Business Model of Narayana Hrudayalaya

Asia • India

Healthcare for All: Narayana Hrudayalaya, Bangalore Prepared by • Prabakar Kothandaraman & Sunita Mookerjee (India) Sector: Health Enterprise Class: Local SME

Summary In a context of high healthcare costs and low accessibility to quality health care, Narayana Hrudayalaya (NH) was founded as a private enterprise to initiate a medical revolution. Based on the premise that any existing solution to treat cardiac illness was not affordable and therefore could not be defined as a solution, Dr. Devi Shetty founded Narayana Hrudayalaya (NH) in 2001 to provide quality cardiac healthcare to the masses. The term “Narayana Hrudayalaya” means “God’s Compassionate Home” in Sanskrit. NH’s approach towards providing affordable, quality healthcare for the poor is a combination of compassion, highquality medical knowledge and skills, and an astute sense of making the business work for the poor.

The Healthcare Situation in India Ajay Dhankar, Principal at McKinsey’s Asia-Pacific healthcare practice, recently noted, “No matter how you look at it, healthcare situation in India is hopeless.” 1 Dhankar identified two key challenges: one, the majority, 80 percent, of those that paid for their own healthcare were poor people; and two, the government funding was mainly focused on secondary and tertiary 2 healthcare and not on basic primary care where patients made first contact with the system. The following statistics point to an underserved healthcare market. India has less than one doctor per 1,000 people, compared to 2.56 doctors per 1,000 people in the United States and 1.05 in China; 3 in terms of healthcare, India is far behind the rest of the world. It had 1.1 hospital beds per 1,000 people, a figure that was inferior to countries such as Thailand and China where the comparable statistic was 4.3 4 . The situation was worse in rural areas where, in some cases, one doctor catered to almost 200,000 people. However, some measures of healthcare in the country have improved since the 1970s. The infant mortality rate, for example, decreased from 120 per 1,000 live births, in 1975, to 63 in 2002 5 . However, India still had miles to go to bring healthcare infrastructure and services up to international standards. Of the 5.1 percent of the GDP that was spent on healthcare (including creating infrastructure, paying doctors’ salaries, maintaining hospitals and dispensing drugs) in India in 2002, only 20

1

“Taking India’s Pulse: The State of Healthcare.” 30 March 2005. Available at http://knowledge.wharton.upenn.edu/article.cfm;jsessionid=a830a655d0f448561485?articleid=1111&CFI D=14378119&CFTOKEN=72958985&jsessionid=a830a655d0f448561485 2 Primary care is at the lowest level where people make contact with the nearest physician or their family practitioner when they fall sick; secondary care includes diagnostics and treatment, and tertiary is specialized care-giving and was also typically found in teaching or research hospitals. 3 Konan, Prabhudev, “Opinion: The Healthcare tourism conundrum.” The Hindu. November 24, 2006 4 Onkar S. Kanwar, Ex-President FICCI (a Federation of Indian Companies) in a speech at a Global Healthcare Conference hosted by FICCI in New Delhi in January 2007 (Available at http://www.ficci.com/media-room/speeches-presentations/2007/jan07/WelcomePresident.pdf). 5 Source: Ministry of Health & Social Welfare and Registrar general of India (Available at http://indiabudget.nic.in/es2004-05/chapt2005/chap109.pdf)

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percent came from the government, which left the bulk of the spending in the hands of private individuals and employers. Of India’s 15,393 hospitals (the second highest number in the world), roughly 75 percent were private and 30 percent catered to secondary and tertiary care 6 . The need for skilled labor was also profound. Each year, 18,000 new doctors graduated from India’s 170 medical colleges (please see Appendix A for healthcare infrastructure), leaving a projected yearly gap of 45,000 doctors by 2012 and a total of 350,000 new nurses needed to support the doctors, excluding tertiary care, by 2015 7 . A study by FICCI and Ernst & Young predicted that India needed to add over one million hospital beds by 2012 8 . The situation of inadequate infrastructure, little available public healthcare and a growing gap of human capital to meet the country’s healthcare needs threatened to have an adverse effect on the poor, especially the 34 percent of the population that lived on less than one dollar a day 9 . PREVALENT CARDIAC ILLNESS In 2003, worldwide heart-related ailments accounted for 17.2 million deaths, about 29.2 percent of the total deaths. The incidence of cardiac disease in India was exceptionally high. Indians were particularly at a higher genetic risk of heart disease than other nationalities. They also consumed foods that were rich in saturated fats and tended to have a sedentary lifestyle. In addition, there were about 224,000 babies that were born every year with congenital heart disease. India needed about 2.4 million heart surgeries every year, while only 60,000 were being performed, as of 2004 10 . The Indian sub-continent 11 accounted for nearly 45 percent of the world’s incidence of coronary heart diseases, and it has been estimated that by 2010 the figure will reach 60 percent. Since the 1950s, while OECD countries experienced a decline in heart attack deaths, the figure steadily climbed from four percent to 11 percent of all the deaths during that period in India. Thus, Indians were three times more vulnerable to heart disease than the average European. The average age for an Indian to suffer a heart attack was 45 years as opposed to 65 years in the western world. One in four Indians suffered from a heart attack before they retired (usually 58 years) and half of these deaths from cardio vascular deceases occurred before their 70th birthday. Comparatively, the figure for the west was 22 percent. Despite these indicators, very few could afford a heart operation 12 .

