A Purpose-Built Hospital System

Devi Shetty was born in 1953 in the southwestern state of Karnataka, the eighth of nine children. His boyhood hero was South African surgeon Christiaan Barnard, who performed the first successful human heart transplant when Shetty was a wide-eyed eighth-grader. Shetty earned a medical degree at Kasturba Medical College in Mangalore in 1982 and then honed his skills at Guy’s Hospital, one of the premier teaching hospitals of Great Britain. He returned to India in 1989, at the request of some wealthy Indian patients, and quickly became known as one of the top heart surgeons in the country.

He also became known for his compassion. In Kolkata, where he met Mother Teresa, he cofounded the Asia Heart Foundation (AHF), which supported medical education and cardiac care for the poor. He also signed on as director of the B.M. Birla Heart Research Institute, where in 1992 he performed the first neonatal open-heart surgery in India. It was there that Shetty first refused to take money for heart surgeries on children whose parents couldn’t afford to pay.

“Health care is a human right,” Shetty often says, with the serene insistence he is known for. “Everyone, rich or poor, should receive the same quality medical treatment. We must disassociate health care from affluence.”

Fortunately, Shetty’s commitment to the poor and his talents in the operating suite are matched by his gift for raising money, because money for health care is in very short supply. In India, the government spends only about 1 percent of its GDP on health care. Participation in health insurance is low, and monthly per capita income is around $100. Not surprisingly, under these circumstances, the vast majority of cardiac conditions go untreated, this despite the fact that Indians are especially prone to coronary artery disease, which is the nation’s leading cause of death. About 2.5 million people in the country need heart surgery every year, but even in 2010 fewer than 100,000 people received it.

Shetty set out to change that, first by building more cardiac hospitals and attracting like-minded surgeons. Using private funds raised through the Asia Heart Foundation, Shetty helped launch the Manipal Heart Hospital in Bangalore in 1997 and, three years later in Kolkata, the Rabindranath Tagore Institute of Cardiac Sciences, a 150-bed hospital that quickly became the largest heart hospital in east India.

Shetty downplays the achievement. His years in the nonprofit space have taught him some lessons. “It’s not difficult to arrange for funds when your cause is noble,” he told New Scientist magazine in 2002, and while he appreciated the power of charity, he had also come to appreciate its crippling limitation.⁷ He put it this way in an Al Jazeera documentary on Indian hospitals: “Charity is not scalable. Irrespective of how wealthy you are, if you want to give away things free of cost, there is a definite amount you can give away. After that, you will become broke!”⁸

What did scale, he knew, was a business that earned a profit, and he was convinced he could find a market-based solution to delivering the much needed cardiac care. Shetty envisioned what he has called “the Walmartization of health care,” whereby high volume and relentless cost cutting would help lower prices and in turn drive growth, scaling up to reach “millions and millions of people.”

In 2001, Shetty got the chance to test his theory. His father-in-law, who owned a thriving construction company, fronted $20 million for the construction of a new, for-profit cardiac-care hospital on twenty-five acres of land adjoining Bangalore’s famous Electronic City. The family also agreed to provide any kind of support Shetty needed for equipment and medical supplies. Shetty penned a mission statement aligned with his vision of universal health care.

“We have a dream,” he wrote. “A dream of making sophisticated health care available to the masses, especially in a developing country like our own.”⁹

The mission statement didn’t mention Shetty’s determination to drive profits and growth by cutting the cost of heart surgery in half, but that intention was there from the beginning, too. Shetty, as the saying goes, has both a social heart and a business brain. Shetty’s ability to turn inspiration into profit paid off. In its first year, the two-story, 225-bed hospital posted a profit of 7.7 percent after taxes, ahead of the average 6.9 percent after-tax profit for hospitals in North America. Within four years, the hospital had grown to six stories, ten operating suites, and 500 beds.

