OM Case Studies Assignment

NH & SWA Cases

Group No:8 Abhiskek Rajpoot PGP02.064 Avinash Agarwal Katneni Jaya Siva Krishna Jayadev Mithilesh Pathak PGP02.074 PGP02.086 PGP02.087 PGP02.093

Ramaiah Karumudi PGP02.105

Narayana Hrudayalaya Case

Question 1: Would you describe this heart hospital as successful? Explain why. Yes, we would term Narayana Hrudayalaya(NH)s operations as successful. Its operation strategy of delivering the highest quality of service at the lowest cost consistent with that quality, has been implemented successfully. Its success also lies in the fact that none of its competitors have managed to replicate the model at NH and their surgery price are almost double compared to that of NH. NHs surgery prices are very close to the break-even prices associated with those respective surgeries. These prices are shown in the table below:

NH even offers free surgeries and subsidies on surgeries for the economically backward through the profit it gets and also through the Narayana Hrudayalaya Trust. Even while offering Surgery procedures at such low prices NH has managed has always managed to earn profits and deliver high quality service to its patients from diverse economic backgrounds. It is also paying all its doctors and staff quite decently despite the low prices it charges. The Narayana Hrudayalaya model of operation has managed to ensure sustainable development and benefit for all the people involved. When Mr. Shetty started the hospital he aimed at reaching out to the masses without compromising on the quality and he has managed to achieve just that, so we can call his heart hospital as successful.

Question 2: If successful, what were the elements that made it successful? If not yet successful, what else should NH be doing? The huge success of Narayana Hrudayalaya (NH) can be attributed to the efficiency and innovation in its processes. It has been at the forefront of innovation in all its practices. As mentioned above NH followed the dual principle of highest quality at the lowest cost consistent with that quality. Dr. Shetty has left no stone unturned when it came to delivering quality to his patients. The operations drove the unit costs lower through a high level of capacity utilization and productivity. He called the strategy as Wal-Martization of health care. Dr. Shetty and his team leveraged their strong reputation in cardiac care to perform a high number of cardiac surgeries daily. They made 8 times more surgeries in a day than an average Indian hospital would do. It was even greater than the number of surgeries they do in a very good US hospital. The tables are shown below:

The volume of procedures completed allowed the unit cost of surgery to be significantly decreased. Also because of their huge volume of operations, they are in a good position to better negotiate deals with their suppliers. They hire expensive machines on rent rather than buying them. Even the suppliers are ready to lease them because they can get a good profit due to the huge volume. By not getting into long-term contracts, they are managing to keep the operations flexible and also they dont have to be locked in to use a supplier who suddenly becomes expensive. NH has also managed to curb corruption, which has plagued other corporate hospitals, by keeping the administrative team lean. NH has also embraced new technology as a means to cut costs. The hospital uses digital X-Rays for which there would be no extra expenditure on X-Ray films. The hospital has also managed to drive costs lower by implementing comprehensive hospital managing software for its operations, which helped it maintain minimum inventory and allowed quicker processing of tests. In India, the prescribed drugs make up a huge part of the operating expense. NH started using the cardio diabetes products introduced by Biocon Ltd., which were 80% cheaper than the market rate for similar medication. NH also offered a fixed pay to all its doctors and staff and not a percentage of the revenues they generated. The doctors also worked for longer hours and performed more operations to further cut down on the costs. NH always had a careful mix of paying and nonpaying patients. They had never refused a patient due to insufficiency of funds. The finance department also employed a unique- daily accounting system whereby all revenue and costs for the day were accounted for. In this way, they were able to gauge NHs immediate ability to fund below-cost surgeries. Telemedicine NH has also managed to reach out the rural poor by the way of Telemedicine. 9 CCUs were set up across India, equipped with all required tools, which linked to NH or the RTI (Rabindranath Tagore Institute), depending on proximity. The CCUs were handled by trained technical staff to operate the equipments. S.N. Informatics has developed a software by which the ECG images could be scanned and transmitted via a web connection. The CCU (Coronary Care Unit) service was provided free of cost, while the cost of setting up a CCU was funded by AHF (Asia Heart Foundation), as were the staff salaries and operation costs. It has taken ISROs help in transmitting quality video signals more reliably. Dr. Shetty is the man at the helm of affairs and is also responsible for all the changes. He also managed to reduce the cost of bone marrow transplants from the national average of Rs 1.2 million to Rs. 400,000 by leveraging the hospitals existing infrastructure. The blood bank which used to discard blood after 10 days of operation could now utilize blood upto 26 days after collecting in transplant procedures. By employing specialists in each field and performing high volumes of surgeries and by leveraging the underutilized common facilities, Dr. Shetty has managed to offer tertiary health care at below-average costs.