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Available at http://www.ita.doc.gov/td/health/india_indicators05.pdf Onkar S. Kanwar speech 8 FICCI Presentation of the FICCI-Ernst & Young Report (2007): Opportunities in Healthcare: “Destination India” Available at http://www.ficci.com/media-room/speechespresentations/2007/jan07/ExecutiveSummaryReport.pdf 9 UNDP Human Development Report, 2006 10 Viswanathan, Vidya (2005), “Heart Care for Everyone,” Civil Society, Vol. 3, No.3, December 11 The Indian sub-continent includes India, Bangladesh, Bhutan, Nepal, Pakistan and Sri Lanka 12 Hutchison, Jim, “King of Hearts,” Reader’s Digest, February 2004, pp.18 7

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Background of Narayana Hrudayalaya Dr. Shetty, like many doctors of his era, went to England after graduating in 1982 from Kasturba Medical College in the coastal town of Mangalore in Karnataka, India. He worked at a hospital in Midlands, England and later at the Guys Hospital in London. But after a decade of experience abroad, he returned to India and founded the Asian Heart Foundation (AHF) in Calcutta in 1989 as a non-profit foundation focused on cardiac care. AHF initially helped set up hospital for other organizations. The first one was opened in 1989 by the B.M. Birla Heart Research Institute. In 1997, Dr. Shetty assisted in setting up the Manipal Heart Foundation’s hospital in Bangalore. Dr. Shetty’s AHF, in association with the West Bengal (an eastern Indian state) government, built a 150-bed cardiac facility in Calcutta that quickly became the largest cardiac hospital in eastern India. In 1999, AHF also built its own cardiac hospital called the Rabindranath Tagore International Institute of Cardiac Sciences (RTIICS) in Kolkata (formerly Calcutta). Dr. Shetty never had problems raising the funds to build the hospital. A stockbroker patient donated £72,000 (US$142,732) as working capital, while a private company, Tata Finance, provided soft loans for buying equipment. Another patient’s son, who had a construction company, offered to build a cardiac diagnostic laboratory, and the Armenian Church, impressed by Shetty’s venture, came forward with a pledge of US$1 million. “Believe it or not, it’s not difficult to arrange for funds when your cause is noble,” opined Shetty in an interview to the New Scientist magazine in 2002 13 . While Dr. Shetty was in Calcutta working at RTIICS, he also served as Mother Teresa’s personal cardiac surgeon, and this association deeply inspired him to think deeply about how he could better serve the poor. In a letter he wrote to children on completing 4,000 pediatric surgeries, Shetty shared what the nun had told him at the ICU 14 of the hospital where she was convalescing: “Now I know why you are here. To relieve the agony of children with heart disease. God sent you to this world to fix it.” Shetty wrote, “...[this is] perhaps the best compliment that I have ever received.” 15 Demand for cardiac surgeries in India was underserved. In 2003, it was estimated that there were only 55,000 open-heart surgeries that were performed in India per million people whereas the demand was upwards of 125,000 16 . The cost also remained high and varied from hospital to hospital, depending on the type of facility. The top-tier private hospitals typically charged anywhere from US$1,500 to $6,000 for an open-heart surgery. Some of the government hospitals, such as the All India Institute of Medical Sciences in Delhi (AIIMS), charged much less (US$1,200) but did not have adequate capacity to treat a large number of patients. In 2001, Dr. Shetty’s father-in-law Narayan Shetty, who owned a construction firm Shankaranarayana Constructions (SNC) that was celebrating its 50th anniversary, invited him to start a state-of-the-art cardiac hospital in Bangalore. SNC provided 25 acres of land on a 13

“Interview: India’s Heart-Throb Surgeon”. New Scientist. 2 February, 2002 Intensive Care Unit 15 Narayana Hrudayalaya 16 “High cost: A hurdle to coronary heart surgeries”. The Hindu. 10 September, 2003 14

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30-year lease to Dr. Shetty’s NH Private Limited and provided the initial capital to build and operate the hospital. Dr. Shetty’s family also stood as guarantors for the loans that NH needed to raise to equip the facility. The hospital was named Narayana Hrudayalaya 17 with the following mission statement: “We at Narayana Hrudayalaya Foundation, Bangalore and the Asia Heart Foundation, Kolkata have a dream. A dream of making sophisticated healthcare available to the masses, especially in a developing country like our own.” In order to support its mission to serve the poor, NH created a business model that, in its core, operated on the principle that high quality care would attract full-price paying patients, and along with NH’s foundation, these patients would subsidize surgeries performed for the poor. NH was modeled as a business enterprise as opposed to AHF that was a non-profit foundation. Dr. Shetty realized the limitations of completely charity-based models that were incorporated as charitable trusts. As Dr. Shetty put it, “We realize that a trust cannot grow and become huge since only way a trust can raise money is by donations and loans and both models will not scale up to the size we are looking at. So we are effectively using both models to suite the current legal requirement of the country.” 18 Traditionally, leading hospitals in the world had steadily transformed into academic and training institutions in order to pursue excellence. However, in India, private companies were not permitted to start educational institutions. Therefore, Dr. Shetty also started a third foundation called Hrudayalaya Foundation and Narayana Hrudayalaya charitable trust (HFNHCT). Dr. Shetty explained, “[so] we started foundation, which is essentially a trust, which can run various educational programs.” 19 From an organizational perspective, Dr. Shetty’s family owned all the three entities: AHF, NH, and HFNHCT, and Dr. Shetty was the head of all three. In the initial part of the first phase, in 2001, NH had 225 beds. That figure has increased by 100 beds each year until the hospital reached a built-up area of 250,000 square feet of stateof-the-art facilities with ten state-of-the-art operating theaters and 500 beds in 2005 and 2006 with a capacity to perform up to 25 surgeries daily. NH was also working on a second phase that began later in 2005 and is slated to end in 2008. Shetty’s long-term staff member, Vasuki, a long-standing associate of Dr. Shetty and NH’s communications head, recalled the grand opening day in 2001: “We were very skeptical on the day of inauguration. We had distributed 500 invitations and ordered 300 chairs to seat the guests. Some of us felt that the hospital being several miles from the center of the city may not be able to attract people for the function and later for the treatment as well. But, Dr. Shetty was sure. They will come, he said. In his opinion, the hospital was for people not just from Bangalore but any poor person from across the country. His point was if someone traveled a couple of thousand kilometers to come to Bangalore, they won’t mind the additional 20 kilometer’s commute to the hospital.