Key to the positive performance is Shetty’s pricing model. Rich patients, who typically elect to stay in private rooms, pay more than poor patients, who recover in the public wards. The profit on the amenities helps subsidize care for the poor. Everyone is happy because the total base price for open-heart surgery is so much lower than at other private Indian hospitals. In 2017, the bundled price for patients paying full price was $2,100, including all tests and care, no matter how complicated the case, and about half of the patients paid less than that—some paid nothing at all (see table 3-1).

To accommodate the growing patient loads in the early 2000s, Shetty recruited ninety cardiac surgeons and cardiologists, many of whom had trained at Mayo Clinic, Harvard Medical School, and other world-class teaching institutions, and all of whom shared Shetty’s sense of purpose. At Narayana’s flagship hospital in Bangalore, most are paid a fixed salary, commensurate with the pay at other Indian hospitals. There are no bonuses, incentives, or fees for services. Dr. Shetty inspires a culture of hard work, excellence, compassion, and service to others.

The surgeons came to Narayana, and almost all of them stayed, Shetty says, for the same reason he did: They believed in Narayana’s commitment to quality health care for all. “Purpose is even more powerful now than it was ten or twenty years ago,” Shetty told us. “That’s because today health care can do amazing things. People who we would have declared dead fifteen years ago we can operate on today and can almost guarantee that they’ll go home and have a normal life.”

Process Innovation through Task-Shifting

When patients are being wheeled into a Narayana operating room, they probably don’t know that the lifesaving procedure they are about to undergo was modeled, in part, on the assembly line at Toyota—something Devi Shetty sees as a point of pride.

“Japanese companies reinvented the process of making cars. That’s what we’re doing in health care,” he told The Wall Street Journal. “What health care needs is process innovation, not product innovation.”¹⁰

The process innovations that Shetty implemented in his operating rooms allow Narayana surgeons to do three operations in the time it takes surgeons at other hospitals to do one. That is not because the surgeons are especially speedy. It is because every motion in the operating suite is choreographed to reduce turnaround time and optimize pay grades.

For example, in Narayana hospitals, all equipment is cleaned and sterilized outside the operating suite. Clean sets of equipment are kept at the ready in dedicated equipment rooms. As soon as one procedure is finished, the contaminated instruments and drapes are wheeled out of the operating room and a fresh set is wheeled in. According to Raghuvanshi, this change alone has freed up from forty-five to ninety minutes of operating time per suite per day.

Other changes involve who does what. In general, higher-paid senior surgeons do little or nothing that can be done by less-skilled staff. For example, in routine heart surgeries, a junior surgeon opens the chest and harvests a vein from another part of the body for grafting, and then moves on to the next patient to perform the same tasks.¹¹ A senior surgeon then performs the high-skill, critical procedures on the first patient and moves on to the next, while a different junior surgeon comes forward to close the chest. The entire procedure is supervised by junior surgeons and nurse intensivists, highly trained nurses who earn more than ward and surgical nurses but less than junior surgeons. Outside the operating suite, paramedical staff perform almost all pre- and postop tests. This kind of strategic task-shifting helps Narayana get the most out of its scarcest resource: highly skilled surgeons. As a result, at Narayana total employee costs, including doctors’ salaries, make up barely 40.5 percent of revenue, compared with 60 percent in Western hospitals.¹²

At Narayana’s multispecialty hospital in Mysore, task-shifting is taken even further. There, post-ICU care is provided by an intensely devoted support team that is paid nothing at all: family members.

In India, the entire family comes to the hospital with the patient. The family members typically spend three days at the hospital while the patient recovers. Anxious about their loved one, they were previously underfoot but powerless to help.

Narayana decided to put those family members to work tracking vital signs, changing dressings, feeding the patient, cheering on physiotherapy, and watching for signs that the prescribed anticoagulant drugs were working properly. Families get their training from a four-hour video curriculum, some of it delivered in the form of a sappy but irresistible soap opera that holds the families spellbound. The practice of training families for in-hospital postoperative care not only frees up the nursing staff for other work but also eases the transition to reliable, high-quality home care, reducing readmissions by 30 percent.¹³

Task-shifting at Narayana saves time and money, promotes teamwork, and increases productivity. Raghuvanshi and Shetty believe it also improves the quality of care. Take surgery, for example. “When we talk about assembly line,” Raghuvanshi told us, “we mean that the main part of the surgery is done by the senior surgeon and the noncritical part is done by somebody else. But there is no compromise on quality. In fact, quality improves, because the senior surgeon may not be interested in putting stitches on the skin, whereas technicians whose job is only to put the stitches on the skin will do a really fine job. The outcome actually improves.”

