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2011

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Learning From Narayanas Lean Model to Scale Services

So really, the healthcare problem of India as I see it is in its volume. Of course there are hundreds of other problems that are beyond
the scope of this blog post, but the sheer volume of patients who require immediate treatment is a critical and daunting challenge.
Our hospitals are small and hence the cost of treatment is exorbitant. The government hospitals are either ill-equipped or dont have
enough beds. The burden of quality health care is then passed on over to the private sector.

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One such sector that needs immediate attention is heart care. Heart operations by their very nature are one of the most expensive
operations in medical care and require incredibly well-trained sta. The private hospitals charge a fortune and work at a slow pace.
There is clearly supply demand gap here.
And this also means there is a tremendous opportunity.

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This is the challenge world-famous cardiac surgeon, Dr. Devi Shetty (treated Mother Teresa during her nal years) of Narayana
Hrudayalaya, took a decade ago when he opened his rst heart care hospital in Bangalore.
And since then the results have been phenomenal. Narayana currently performs more number of heart surgeries than most
hospitals in the world and is the highest in India by a huge margin. The mortality rate here is lower than the best hospitals in New
York. Backed by major investors such as JP Morgan and AIG (who own 25 percent of the hospital group), the Narayana hospital in
Bangalore and Kolkata are responsible for more than 12 percent of Indias heart surgeries.

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(Above: Dr. Shetty. Image courtesy of Narayana Hrudayalaya)

Dr. Shetty has been hailed as the Henry Ford of Heart care primarily due to this factory-style approach to heart care. However, a
Toyota analogy would be more apt, since what sets Narayana apart is its leanness.
What that means is a strict emphasis on standardization of processes, relying on core competencies (hence surgeons dont do any
administrative work and concentrate solely on surgeries) using the economies of scale to bring down the costs. This translates into a
nal cost which is nearly 40 percent of (turn to the appendix of page 20 for the entire tiered costing structure, data is from 2008)
other private hospitals.
Narayana has worked hard to drive down its per unit costs. Heres how it did it:

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Salaries of doctors
Instead of paying the doctor per surgery, which tends to be very expensive Dr Shetty pays his doctors competitive xed salaries
(senior doctors receive anywhere between 100,000-250,000 USD) and then urges them to increase the number of surgeries per day.
This helps bring down the cost per surgery.
Volumes
-Extremely high volumes. This is one of the major reasons why they are able to cross subsidize the costs of so many of their patients
(about 80 percent -plus receive some form of discount or other). The international cell ensures that there is a huge inow of
international medical tourists for whom the price arbitrage works out well.
-Because of increased number of shifts and higher number of specialized doctors, the operation theater is utilized for longer hours
contributing to high volumes.
More value per buck
Devi Shetty boasts about the tight monitoring that takes place, be it to oversee that their cost eective hospital designs are properly
constructed (more on this later in the post) or that they procure their supplies at a frugal cost without compromising on quality. NH
has very strong purchasing power for medical supplies due to its massive patient volumes. Innovations here include abolishing longterm contracts in favor of negotiating contracts on a weekly basis, and taking expensive medical equipment on lease rather than
purchasing it.
Partnerships
The hospital has major partnerships with the private and public sector organizations. Biocon Foundation set up a generic drug shop
where it sells drugs 20 to 30 percent cheaper to its members. Lots of microinsurance schemes with the Government of Karnataka
(Yeshasvini) and Tamil Nadu etc., which work on exible payments, have helped thousands coming from low-income groups to
procure NHs services. Apart from this, the hospital thrives on innovation-based partnerships, such as the one with Texas
Instruments. NH and Texas Instruments tied up to drive down the cost of equipments such as X-Ray plates (the cost was brought
down from 82000 USD to 300 USD).
Emphasis on Tier 2 Cities
Senior management at NH explained to me that ultimately Narayana Hrudayalayas aim is to penetrate fully into the growing tier 2
cities (for example Jaipur) and beyond. Getting doctors to operate here will be mainly through goodwill on their part, creating clusters
of hospitals where patients from one can be referred to another.
What are the challenges?
I gured with such an elaborate and aggressive plan on setting up more and more hospitals, NH would in the future face heavy
shortage in human resources. During a chat with one of the VPs of the institute, he agreed that was a major concern but the recent
move by the health ministry to establish new medical colleges (a 300 Million USD project) is one major reason why hes keeping his
hopes high. He also disclosed that managing the nursing talent is a bigger issue since their attrition rates tend to be higher.
Marketing is another vertical they plan to ramp up. So far most of marketing has been via community events, word of mouth and the
ocials agree that with expansion plans in place, the marketing of NHs services has to sync up.
Another key challenge for NH is the standardization of their process given that in the next few years there are going to be thousands
of Narayana Clinics and Hospitals. For an organization such as Narayana Hrudayalaya, its all about the processes.
Whats next?
Clearly bringing down the costs is always the rst agenda. Dr. Shetty is investing a lot in innovative practices that always thrive to
bring down the cost of surgeries. He is advising other countries to adopt his model.
While it started as a heart facility, Narayana Hrudayalaya is now expanding into various other medical branches. They have big plans
ahead to tackle cancer. In 2009 they opened a 1,400 bed cancer facility in Bangalore thanks to a generous grant of around 9 million
USD by Biocon head Kiran Mazumdar Shaw). They also have plans on having 500 new kidney care clinics. These kidney care clinics
through donors and innovations in healthcare will bring down the price of dialysis to Rs 400 (under 10 USD).
Narayana Hrudayalaya and Dr. Shetty believe that in a nation such as India where everything is larger than life, he believes that every
initiative of his needs to be massive and aordable. This is what drives their innovation and what helps them bring down the costs.

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