17

In the ancient language of Sanskrit, “Hruday” meant heart and ”alaya” referred to temple i.e. Hrudayalaya: Temple of heart 18 Dr. Shetty’s letter to the lead case writer dated 17 May 2007 19 ibid

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The inauguration was a success and we didn’t have enough chairs and quickly we were on our way to full capacity.”

The Business Model for Narayana Hrudayalaya ORGANIZATIONAL STRUCTURE Dr. Devi Shetty’s family, through the NH PRIVATE LTD of which Dr. Shetty was the Chairman, owned NH. He was assisted by a board of directors, and the organization had a functional structure with the medical and finance departments each headed by a Director. One of the operating philosophies of NH was that surgeons should focus only on performing surgeries and nothing else. Dr. Shetty articulated this clearly when he said, “I am essentially a heart surgeon who loves operating for the whole day if given a choice. I do spend about ten percent of my time every day in strategies, and day-to-day management of all our organization is left to the professionals. We do have senior doctors at key roles in the administration; however they too spend most of their time in patient care and have associates who do the day-to-day management.” 20 Thus, all of the management of the hospitals was consolidated under a Chief Operations Officer (COO). NH also minimized administrational roles for all operational staff, including nurses. NH considered patient arrival a key area, and staff with special training handled new patients and appropriately counseled them as they arrived for treatment. This department also liaised with the philanthropy cell to better coordinate patient receipts. Led by Dr. Shetty, NH had a team of close to 100 world-class surgeons and cardiologists on staff who were motivated by a shared vision of serving the needy. They were all trained at the finest of world hospitals such as the Mayo Clinic, Harvard Medical School, and University of Massachusetts, Guys and other British hospitals, and hospitals in Australia. Dr. Shetty proudly showcased the depth of experience of his senior management, “Dr. Praveen Kumar who has been my friend and associate for over 35 years, he is the medical director who takes care of most of our medical administration other than being a very busy heart surgeon. Dr. Nitish Shetty is a medical doctor turned administrator who looks after the general administration and strategies. Mr. M.S Rao is the director of Finance, and Mr. Srinath has become chief of our supply chain company, which is a new outfit we have established recently and he is also helping with raising equity for our future expansion and strategies. Brigadier Rai is the general manager of administration looking after the day-to-day administration of Narayana Hrudayalaya alone. This is the set up we have in Bangalore.” Dr. Shetty also had a similar team in Kolkata, and in both Bangalore and Kolkata they had another level of administration that supported the top layer. NH was very conscious of the need for succession planning at its hospitals. This was evident when Dr. Shetty said, “About the succession plan we have an institution, which is an academic institution, which trains every aspect of professional, involve [sic] in health care starting from top-level heart 20

Dr. Shetty’s letter to the lead case writer dated 17 May 2007

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surgeons to the administrators. At every level we have people at various expertise and knowledge to replace the people on top as the time passes. Our aim is not to encourage lateral entry from outsiders [sic] instead to nurture talent from within us, so that the culture of the institution perpetuates.” 21 Dr. Shetty, however, continued to be the star of the show. He was credited to be the first surgeon in India to perform neo-natal open-heart surgery in India. The hospital offered openheart surgeries and catheterization procedures for both adults and children. They also offered other general surgeries and orthopedic care, as well as annual wellness check-ups. The highquality service was evident in surgery mortality rates, which were better than the average in industrialized country hospitals. WELCOME CAPACITIES AND MARKETING STRATEGY Patients served by NH had shown a steady increase (see Appendix B for growth figures). In October 2006, the hospital saw 9,567 outpatients and treated 1,608 inpatients. This amounted to 480 surgeries and 732 cathlab procedures. In November 2006, the hospital marked the completion of 30,000 procedures since its inception and performed 27 heart surgeries in a day, which was globally the second highest number of surgeries performed in a single facility in one day 22 . The doctors were all dedicated to the mission of the hospital and were not responsible for bringing in patients (see Figure 1 for the NH Organization Chart). NH had built a strong rural network in both the southern, eastern and north-eastern parts of the country through its outreach and telemedicine facility that constantly fed NH with patients. Dr. Shetty had built a tremendous reputation for himself and NH that also translated into patient arrivals from several countries. Also, NH had established linkages with small-time family physicians that also referred patients to NH. Doctors’ remuneration was competitive, and they had discretion to provide discounted treatment for the poor. Each doctor could also recommend a certain amount of discount based on their assessment of each patient’s needs and availability of funds for that day. For this purpose, each doctor had up-to-date knowledge of the operational equivalent for any given day. This privilege was also extended to senior non-medical staff. The doctor’s dedication to the mission was evident by the long hours and shift work they put in to enhance productivity. The doctors worked in ten to twelve hour shifts, while the staff rotated in three shifts to cover patients twenty-four hours per day, every day. The operation theaters opened at 6 a.m. and surgeries were performed even as late as 8 p.m. FINANCIAL STRUCTURE A key ingredient of NH’s business model was keeping costs low for the poor. They did this by using several schemes including low-cost insurance schemes such as Arogya Raksha (in the private sector) and Yeshaswini (in the cooperative sector). The poor had to pay very low

