Narayan Hredyalaya Summary

Founded in 2001 by Dr.
Devi Prasad Shetty, NH had grown rapidly in four years to house 500 beds, 10 fully commissioned operating theatres (OTs), two cardiac catheterizatio n laboratories and its own blood and valve banks.1 The pediatric intensive therapy unit (see Exhibit 2) , which consisted of 50 beds, was one of the largest in the world with 40% of all procedures performe d at NH being pediatric treatments. Since its opening, the hospital had completed over 11,228 open-heart surgeries (OHS), half of which were pediatric. In 2004 alone, it performed 4276 surgeries, of which 1,467 were on children. To complement the surgeries, NH also performed 5,430 catheterizatio n procedures that year. In 2004, the proportion of patients who paid NH s full price to those that could not afford to pay, was about 60:40. See Exhibit 3 for a picture of the entrance foyer at NH on a typical day The break-even price for a typical OHS at NH was approximately Rs. 90,000 (US$2, 000) for adults and Rs. 130,000 (US$2,800) for children. At a price of Rs. 110,000 (US$2,400) fo r a regular package involving OHS (inclusive of surgery and hospitalization char ges), NH s charges were the lowest in the country where the average cost of OHS in a private hospital was Rs. 250,000 (US$5,500). At the upper end, patients who opted for executive wards paid Rs. 14 0,000 to 195,000 (US$3,100 $4,300); this package provided private rooms instead of general wards, although treatment and care across all packages was identical. In addition, the hospital offered a scheme called Karuna Hrudaya, which allowed financiallyconstrained patients to pay Rs. 65,000 (US$1,400) per OHS, with NH absorbing the remaining c osts. For patients who could not afford this package, the Narayana Hrudayalaya Trust, a charitable organization with offices within the hospital, helped to arrange funds from a ge neral corpus or by specifically seeking donations from a list of individuals and organizations With over 15,000 hospitals (the second highest number in the world) and nearly 6 00,000 physicians (the fourth highest number in the world), it appeared that India s heal thcare system was well equipped. However, the actual number of physicians per 1,000 population was only 0.5 (comparable to 2.7 in the USA) and since approximately 70% of doctors were locat ed in urban areas while the same proportion of the population still lived in the rural areas, actu al access to healthcare was limited by inconvenient and expensive travel. Given that less than 14% of the population was supported by health insurance, tr eatment was an option only for the rich or those able to borrow to pay the bill. A report by Mc Kinsey & Co. estimated
that the richest 7% in the country accounted for 30% of spending in private heal thcare and over 40% of inpatient spending, reflecting the skewed access to private healthcare With improving quality and technology at Indian private hospitals, the concept of medical tourism was spreading with an estimated 150,00 0 foreign patients receiving treatment at Indian hospitals in 2003 The volume of procedures completed allowed the unit cost of surgery to be significantly decreased. Dr. Shetty explained: While other hospitals may run two blood tests on a machine each day, we run 500 tests a day so our unit cost for each test is lower. And this works with all our processes. Also, because of our volumes, we are able to negotiate better deals with our suppliers. Instead of buying expensive machines [like other hospi tals], we pay the supplier a monthly rent for parking their machines here and then we pay them for r eagents that we buy to run the machines. . .and they are willing to do this because our demand f or the reagents is high enough to make up the profits for them. Careful dealing with suppliers also helped maintain low costs: We don t sign long-t erm contracts, explained Dr. Nitish Shetty, the medical superintendent who headed the hospital s administrative affairs. We negotiate every purchase because prices in India are v ery flexible and we don t want to be locked-in to use a supplier who suddenly becomes expensive. By kee ping the administrative team lean, NH also avoided the usual problem of corruption that p lagued other corporate hospitals where suppliers had to bribe administrative staff to reach t he purchasing manager, thus pushing prices higher. While the Calcutta hospital and NH had separate purchasing departments (the two hospitals were owned by different entities), there was enough communication between the two dep artments to increase their bargaining power. The hospitals enjoyed 30% 35% discounts on medica l supplies, the largest cost component, since they (together with two smaller units also owned u nder the banner of AHF6) made up approximately 10% of the cardiac care market in India. See Exhibit s 10 and 11 for the latest balance sheet and income statement of NH. In addition, NH embraced new technology as another way to reduce costs. Instead of performing chest X-rays with film that cost Rs. 50 and required processing, the hospital us ed digital X-rays that did not incur recurrent costs. The hospital had also implemented comprehensive h ospital management software for its operations, which helped maintain minimum inventory and allowed quicker processing of tests such advances were said to have increased the hospital s efficiency which in turn drove overall costs lower.
Armed with this vision, the team at NH set up a health insurance scheme for 1.7 million farmers and their families in Karnataka. Yeshasvini was launched in 2002 for farmers bel onging to various state cooperatives all farmers who had been members of a cooperative for at least a year were eligible to participate, regardless of their medical histories. For Rs. 5 (US$0. 11) a month, cardholders had access to free treatment at 150 hospitals in 29 districts of the state for a ny medical procedure costing up to Rs. 100,000 Yeshasvini was launched as a state program, with the government contributing Rs. 2.5 for every Rs. 5 paid by the farmers. By collecting the insurance fees upfront for a year, the Yeshasvini Trust (which was created to own the scheme) was able to minimize initial need for funds. Research by the NH team estimated that only 8% of the policyholders would require medical procedures, thus the tot al funds collected was expected cover the cost of treatment for those in need. In order to keep the upfront collection costs to a minimum, the State government made available the infrastructure of it s post offices (operated by the government) to collect the Rs. 5 premium, track monthly payment s, and issue a Yeshasvini member card. The initial task of getting the hospitals to participate a nd selling the idea

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