Health

Delinking health from wealth: Business model innovation transforming Indian healthcare

September 29, 2010

Asia

September 29, 2010

Asia
Our Editors

The Economist Intelligence Unit

_____________________

When Devi Shetty was training as a heart surgeon in the 1980s, he was taught that healthcare is expensive. Some day, his tutors told him, everyone would grow rich enough to afford it.

But, as an Indian national living in a country with hundreds of millions of destitute and poor, Dr Shetty realised he couldn’t afford to wait. His countrymen needed health today, at prices they could afford, not in 50 years’ time when India had grown rich.

“We need to disassociate healthcare from wealth,” he says. “They’ve done it with mobile phones, where even the poor can afford them now. The same has to happen with health.”

Over the past few years, Dr Shetty has set out to achieve exactly that, introducing radical innovation into the way that healthcare is financed, taught and delivered. Along the way, he has pioneered microinsurance plans for poor farmers, has applied the production line techniques of Henry Ford to cardiac surgery and has brought sophisticated healthcare to millions of low-income Indians.

His base is the Narayana Hrudayalaya hospital in Bangalore, where he has built a 25-acre health city that houses numerous hospitals catering to heart surgery, cancer treatment, organ transplant, eye-care and other conditions. The principle behind all of them is to employ economies of scale and specialisation to slash the costs of providing healthcare. The heart hospital, for example, has 1,000 beds (compared with 160 in an average American hospital) where Dr Shetty and a team of 40 cardiologists perform 600 operations every week. (The cancer hospital has 1,400 beds.)

The sheer number of patients, and the narrow specialisation of the surgeons, means they quickly become experts—Dr Shetty has performed more than 15,000 heart operations. The scale of the operation drives down the cost, especially as the heart hospital shares central facilities such as administrative services, laboratories and a blood bank with the other hospitals. The cost of open heart surgery at the facility is around US$2,000, against costs of at least 10 times as much at a hospital in the US, and with success rates that are as good, if not better.

Nonetheless, even US$2,000 is too much for most Indians, and so Dr Shetty has also devised innovative insurance programmes for the poor in Karnataka state that enable them to use his hospitals. Starting eight years ago, he teamed up with a local cooperative of dairy farmers, selling microinsurance to its members for 11 US cents per person per month, with the premiums deducted every time a farmer sold his milk. He persuaded the local government to chip in a further 7 cents for each member of the scheme.

Today, it has 3m insured members and 400 hospitals across the state where those on the scheme can access health services, with no cash payments required. The funding arrangement has changed slightly, with policyholders now paying 22 cents per head and the government acting as a reinsurer if claims go above a certain threshold. He is also in the process of rolling out similar insurance schemes in other states such as Andhra Pradesh and Tamil Nadu.

Dr Shetty uses politics to get the schemes off the ground, always naming each scheme after a local politician looking to get re-elected. Come election time, it’s a highly popular move among voters to roll out an affordable insurance scheme that is part-funded by the government. “Politicians do the right thing for the wrong reason and we use that,” explains Dr Shetty. “I’m optimistic the whole country will adopt this model in a very short time because of the popularity it creates for politicians.”

While these schemes all require private contributions from the people taking on the insurance policy, Dr Shetty believes that the costs of healthcare need government support. However, when it comes to the delivery of health services, he is adamant that private businesses operating in a competitive market do a much better job of driving down cost and improving efficiency. With that in mind, Dr Shetty has ambitious plans to build many new health cities across India, and is hoping to expand from 5,000 beds today to 30,000 beds by 2015.

“Indonesia is a poor country with a big population just like India. It should do the same things we have done,” he advises. “Introduce microinsurance plans run by the government where the people pay tiny amounts each month. Then build medical cities to provide the services they need. These hospitals will need to have at least 3,000 beds each, otherwise you can’t get the costs low enough. Finally, the government will need to invest in hundreds of new training colleges for doctors and nurses to staff these health cities.”

Enjoy in-depth insights and expert analysis - subscribe to our Perspectives newsletter, delivered every week