21 22

ibid The top slot went to a government hospital in Brazil that performed 28 heart surgeries in a day

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premiums and had access to the same state-of-the-art facilities that were available to others paying higher rates. The NH business model also included philanthropy. It hoped that its provision of high-quality cardiac care and social missions to provide affordable treatment for the poor would influence others to underwrite the cost of surgeries by donating to the foundation. This was found to be successful as both patients and non-patients, through word-of-mouth, poured in close to US$1 million every month. “We treat about 3.3 percent of our patients without accepting any fees while ten percent of cases receive substantial support,” said Lakshmi Mani, the person responsible for running NH’s philanthropy wing. This did not include the lower fees that the staff determined for poor patients based on their needs. Over 50 percent of NH revenue came from heart surgeries while nine percent came from Coronary Care Unit (CCU) charges, and eight percent of revenue came from outpatient fees (please see Appendix C for distribution of source of revenue by categories). The average price realization, after taking into account the flexible prices that NH charged for different patients, for heart surgery in a typical month was US$2,300 (please see Appendix D for distribution of price); the break-even cost was about US$1,800 23 . NH’s revenue stream was sourced from a mix of corporate (patients whose employers or insurance companies paid for the surgery) and individual customers (please see Appendix E for source of revenue by customers). NH turned in an impressive financial performance to back its innovative practices. In the financial year that ended in March 2005, the hospital turned in 20 percent profits before provisioning for interest, depreciation and taxes (EBIDT) 24 . When contrasted with the biggest corporate hospital in the country that made 16.33 percent EBIDT during the same year 25 , this is an impressive showing from NH, an organization that works with the motto that ”none should be turned away because they can’t pay.” The business model was underpinned by cost minimization.

NH’s Response to the Challenge of Cost Minimization NH constantly worked to drive down unit costs. There were a few major factors that allowed NH to run leaner than its private counterparts: VOLUME A high volume of procedures is the basis of NH’s cost reductions, mostly attained with a high level of capacity utilization and staff productivity. Larger volumes of open-heart surgeries and catheterization procedures everyday allowed the medical team to decrease the cost of each surgery. Facility use was increased through a shift system wherein the operation theatres

23

Interview with Dr. Devi Shetty

24

Interview with Sreenath of NH

25

Apollo Hospital website available at www.apollohospitals.com/Reports/cons_mar06.pdf

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worked longer hours. This enabled the hospital to provide more care to more patients. This was not the case in hospitals in countries such as the UK where elective surgeries were performed only during the day shift with the operating theater effectively utilized for only about six hours. PROCUREMENT High volumes of patients and procedures enabled NH to have stronger purchasing power for their medical supplies. An interesting aspect to its purchasing practice was to eliminate longterm contracts and to bargain with suppliers every week. This also brought down their inventory carrying costs and reduced scope for opportunistic behavior by suppliers. Appendix F shows the distribution of costs with consumables being the largest expenditure, and supplies were closely monitored and bought in bulk on a weekly basis. NH had brought down its prices by almost 35 percent since it started procurement. It did not purchase much medical equipment, opting instead to lease; NH paid only for the reagents needed for the equipment. The high volumes allowed the suppliers to make enough of a profit to enter into such partnerships. INNOVATION NH also constantly works on technological innovations to bring down costs. In one instance, it brought down the cost of ECG (Electro Cardio Grams) machines from US$750 to less than $300. NH unbundled the software and hardware costs of the ECG machine and had its own software company write the software to read the data from the machine into a PC. NH gave this software for free to anyone that wanted to use it and didn’t charge any licensing fee. In another instance, NH collaborated with Texas Instruments (TI) to develop a digital X-Ray plate based on a product that was going off-patent in 2004. The original product cost was a whopping US$82,000 and the product NH and TI developed on this expired patent was only US$300. NH did not plan to profit exclusively from this innovation as Dr. Shetty was quoted in a magazine article: “We will give these to government hospitals. They save on film and won’t need a radiologist.” 26 PARTNERSHIPS Partnerships included the one with Texas Instruments for technology that will bring down cost of patient monitoring (under development), as well as a partnership with government for health insurance schemes (e.g. Yeshaswini explained later in the case). In partnership with Biocon Foundation and a private company called ICICI Lombard Ltd, NH launched an insurance scheme in 2004 to cater to low-income patients. The scheme was known as “Arogya Raksha,” and it required individuals to pay Rs 15 (approximately US$3) per month, and the individual was insured for 1,650 types of surgeries. Their caregivers were the rural hospitals run by both the government and other charitable organizations where they got three days of inpatient care for free and paid half the price for outpatient services. Biocon

26

Viswanathan, Vidya (2005), “Heart Care for Everyone,” Civil Society, Vol. 3, No.3, December