Shetty highlights another advantage. “Surgery happens in three phases,” he has observed. “First, in a surgeon’s mind prior to the operation. Then, on the operating table, and then again in the mind, postsurgery, when the doctor evaluates how performance could be further improved. For other surgeons, the next opportunity for improvement is after a few days or weeks, but in our case, because of the numbers involved, it is the next day.”¹⁴

In other words, the deconstruction of tasks allows Narayana’s surgeons to evaluate critical skills constantly and put new insights to work immediately. Outcomes improve, even as the cost for the procedure goes down. As noted earlier, Narayana’s cardiac outcomes are excellent, even by US standards.

“We strive to provide the best quality at the lowest cost,” Raghuvanshi says. “That is what we mean by value. We call ourselves a value provider.”

A Culture of Frugality

Like Aravind Eye Care System, with its legendary frugality, Narayana looks at every cost component to see how it can be reduced dramatically.¹⁵ In the early days of the enterprise, Shetty operated on a shoestring, ever mindful that, as Raghuvanshi stressed, There is no money. At his flagship hospital in Bangalore, where the average daily high temperature is eighty-five degrees, he limited air-conditioning to the surgical suites. He negotiated pay-per-use contracts for expensive equipment like MRI machines. He ordered surgical gloves from Malaysia by the container load, and he developed a digital x-ray plate on an expiring patent, at less than 1 percent of the original cost.

As the enterprise has expanded, Narayana has been able to reap economies of scale. By 2012, Narayana had strengthened its negotiating position with suppliers by combining the sourcing for its hospitals in Bangalore and Kolkata as well as two smaller units. Together, these operations accounted for 10 percent of cardiac diagnostics and treatments in India—a market share sufficient to wrest a 35 percent discount on supplies. By May 2017, when Narayana controlled twenty-four hospitals and was contemplating still more, it had leverage even with multinational vendors whose equipment was both expensive and subject to high transportation costs.

“If you are a large-volume purchaser, you can get fantastic deals from the vendors both in terms of supplies as well as in your capital equipment,” Raghuvanshi says. “We work closely with the large vendors like Philips as well as GE. Because we buy, say, ten catheterization labs in a year, we get a very good deal.”

Narayana also began leveraging economies of scope. By 2012, Shetty was operating several multispecialty hospitals, including the Health City complex in Bangalore and the Multispecialty Hospital in Mysore. In these hospitals, several different medical services—e.g., cardiology, neurology, orthopedics, and oncology—were located in a single hospital or campus, where they shared key resources such as diagnostic departments, labs, blood banks, administration, and IT services. Intensive cross-utilization of these resources minimized unit costs.

“You run one service, you run twenty services—it costs the same,” Raghuvanshi points out. “Blood bank is one example. Laboratory is another. The more the utilization, the better it is, especially with automation in labs. If you put one hundred samples in or one thousand samples, the cost of the test is almost the same.”

Reaching Out with a Hub-and-Spoke Model

Shetty’s dream of making “sophisticated health care available to the masses” faced another big challenge: geography. While India’s cities certainly have many needy heart patients, the patients Shetty especially hoped to serve live in villages scattered all over the countryside. Unfortunately, open-heart surgery is not the kind of procedure you can perform in the countryside under a banyan tree. And impoverished villagers with broken hearts were not going to just appear on Narayana’s doorsteps. Unless Shetty found ways to reach out to them, they were going to die before they got any kind of care.

“Market creation,” economists call it. “Saving lives,” Shetty says.

