5. Business model of Narayana Hrudayalaya

5.1 ORGANIZATIONAL STRUCTURE

Dr. Devi Shetty’s family, through the NH PRIVATE LTD of which Dr. Shetty was the Chairman, owned NH. He was assisted by a board of directors, and the organization had a functional structure with the medical and finance departments each headed by a Director.

Thus, all of the management of the hospitals was consolidated under a Chief Operations Officer (COO). NH also minimized administrational roles for all operational staff, including nurses. NH considered patient arrival a key area, and staff with special training handled new patients and appropriately counseled them as they arrived for treatment. This department also liaised with the philanthropy cell to better coordinate patient receipts.

Led by Dr. Shetty, NH had a team of close to 100 world-class surgeons and cardiologists on staff who was motivated by a shared vision of serving the needy. They were all trained at the finest of world hospitals such as the Mayo Clinic, Harvard Medical School, and University of Massachusetts, Guys and other British hospitals, and hospitals in Australia

Dr. Shetty also had a similar team in Kolkata, and in both Bangalore and Kolkata they had another level of administration that supported the top layer. NH was very conscious of the need for succession planning at its hospitals

Organization structure chart

5.2 WELCOME CAPACITIES AND MARKETING STRATEGY

In November 2006, the hospital marked the completion of 30,000 procedures since its inception and performed 27 heart surgeries in a day, which was globally the second highest number of surgeries performed in a single facility in one day.

Growth of inpatients, out-patients, and surgical procedures at NH

The doctors were all dedicated to the mission of the hospital and were not responsible for bringing in patients. NH had built a strong rural network in both the southern, eastern and north-eastern parts of the country through its outreach and telemedicine facility that constantly fed NH with patients

Dr. Shetty had built a tremendous reputation for himself and NH that also translated into patient arrivals from several countries. Also, NH had established linkages with small-time family physicians that also referred patients to NH.

Doctors’ remuneration was competitive, and they had discretion to provide discounted treatment for the poor. Each doctor could also recommend a certain amount of discount based on their assessment of each patient’s needs and availability of funds for that day

The doctors worked in ten to twelve hour shifts, while the staff rotated in three shifts to cover patients twenty-four hours per day, every day. The operation theaters opened at 6 a.m. and surgeries were performed even as late as 8 p.m.

STPSegmentation- NH segments the market according to the demography, income etc.Target- the target population for NH is the low income families which are not able to afford expensive hospitals for critical ailments like heart surgery etc.

NH is also targeting the NRI and other foreign nationals who looks for satisfactory medical surgeries at low prices.Positioning- NH has positioned itself as the medical institution which aims at providing quality critical medical surgeries at lowest prices, and even free to the segment of population which dies because of non affordability of fees of private hospitals in India.

4PProduct- services including open heart surgery etc.Price- Much lowers comparable to other private hospitalsPlace-Southern part of IndiaPromotion- word of mouth, consultancy by private doctors

5.3 Financial StructureA key ingredient of NH’s business model was keeping costs low for the poor. They did this by using several schemes including low-cost insurance schemes such as Arogya Raksha (in the private sector) and Yeshaswini (in the cooperative sector). The poor had to pay very low premiums and had access to the same state-of-the-art facilities that were available to others paying higher rates.

The NH business model also included philanthropy. It hoped that its provision of high-quality cardiac care and social missions to provide affordable treatment for the poor would influence others to underwrite the cost of surgeries by donating to the foundation. This was found to be successful as both patients and non-patients, through word-of-mouth, poured in close to US$1 million every month. “We treat about 3.3 percent of our patients without accepting any fees while ten percent of cases receive substantial support,” said Lakshmi Mani, the person responsible for running NH’s philanthropy wing. This did not include the lower fees that the staff determined for poor patients based on their needs.

Over 50 percent of NH revenue came from heart surgeries while nine percent came from Coronary Care Unit (CCU) charges, and eight percent of revenue came from outpatient fees.

Source of earnings for NH in a typical month

The average price realization, after taking into account the flexible prices that NH charged for different patients, for heart surgery in a typical month was US$2,300 (please see Appendix D for distribution of price); the break-even cost was about US$1,800. NH’s revenue stream was sourced from a mix of corporate (patients whose employers or insurance companies paid for the surgery) and individual customers.

Sources of funds

In the financial year that ended in March 2005, the hospital turned in 20 percent profits before provisioning for interest, depreciation and taxes (EBIDT)24. When contrasted with the biggest corporate hospital in the country that made 16.33 percent EBIDT during the same year25, this is an impressive showing from NH, an organization that works with the motto that ”none should be turned away because they can’t pay.” The business model was underpinned by cost minimization.

6. NH’s Response to the cost minimization

NH constantly worked to drive down unit costs. There were a few major factors that allowed NH to run leaner than its private counterparts:

6.1 VolumeA high volume of procedures is the basis of NH’s cost reductions, mostly attained with a high level of capacity utilization and staff productivity. Larger volumes of open-heart surgeries and catheterization procedures everyday allowed the medical team to decrease the cost of each surgery. Facility use was increased through a shift system wherein the operation theatres worked longer hours.

This enabled the hospital to provide more care to more patients. This was not the case in hospitals in countries such as the UK where elective surgeries were performed only during the day shift with the operating theater effectively utilized for only about six hours.