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Foundation set up a generic drug shop where it sold drugs 20 to 30 percent cheaper to their members. 27 HUMAN CAPITAL MANAGEMENT Staff retention and recruitment was a major challenge for NH. It used continuous training programmes to promote specialists and other medical staff from within its staff pool to keep costs down, while providing a growth path for its staff. Nursing had an especially high turnover rate. Training programs were developed to try to retain nurses. Intensive training with critical-care experience aside NH also started a nursing college to ensure constant supply of qualified nurses at relatively lower costs. Financial help in the form of loans from banks and government subsidies encouraged people from poorer communities and remote areas to study and train to be nurses. NH, on its part, assured them job opportunities. The training in cardiac nursing was intensive and included six months in the critical care unit at NH. The hospital did recognize that their nurses were in good demand both in India and abroad and viewed it as an opportunity for nurses that left to make higher salaries overseas. It adopted a policy of paying higher wages for a core group of nurses to retain them and filling up the remaining need by a continuous flow of incoming batches from its own training institution. All of the cost minimization strategies were designed to facilitate improved access to cardiac care for the poor. NH also developed innovative ways to do this.

NH’s Response to the Challenge of Access to the Poor Affordable health care services address one key barrier for the poor, however, making it physically accessible raised another challenge. The solution was innovated by NH with mobile vans, telemedicine and overseas outreach programs. These programmes are described below. ACCESS FOR POOR PATIENTS AT NH Once a poor patient reaches the hospital, they are met by the front office staff that counsels and guides them through the, otherwise intimidating, process of assessment, lab work, cost estimation and funding. Figure 2 illustrates the process. In line with its mission, NH didn’t turn anyone away from getting care at NH. There were no barriers, financial or otherwise, to getting an appointment with NH doctors. Most beds were filled by the working poor whose payment was based on what they could afford while the rest of their care was taken care of by NH through its charity unit and donations from wealthy patients. With this combination of economic counseling, charity and donor money, NH had also treated several poor patients free of cost. Approximately 3.3 percent of its patients fell into this category, while 84 percent of its patients received some form of discount. In most

27

“Three Organizations to launch Arogya Raksha”. The Hindu. 2 December. 2004

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cases, the poor came to NH through a referral from one of the mobile outreach vans, the telemedicine program, or rural and town clinics that serviced the Arogya Raksha members or the overseas outreach program. MOBILE OUTREACH VANS Mobile health clinics were designed to help the rural poor gain access to health services. Two mobile units were donated by K. Dinesh, a founding director of Infosys (a leading Indian software multinational). One operated in the state of Karnataka (of which Bangalore was the capital), and the other operated in West Bengal. With these, NH organized outreach camps for cardiac diagnosis and care. Each bus carried the necessary equipment including ECG machines, defibrillators, echocardiography equipment and other essential cardiac care equipment. The vans also carried a generator to counter the problem of infrequent power supply. One experienced cardiologist and two technicians capable of performing echocardiograms ride in each mobile health van. The screenings are done at no cost to the patient. Local charitable associations, such as religious missionaries and Rotary Clubs, help organize such medical visits to distant places at regular. They provided publicity and volunteers for helping with patient counseling. Any patient needing further treatment was then advised to go to the main hospital, NH, where necessary surgical procedures were often provided at cost or with help from the charity trust of NH. While no counseling with respect to the cost of procedure was provided to the patients, NH doctors always left them with the impression that lack of adequate funds would not prevent them from getting the necessary care at NH. TELEMEDICINE As soon as NH was created, Dr. Shetty reached out to state governments and the central Indian Satellite Research Organization (ISRO) to use modern telecommunication technology to increase the access of cardiac health care to the poor in rural areas. The project had two hubs: one in Bangalore (at NH), and the other was in Kolkata, located at AHF’s Rabindranath Tagore International Institute of Cardiac Sciences (RTIICS). Cardiologists at these two institutions use satellite technology, ISDN lines and broadband internet to read patient reports, interact with patients in a video conferencing mode and offer free consultations. NH operated telemedicine mainly through three different networks (see Figure 3). The first was the Coronary Care Unit Network. This network consisted of hospitals or CCUs in semiurban and rural areas; these were both government and charity-run hospitals where NH trained and placed doctors and staff to provide cardiac care and treat cardiac emergencies. NH also equipped each CCU with beds, ECG machines, defibrillators, ECHO machines and video conferencing equipment for telemedicine. Doctors at CCU referred patients to NH/RTIICS. There were 17 CCUs operating in 2006. In the second instance, the state government in Karnataka supported the idea and opened up its hospitals in all of its 37 district headquarter towns so that NH could train local doctors in cardiac screening. In this tele-consultation network, patients reported to participating remote hospitals with cardiac symptoms. Local doctors completed the initial screenings. The patients