In its early years, Narayana conducted mobile outreach camps. The camps were funded by the Asia Heart Foundation and organized by local groups like Lions Clubs and Rotary Clubs. Every weekend Narayana would outfit two buses, each carrying three physicians, EKG machines, and emergency medical equipment, and dispatch them as far as eight hundred miles into the countryside. The buses went from village to village, and the doctors performed cardiac screenings on anyone who showed up. Minor issues were treated on the spot, usually at no cost, while serious conditions were referred to the hospitals in Bangalore and Kolkata.

Over time, the outreach camps evolved into cardiac-care units (CCUs), more permanent regional clinics that served as satellites and gateways for the urban hospitals, where greater expertise and expensive medical equipment were always available. The arrangement served both patients and providers. It distributed care to the doctor-starved villages, and it allowed Narayana to centralize its investment in talent and technology.

But the villagers they screened often didn’t make the trip to the city, because they could not afford the treatment when they got there. Narayana wasn’t making enough money yet to subsidize all their care, so Shetty had to think up a new plan. In 2002, when a milk cooperative in his home state of Karnataka approached him for a product endorsement, Shetty saw a very different opportunity.

On the one hand, Shetty knew that most of the 1.7 million members of Karnataka’s farming cooperatives could not afford medical care. On the other hand, he knew that (largely for this reason) many hospitals in the region had very low occupancy rates, about 35 percent. Insurance could solve the problem, and the cooperative was big enough to spread the risks involved. Shetty took his numbers to the co-ops’ administrators and persuaded them to set up a microinsurance scheme called Yeshasvini, which was launched in 2003.

For only five rupees, or about eleven cents, a month, members of Yeshasvini could get free treatment at 150 hospitals for any procedure whose cost did not exceed $2,200. Yeshasvini turned out to be good for everyone: It improved the health of the co-op members, it filled local hospital beds, and it generated business not only for Narayana but for other specialty hospitals across southern India. In the first twenty months of coverage, 85,000 farmers received medical treatment of some kind. About 22,000 had surgery, of those 1,400 had heart surgery. For each heart surgery, which then cost about $1,500, the heart hospital received $1,200 from the insurance fund. By 2017, Yeshasvini had four million members and eight hundred network hospitals across the state, and the plan had subsidized more than 100,000 heart operations. And while the premium had climbed to twenty-two cents a month, the obvious success of the plan had persuaded half of the Indian states to launch similar programs.

What is noteworthy here is not only Shetty’s ability to think outside the operating suite and not only his understanding of the power of networks, but that his vision of health care is entirely patient-centered and that the value he creates flows from his calling to service.

Digital Medicine: Technology Takes the Lead

For a man with an old-fashioned devotion to service, Shetty has a very modern enthusiasm for cutting-edge technologies. In fact, the Narayana operation has been tech-driven from the outset. In 2001, for example, Shetty persuaded the Indian Space Research Organization to share its communications satellites so Narayana could connect its hub hospitals in Kolkata and Bangalore to nine rural-based critical-care units housed in government hospitals. Ten years later, he replaced that network with a better and cheaper technology: Skype.

In 2017, Narayana’s vendor list reads like a who’s who of high-tech firms. Oracle supplied its cloud-based enterprise-resource-planning (ERP) system. Hewlett-Packard designed its cloud-based mobile health units. Cisco supported its virtual diagnostics system. Its portable ECG machines were made by Schiller, the German diagnostics giant, and its patient data system was delivered on Apple iPads.

“The thing that addresses the problem of poverty in this world is going to be technology,” Shetty told us. “Technology gives rich people what they have always had, just in a better format. But it will give poor people what they could never even dream of. It will make this industry very, very efficient. I believe it will reduce mortality and morbidity by at least fifty percent.”

Take those portable ECG machines from Schiller, for example. They are hand-held devices that can help detect coronary heart disease, irregular heart rhythms, and heart failure in the field. They aren’t sophisticated, but they are effective and very inexpensive—so inexpensive that in 2017 Narayana could afford to deploy them in nearly two thousand villages. There, minimally trained technicians could turn on a machine, administer the test, and transmit the readouts electronically to a hospital hub for analysis.