6.2 ProcurementHigh volumes of patients and procedures enabled NH to have stronger purchasing power for their medical supplies. An interesting aspect to its purchasing practice was to eliminate long-

term contracts and to bargain with suppliers every week. This also brought down their inventory carrying costs and reduced scope for opportunistic behavior by suppliers

NH had brought down its prices by almost 35 percent since it started procurement. It did not purchase much medical equipment, opting instead to lease; NH paid only for the reagents needed for the equipment. The high volumes allowed the suppliers to make enough of a profit to enter into such partnerships.

Distribution of spending for NH in a typical month

6.3 InnovationNH also constantly works on technological innovations to bring down costs. In one instance, it brought down the cost of ECG (Electro Cardio Grams) machines from US$750 to less than $300. NH unbundled the software and hardware costs of the ECG machine and had its own software company write the software to read the data from the machine into a PC. NH gave this software for free to anyone that wanted to use it and didn’t charge any licensing fee.

In another instance, NH collaborated with Texas Instruments (TI) to develop a digital X-Ray plate based on a product that was going off-patent in 2004. The original product cost was a whopping US$82,000 and the product NH and TI developed on this expired patent was only US$300. NH did not plan to profit exclusively from this innovation as Dr. Shetty was quoted in a magazine article: “We will give these to government hospitals. They save on film and won’t need a radiologist.”

6.4 PartnershipsPartnerships included the one with Texas Instruments for technology that will bring down cost of patient monitoring (under development), as well as a partnership with government for health insurance schemes (e.g. Yeshaswini explained later in the case). In partnership with Biocon Foundation and a private company called ICICI Lombard Ltd, NH launched an insurance scheme in 2004 to cater to low-income patients. The scheme was known as “Arogya Raksha,” and it required individuals to pay Rs 15 (approximately US$3) per month, and the individual was

insured for 1,650 types of surgeries. Their caregivers were the rural hospitals run by both the government and other charitable organizations where they got three days of inpatient care for free and paid half the price for outpatient services.

6.5 Human capital managementStaff retention and recruitment was a major challenge for NH. It used continuous training programmes to promote specialists and other medical staff from within its staff pool to keep costs down, while providing a growth path for its staff.

Intensive training with critical-care experience aside NH also started a nursing college to ensure constant supply of qualified nurses at relatively lower costs. Financial help in the form of loans from banks and government subsidies encouraged people from poorer communities and remote areas to study and train to be nurses. NH, on its part, assured them job opportunities.

The training in cardiac nursing was intensive and included six months in the critical care unit at NH. The hospital did recognize that their nurses were in good demand both in India and abroad and viewed it as an opportunity for nurses that left to make higher salaries overseas

It adopted a policy of paying higher wages for a core group of nurses to retain them and filling up the remaining need by a continuous flow of incoming batches from its own training institution.

Components of Internal analysis leading to Competitive advantage and Strategic competitiveness to Narayana Hrudayalaya

7. NH’s Response to challenge of access to the poor

Affordable health care services address one key barrier for the poor; however, making it physically accessible raised another challenge. The solution was innovated by NH with mobile vans, telemedicine and overseas outreach programs

7.1 Access for poor patients at NHOnce a poor patient reaches the hospital, they are met by the front office staff that counsels and guides them through the, otherwise intimidating, process of assessment, lab work, cost estimation and funding.

Flow diagram depicting the processing of a poor patient at NH

7.2 Mobile Outreach vans Mobile health clinics were designed to help the rural poor gain access to health services.

With these, NH organized outreach camps for cardiac diagnosis and care. Each bus carried the necessary equipment including ECG machines, defibrillators, echocardiography equipment and other essential cardiac care equipment. The vans also carried a generator to counter the problem of infrequent power supply.

One experienced cardiologist and two technicians capable of performing echocardiograms ride in each mobile health van. The screenings are done at no cost to the patient. Local charitable associations, such as religious missionaries and Rotary Clubs, help organize such medical visits to distant places at regular.

They provided publicity and volunteers for helping with patient counseling. Any patient needing further treatment was then advised to go to the main hospital, NH, where necessary surgical procedures were often provided at cost or with help from the charity trust of NH.

7.3 TelemedicineAs soon as NH was created, Dr. Shetty reached out to state governments and the central Indian Satellite Research Organization (ISRO) to use modern telecommunication technology to increase the access of cardiac health care to the poor in rural areas. The project had two hubs: one in Bangalore (at NH), and the other was in Kolkata, located at AHF’s Rabindranath Tagore International Institute of Cardiac Sciences (RTIICS). Cardiologists at these two institutions use satellite technology, ISDN lines and broadband internet to read patient reports, interact with patients in a video conferencing mode and offer free consultations.

NH operated telemedicine mainly through three different networks (see Figure 3). The first was the Coronary Care Unit Network. This network consisted of hospitals or CCUs in semi-urban and rural areas; these were both government and charity-run hospitals where NH trained and placed doctors and staff to provide cardiac care and treat cardiac emergencies. NH also equipped each CCU with beds, ECG machines, defibrillators, ECHO machines and video conferencing equipment for telemedicine.

In the second instance, the state government in Karnataka supported the idea and opened up its hospitals in its entire 37 district headquarter towns so that NH could train local doctors in cardiac screening. In this tele-consultation network, patients reported to participating remote hospitals with cardiac symptoms. Local doctors completed the initial screenings.

In the third instance, NH established a Family Physicians Network of TTECGs (Electro Cardio Grams that were transmitted online). In this network, private independent general practitioners got an ECG device and free software from NH that ran on a standard PC. The general practitioner (GP) paid a nominal fee for the device. Patients’ ECGs were transmitted via the internet to NH from the doctors’ offices and within ten minutes, a cardiologist report was provided to the GP.

Portor’s 5 forces with reference to NH