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then set up consultations with the NH cardiologists. Unlike the CCU, there was no diagnostic or other cardiac treatment facility that was available in these remote hospitals. The first round of consultation with cardiologists from NH/RTIICS was done over the satellite network. Scheduling for patient consultations was set up ahead of time, and the remote hospitals sent data to the cardiologist at NH before the tele-consultation appointment. After seeing the patient over the satellite video link and associated data, the cardiologists, if needed, would recommend that the patient get a surgery done at NH/RTIICS. A typical tele-consultation lasted for 15 to 20 minutes. In the third instance, NH established a Family Physicians Network of TTECGs (Electro Cardio Grams that were transmitted online). In this network, private independent general practitioners got an ECG device and free software from NH that ran on a standard PC. The general practitioner (GP) paid a nominal fee for the device. Patients’ ECGs were transmitted via the internet to NH from the doctors’ offices and within ten minutes, a Photo 1: Telemedicine being practiced at Narayana Hrudayalaya. Bangalore (Source: NH) cardiologist report was provided to the GP. NH provided this service free of cost. Several GPs then referred their patients to NH for surgical procedures. The telemedicine network also included other hospitals and clinics both in India and overseas where NH doctors provided expert advice. This was not a dominant route through which NH looked to increase its patient arrivals. NH’s telemedicine centre was also linked to a clinic in Kuala Lumpur, Malaysia, a children’s cardiac facility in Mauritius, and also to a medical school in Germany. Accessing patient data via satellite saved time and enabled Dr. Shetty to provide his medical expertise to more patients. General physicians were able to bring in their patients online to get medical advice and follow-up care with Dr. Shetty. Only those needing further interventions for treatment were brought in from the district clinics to the main hospital. Working with other hospitals and providing free consultations allowed more patients to receive faster care. NH shared its telemedicine technology, including the custom software that was developed specifically for the program with other hospitals that needed them. NH made this software freely available to other hospitals, on the condition that the latter offers free patient consultations.

Health Insurance: Yeshaswini Scheme (YS) An insurance program was created in 2003 to further increase the accessibility of healthcare for the poor. It was designed in partnership with the government and public healthcare facilities, as well as with the NH group of hospitals. Unlike the Arogya Raksha scheme that was administered by a general insurance company, YS was a self-funding scheme that was Case Study • Healthcare for All: Narayana Hrudayalaya, Bangalore

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owned and administered by NH. The genesis of this idea came to Dr. Shetty when the Karnataka Milk Federation (KMF), which was a milk producers’ cooperative, wanted the cardiac surgeon to be featured in the promotion of KMF’s fat-free skim milk. Dr. Shetty had one condition, if he were to be part of the promotion. The condition was that the Federation should enroll all its members, numbering close to two million, in a low-cost insurance program that he was planning for helping the poor pay for surgeries. Dr. Shetty believed, based on his experience and research elsewhere, that about 0.08 percent of the people that he would be enrolling would require surgery and, hence, the scheme could fund itself. NH started YS in various rural cooperative sectors where for a monthly minimal payment of around Rs 5 or about US$0.11, poor people gained access to free treatment for screening, checkups and diagnoses, in at least 150 hospitals in 29 districts of the state of Karnataka. Initially, the hospitals were skeptical. However, when they realized the demand-generating potential of the scheme, several hospitals came forward and accepted a negotiated rate card put out by the scheme’s administrator for various surgeries. This enabled poor people to have access to procedures costing up to US$2,500. The first scheme was started to provide dairy farmers and rural residents in Karnataka access to care at lower costs. The initial funding came from the insurance fees themselves, which were collected upfront. The local post offices were used as the collection agencies for such fees. 1.7 million rural farmers, who were members of the milk cooperatives, were insured at a cost of 11 cents per month. In the first seven months of insurance, 5,000 farmers underwent various surgeries; 23,500 were treated as outpatients (these farmers may not have had access otherwise). 17,000 free consultations across 60 rural telemedicine centers resulted in 5,000 in-patient procedures. 2,991 lives were saved due to the administration of throbolytic therapy through telemedicine in remote areas in one representative month. Hospitals which otherwise would not have had any of these members visit for any care, are seeing more patients without additional costs. The scheme has been widely publicized, and there has been an increase in the number of people gaining access to medical care (see Appendix G for growth in enrolment for YS and Appendix H for procedures done under YS).

Development impacts PROVIDING HEALTHCARE TO LOW-INCOME PEOPLE Patients served by NH have shown a steady increase: between 2001 and 2006, monthly inpatients have multiplied by four, while monthly outpatients have multiplied by more than ten (see Appendix B). In October 2006, the hospital saw 9,567 outpatients and treated 1,608 inpatients. From 2001 to May 2007, NH performed over 23,000 surgeries and 34,000 catheterization procedures. The hospital has subsidized poor patients to the tune of US$2.5 million, which benefited close to half of all the patients that came to NH for treatment.

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CARING FOR CHILDREN Nearly 40 percent of NH’s surgical operations are performed on children (see Appendix I for number of pediatric surgeries). NH’s high volume of pediatric patients has established them to be the largest cardiac care center for children in the world. The nursing care, from highly trained staff, is a twenty-four hour, seven days a week operation. To support high quality care, an individual nurse monitors each pediatric patient in their own separate nursing bay Photo 2: Pediatric ICU at Narayana stations, each of which are supported by Hrudayalaya (Source: NH) complicated monitoring equipment. Each child is taken care of by three nurses, in three shifts. 40 out of 70 surgeries done every month on kids were subsidized for underprivileged children.

