some of the nurses already trained by Aravind Eye would be transferred to the franchisee’s facility for a period of 1 year so that they can train more nurses. The franchisee

would bear the cost for the transferred nurses.To ensure Quality professionals are hired, the franchisee would pay Rs 1,20,000 to the doctors p.a. This will not be difficult for the franchisee as he has the potential to earn more profit than the Aravind Eye’s Madurai facility as he is bound to serve only 50% of the patients for free and can charge as deemed feasible to the paying patients. g. While expanding outside India, Aravind eye hospital should partner with an NGO of that country and set up its own flagship facility in that country. Once the facility gains credibility, franchisees can be sought from that country to take the vision forward. h. The doctors, support staff and nurses would be sourced partially from the country where the facility is being set up and partly sent from India. The Indian contingent’s responsibility would be ensuring that they are able to supervise and train the country’s native healthcare professionals so that they can manage the hospital independently. 2. Seek out other sources for revenue: Aravind eye hospital should seek other sources of revenue. Since most of their patients are from villages, Aravind eye can partner with some FMCG company. The FMCG Company can advertise their products to the rural patients coming to Aravind Eye and through the camps organized by Aravind Eye. Aravind eye would be paid fees by the FMCG companies. They can use this money for their expansion plans.