Question 3: Is the insurance scheme successful? Explain why. What are the challenges going forward? Observations: During the period where lot of corporate banks and hospitals started offering health insurance policies that are mostly for reachable to common man India, the cost and benefits associated with Yeshasvini insurance scheme tells us that it is a great boon to the common man. The same has been reflected in terms the subscription volume. Core Strengths: 1) Dr. Shetty has an established name in Karnataka for his work in cardiac care. 2) The demographic profile of the milk cooperative members, where he got access to clustered and organized group of middle to low income people, with poor access to healthcare 3) Government started contributing Rs 2.50 for every Rs 5 paid by the farmers, since it became very popular in farmers and increased utilization of government resources. 4) Research by the NH team estimated that only 8% of the policyholders would require medical procedures, thus the total funds collected was expected cover the cost of treatment for those in needthis research revealed excellent opportunity associated healthcare Insurance. 5) Operations costs are greatly reduced by using the government resources like post offices, for issuing membership card and colleting the monthly premium. 6) Its association to government has made it more successful, since People are more willing to trust government agencies. 7) Usage of Third party administrator, for daily operations and for coordinated payments to hospitals. This helps the trust and the Dr. Shetty to focus on core strengths, as non core activities are outsourced. 8) Move towards usage of Smart and Digitalized cards, to prevent fraud in using the scheme. Benefits: 1) 1.7 million farmers and their families in Karnataka have got access to quality healthcare. By just paying Rs Rs. 5 (US$0.11) a month, cardholders had access to free treatment at 150 hospitals in 29 districts of the state for any medical procedure costing up to Rs. 100,000. 2) Utilization of government infrastructure has helped in cost reduction to a great extant, since affordability is no longer an issue to the farmers. 3) As it is evident from the first year data, 35,000 members received outpatient treatment across the state. Majority of these members would have not received any treatment if this scheme was not available to them. 4) By early 2005, the scheme included a quarter of the cooperatives 10 million members 5) Plans to make this facility available for Teachers and a similar program to improve the purchasing power of farmers by forming communities of 200 families.

With all the above benefits, it is evident that Yeshasvini scheme, is a great success, as it improved the utilization of government resources and had healthcare affordable to common man.

Question 4: How should you advise Dr. Shetty regarding the three lines of business-the heart hospital, the health city, and the insurance scheme for the poor? Which should he pursue? Which, if any, should he drop? Is there anything else he should be doing? Observations: 1) We suggest Dr. Shetty to continue further with the heart hospital and health city plans. It is evident from the case that, the health city helps in increased utilization of resources associated to heart hospital. This helps in reduction of costs further, making tertiary health care affordable to all. 2) Although the insurance scheme, is not the core competency of the Narayana Hrudayalaya, it is evident from the case that, the noncore operations like administration and other works are outsourced. Hence only the initial task of getting the hospitals to participate and selling the idea to cooperative was left for the trust. We suggest to continue with the trust operations, as it is mutually beneficial to the hospitals (in improving utilization of resources) and also improves the brand name of Narayana Hrudayalaya (further helps in cost reduction). 3) We suggest the trust to expand further as mentioned in the case study, since it helps in achieving further economies of scale. 4) All these 3 lines of business are in line with Shettys ambition of making quality healthcare affordable to the masses at lowest costs with highest quality at one place. They are all unique models of excellent operational practices and are flourishing very well. Hence, they all the 3 lines of business should be pursued.