Challenges for expansion and future plans The use of communication technology, charitable donations, large patient volume, innovative use of existing hospital space, enterprising purchasing of bulk drugs and medical equipment, and initiating medical training programs to ensure a constant supply of trained medical staff have all been the main variables in the success of the NH enterprise. One major barrier for growth that remains is the overly bureaucratic public sector. Since its inception, NH has asked for various types of assistance from the government including financial incentives, tax subsidies, resources for medical training centers, or public land for constructing newer medical facilities. While positive media exposure and public awareness of NH has increased government supporting areas, such as low cost insurance, the actual help needed from the government was not forthcoming. For instance, several key imported components that went into consumables such as heart valves attracted hefty duties and stood in the way of NH’s mission of achieving low-cost cardiac care. There were several regulatory hurdles in the way of beginning new colleges to train doctors and nurses. This hindered NH’s expansion plans. Despite the fact that NH was set up in a region where there had been a boom in the information technology industry (i.e. Bangalore), it did not expand into the healthcare sector, which had the potential to provide even greater employment and economic growth. NH’s future plan includes setting up a full-fledged healthcare hub called the “Health City” with a 100-acre campus. As a first step, it was building a 780-bed cardiac hospital with 30 operation theaters capable of delivering 75 heart surgeries per day. The Health City project will have other specialty hospitals and training institutions and was targeted to have 5,000 hospital beds when completed in 2008. For the first time, NH was building an oncology hospital in the Health City with a US$2.5 million grant from the Biocon Foundation. An eye hospital, an orthopedic unit, and research facility, apart from education and training Case Study • Healthcare for All: Narayana Hrudayalaya, Bangalore

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institutions, were also planned on the campus. Driven by the goodwill generated by Dr. Shetty, NH is confident that they will meet the funding requirement from private investors and philanthropists. From its inception, NH had also focused on developing its academic and training infrastructure. Dr. Shetty is hopeful that NH will soon be recognized by the University Grants Commission (UGC) that is at the apex of the Indian university regulatory system. “The UGC has short-listed our organization and we are waiting for the formalities to give us the status of Deemed University, which will allow us to conduct our own training programs and offer the Degree,” summed up Dr. Shetty 28 .

Conclusion Dr. Shetty, in a recent presentation at Harvard Medical School, said that poor people are weak when they are alone but have a lot of power when together. He successfully used this notion to craft a business model that focused on the strength of large numbers to drive down costs in all aspects of cardiac healthcare. He followed an economic model that was quite distinct from that of the west. For instance, western hospitals spent 60 percent of their revenue on salaries, while NH spent only 12 to 13 percent under that heading. NH tirelessly innovated, bargained and lobbied to bring a new hope for the poor into the Indian healthcare scenario. Several developing nations approached NH for collaboration in healthcare. Several state governments from India also took note of NH’s success and started to reach out to NH for setting up cardiac hospitals and creating health insurance schemes. This is only the beginning, as the Indian healthcare sector needed many more NHs before 2012 to keep its population healthy.

28

Dr. Shetty’s letter to the lead case writer dated 17 May 2007

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References Apollo Hospital, website. Available at www.apollohospitals.com/Reports/cons_mar06.pdf FICCI. Presentation of the FICCI-Ernst & Young Report. 2007. “Opportunities in Healthcare: ‘Destination India.’” Available at www.ficci.com/media-room/speechespresentations/2007/jan07/ExecutiveSummaryReport.pdf. The Hindu. “High cost: A hurdle to coronary heart surgeries.” 10 September 2003. The Hindu. “Three Organizations to launch Arogya Raksha.” 2 December 2004. Hutchison, Jim. “King of Hearts.” Reader’s Digest. February 2004, pp.18. Kanwar, Onkar S. 2007. Global Healthcare Conference speech. FICCI (a Federation of Indian Companies), New Delhi. January 2007. Available at www.ficci.com/media-room/speechespresentations/2007/jan07/WelcomePresident.pdf. Knowledge @ Wharton. 2005. “Taking India’s Pulse: The State of Healthcare.” 30 March 2005. Available at http://knowledge.wharton.upenn.edu/article.cfm;jsessionid=a830a655d0f448561485?articleid =1111&CFID=14378119&CFTOKEN=72958985&jsessionid=a830a655d0f448561485. Konan, Prabhudev. 2006. “Opinion: The Healthcare tourism conundrum.” The Hindu. 24 November 2006. Ministry of Health & Social Welfare and Registrar General of India. Available at http://indiabudget.nic.in/es2004-05/chapt2005/chap109.pdf and www.ita.doc.gov/td/health/india_indicators05.pdf. “Interview: India’s Heart-Throb Surgeon”. New Scientist. 2 February 2002. United National Development Programme. Human Development Report 2006. Available at http://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_IND.html. Viswanathan, Vidya. 2005. “Heart Care for Everyone.” Civil Society. Vol. 3, No.3. December 2005.

Interviews Mani, Lakshmi. In-charge, Philanthropy. 17 November 2006. Singh, Vijay. Telemedicine Unit. 17 November 2006. Case Study • Healthcare for All: Narayana Hrudayalaya, Bangalore

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Shetty, Devi. Chairman, Narayana Hrudayalaya. October 2006. Sreenath. Manager, Finance, NH. 17 November 2006. Vasuki. Manager, Communication, NH. October 2006 and 17 November 2006.

