The World's Largest Heart Factory
Leveraging Scale
But how does Shetty do it? The answer lies in what he likes to call his “Wal-Mart approach to healthcare”. Wal-Mart proved that with size, the cost of inputs could be challenged. “They had the size which let them dictate terms to anyone starting from a giant like Procter & Gamble to potato growers,” he says.
Shetty relentlessly pursues Wal-Mart’s dictum of “everyday low prices”. Only that potato growers have been replaced by pharmaceutical companies and medical equipment manufacturers, who account for almost 40 percent of a hospital’s revenue outflow.
Here’s how it works: Most catheters sold in India by multinationals, for instance, are not manufactured by them. But the original equipment makers don’t sell directly to hospitals unless they get sufficient volumes. Narayana Hrudyalaya has the volumes: It handles 30 heart surgeries and at least 1,000 walk-in patients a day. It was able to convince them to supply at a low cost.
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Image: Gireesh G V for Forbes India
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Dr Devi Shetty's Narayana Hrudyalaya in Bangalore uses economies of scale to keep the cost of treatment low | |
Scale helped Shetty shave off costs of medical tests too. Take blood gas analysis. At Rs. 350-400 per test, it forms the bulk of the cost for an ICU patient in India. At Narayana Hrudyalaya it costs merely Rs. 8.50 per test!
How? “Most hospitals do just 20, 30 tests in a day. We do about 2,000,” says Shetty. He used that to persuade manufacturers to merely “park” their machines in the hospital and instead make money from selling chemical reagents for the tests. It’s a win-win: Narayana Hrudyalaya saves on the cost of these machines (Rs. 12-15 lakh each) and the manufacturer does Rs 50,000 worth of business selling reagents every month.
Unlike other hospitals that make most of their money through in-patient care (procedures and operations), Narayana Hrudyalaya makes the bulk of its profits in the out-patient department (OPD) — just through registrations and investigations such as ultrasounds and X-rays.
The logic is simple. “At the OPD level, every person can afford to pay Rs 200-300. When he needs treatment that will cost Rs. 2-3 lakh, that is when he expects help,” says Reddy. “Today the revenue point for every hospital is in-patient services, which give a margin of hardly 8-10 percent while our margin in the out-patient is 80 percent,” adds Shetty. “So you try to get huge numbers of out-patients.”
But to get so many people to the OPD, you need a sound value proposition. “Patients will come to you provided your in-patient cost is affordable — if you are doing a heart operation for Rs. 60,000-70,000, or a brain operation for, say, Rs. 10,000. So you reduce your in-patient cost,” says Shetty.
Each evening, Shetty and his team of senior doctors examine a profit and loss account for the day. If they go below their average realisation benchmark of Rs, 95,000 the next day they prefer patients who can pay more. Also, Shetty searches for ways to save — he got his microbiology department to make hand-wash and disinfectants in-house, bringing down the monthly cost from Rs. 4 lakh
to Rs. 50,000.
Practicing Quality
‘Specialisation’ is his mantra to ensure quality even as costs are driven down. “We train technically skilled people for a particular job,” says Shetty. So each surgeon specialises in doing only bypass surgeries or valve replacements or paediatric surgeries. That gives them phenomenal experience.
Shetty does something else to cut costs. Every ICU patient has dedicated nurses watching over him, 24 hours a day. They work eight-hour shifts, standing in front of the patient. Shetty doesn’t provide chairs: “The moment you provide a chair, the efficiency of the nurse goes down by at least 30 percent.” He encourages attrition among them: “As they grow older, they don’t contribute as much to patient care, but their salary keeps going up.”
To keep salary costs low, he hires people with basic college education and trains them for jobs like reading radiology charts.
Going forward, the biggest challenge for Shetty is how to make sure all this doesn’t remain a one man show, and get the same quality. “That means enormous commitment to training and recruitment,” says Prahalad.
Shetty is clear that the new facilities will be run by people who have perfected their skills at Narayana Hrudyalaya so that there’s no cultural mismatch. It is already running 49 training programmes and the plan is to turn it into an academic institution. “When you have an academic institution as a hospital, the succession plan is already in place,” he says.
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