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Appendix A: Healthcare Infrastructure in India (2004) Hospitals

15,393

Public

4,049

Private

11,344

Hospital beds

875,000

Doctors

592,215

Nurses

737,000

Dentists

80,000

Medical Colleges

170

New doctors each year

18,000

Retail chemists outlets

350,000

Source: US International Trade Administration. Available at www.ita.doc.gov/td/health/india_indicators05.pdf

Appendix B: Growth of inpatients, out-patients, and surgical procedures at NH Average Monthly Cath Procedures

Average Monthly Inpatients

Average Monthly Outpatients

Average Monthly Surgeries

2001-2002

354

823

153

176

2002-2003

602

905

228

281

2003-2004

855

1282

298

393

2004-2005

1014

1733

357

411

October 2006

1608

9567

480

732

Year

Source: Narayana Hrudayalaya

Case Study • Healthcare for All: Narayana Hrudayalaya, Bangalore

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Appendix C: Source of earnings for NH in a typical month Rs Million

US$ Million 29

Percentage

Out Patient Department

7.25

0.161

8%

Cath

22.71

0.505

25%

Cardiac surgery

48.32

1.07

53%

Neurosurgery

2.88

0.064

3%

General surgery

1.54

0.034

2%

7.87

0.175

9%

Miscellaneous income

0.18

0.004

0%

Total

90.75

2.02

100%

CCU

30

& Other charges

Source: Narayana Hrudayalaya

29 30

US$1 = Rs 45 CCU: Critical Care Unit

Case Study • Healthcare for All: Narayana Hrudayalaya, Bangalore

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Appendix D: Distribution prices charged for open-heart surgery in a typical month Price in INR

Number of surgeries at that price

40,000

1

55,000

1

60,000

156

65,000

26

68,000

1

70,000

2

75,000

9

80,000

3

85,000

14

90,000

4

95,000

26

96,000

1

99,000

8

100,000

5

105,000

13

110,000

126

125,000

1

140,000

2

150,000

53

195,000

1

205,000

11

250,000

1

Source: Narayana Hrudayalaya

Case Study • Healthcare for All: Narayana Hrudayalaya, Bangalore

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Appendix E: Revenue source for NH Revenue source

Percentage

Individual

68%

Corporate

22%

Funds

31

9%

Source: Narayana Hrudayalaya

Appendix F: Distribution of spending for NH in a typical month Rs Million

US$ Million

Percentage

Consumption

34.98

0.78

39%

Prof. Fee and Salary Finance cost (interest & principle)

26.29

0.58

29%

9.65

0.214

11%

Rent

0.00

0.00

0%

Electricity

3.25

0.072

4%

Other Expenses

12.73

0.283

14%

Profit (after EBIDT)

3.85

0.086

4%

Total

90.75

2.02

100%

Source: Narayana Hrudayalaya

31

Sourced by philanthropy

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Appendix G: Yeshaswini Insurance Scheme (2003-2006)

Number of individual members 32

Year 2

Year 3

1.65 Million

2.15 Million

1.47 Million

1.80 Million

35,814

50,174

52,892

91,853

9,039

15,206

19,072

11,747

674

1,036

1,847

n/a

Rs.5/person per

Rs.10/person per

Rs.10/person per

month

month

month

Number of medical consultations Number of surgeries Number of heart surgeries

Rs.5/person + Premium amount

Year 4

Year 1

Rs.2.5/ person by the Govt./month

(as of Oct. 2006)

Source: Narayana Hrudayalaya

Appendix H: Procedures done under Yeshaswini in a typical month Yeshaswini Surgeries

163

Angiograms

250

Total

313

Source: Narayana Hrudayalaya

Appendix I: Distribution of procedures by adult vs. pediatric in a typical month at NH Adult

Pediatric

Cardiac surgery

156

105

Cath

419

30

Neurosurgery

21

5

General surgery

36

28

Ophthalmology

20

0

Source: Narayana Hrudayalaya 32

Approximately 25% women

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Figure 1: Organizational Chart

Chairman

Front Office

Chief Operating Officer

Medical Superintendent

Doctors

Board of Directors

Nursing Staff

Director

Director

Finance

Medical

Human Resources

Public Relations

Paramedics

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Figure 2: Flow diagram depicting the processing of a poor patient at NH*

First level screening by NH OPD or Telemedicine or family physician

Billing staff assess the cost of the package based on the

Usually patient gathers Advice to go to NH for heart surgery

as much money as he can and reaches NH

Registered patients go for tests and screening

Pays

Rs

(US$7.5) registration fee

surgeon’s remarks and money

300 as

available for discount on a given day

Billing

staff

assess

the

Shortfall

amount

is

Donors

pledge

the

patient’s ability to pay; counsel

assessed and the patient

amount of shortfall for

on any government concession

turned over to the charity

individual patients or

or relief that may be available for the patient

wing to find donors to make up the short fall

the charity wing chips in from its endowment funds from donors

Surgery performed

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Figure 3: Telemedicine Network of NH

Telemedicine Network of NH

Coronary Care Units (CCUs) • Government and charity hospitals in semi urban areas • Staffed by NH • Equipped with diagnostic equipments • Tele-consultation • Patient referral to NH

Tele-consultation Network • Remote government hospitals in district headquarter towns • Basic screening • Detailed tele-consultation • Invitation to NH

Case Study • Healthcare for All: Narayana Hrudayalaya, Bangalore

Family Physicians Network • General Practitioners provided with free ECG software • ECG transmitted to NH over internet • Free consultant report from NH within 15 minutes through internet • Potential patient referral to NH for surgery

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September 2007 The information presented in this case study has been reviewed and signed-off by the company to ensure its accuracy. The views expressed in the case study are the ones of the author and do not necessarily reflect those of the UN, UNDP or their Member States. Copyright @ 2007 United Nations Development Programme All rights reserved. No part of this document may be reproduced, stored in a retrieval system or transmitted, in any form by any means, electronic, mechanical, photocopying or otherwise, without prior permission of UNDP. Design: Suazion, Inc. (N, USA) For more information on Growing Inclusive Markets: www.growinginclusivemarkets.org or [email protected] United Nations Development Programme Private Sector Division, Partnerships Bureau One United Nations Plaza, 23rd floor New York, NY 10017, USA

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