“They can do the ECG on anyone who complains of chest pain, and the ECG would come to our center in Bangalore, and in about ten minutes our cardiologist would send back a report,” Shetty says. “We get eight hundred of these ECGs every day, and they diagnose a significant number of heart-attack patients.” The system is not intended to recruit patients, Shetty says, but rather to reduce medical costs, because the earlier a condition is detected the easier it is to treat through monitoring, lifestyle changes, medication, or minor surgical intervention.

The use of technology in the hub hospitals is equally impressive. Narayana’s ERP system, which took more than a year to design and another year to implement, connects all of Narayana’s hospitals and provides them with 24/7 access to financial metrics, imaging, lab results, and other critical information. New hospitals could be added seamlessly and at little cost. In 2010, when many US hospitals were struggling with the very idea of keeping electronic medical records, Narayana’s system was already humming along, centralizing all patient data. Any physician seeking a second opinion could consult with specialists anywhere in the network, anytime, night or day.

That year, Narayana teamed up with Stanford Hospital and Accenture on a proprietary technology project that came to be called iKare. The goal was to reduce the number of physician consults at patients’ bedsides by developing “decision support software” that automatically considered treatment plans in the hospital room. Designed to run on iPads, the software updated patient records as soon as new data was entered, then analyzed the data and recommended any actions that could be undertaken by nonphysician staff. The software also issued medical alerts to appropriate staff when the information spelled trouble.

“The moment the parameters are haywire, the system generates a list of possible scenarios, along with possible solutions,” Raghuvanshi explains. “It saves thinking time and reduces medical errors.”

In 2017, iKare was running on iPads connected to all of Narayana’s ICU beds. When the system detected that a patient’s condition required a physician’s opinion and no specialist was available in the hospital, care providers turned to another high-tech support—the virtual diagnostics system Narayana developed with Cisco in 2016. That system enabled live video, voice, and data streaming from the ICUs directly to a physician’s home, a good solution for night coverage.

“The biggest problem we have scaling up critical-care services is the lack of intensivists to work around patients twenty-four hours a day,” Shetty says. “Cisco has an excellent videoconferencing system, and we use it all the time to do ICU rounds. Doctors can directly see the data on patients’ charts. It’s a game changer.”

Changing the Game

Here’s another game changer: Make doctors unnecessary.

Like many progressive health-care providers worldwide, Narayana has increasingly turned its attention from treating disease to preventing disease. It is certainly a more affordable solution. But Shetty wants to go a step further: to predicting disease. In 2014, Narayana began working with Hewlett-Packard to design twenty cloud-enabled, rapidly deployable eHealth centers: quasi-mobile, self-contained medical units that can be housed in shipping containers or installed in vacant buildings in the countryside. Each eHealth center is outfitted with diagnostic equipment and videoconferencing capabilities. Their main purpose is to deliver primary care in remote areas. But the diagnostic units can also be used to collect community health data in sufficient quantities for health workers to spot disease outbreaks early on, or identify risk factors that are elevated in local communities.

“A big idea is that you don’t need doctors,” says Raghuvanshi. “Health-care workers can assist patients and consult doctors from base units, but they can also use those units to understand disease demographics in particular geographies.”

Shetty says such efforts are just the beginning. As technology presents new possibilities, Narayana will pursue those possibilities as well. For example, in 2017 the company deployed self-help diagnostic kiosks in rural gas stations, aimed at truck drivers. It also developed an electronic-medical-records app for mobile phones. The idea was that whenever patients felt ill, wherever they were—at home, in their truck, at work, visiting family—they could send their records to their doctor, who could call back with advice on treatment. According to Shetty, from 70 percent to 80 percent of medical complaints could be resolved in this manner.

“Today, telemedicine is used by very few people,” Shetty observes, “but I can almost bet that within the next five to seven years almost all of these doctor clinics are going to disappear. Most patients will consult their doctor online using their mobile phone and videoconferencing.”

This kind of thinking has made Narayana a leader in telemedicine, not only in India but throughout the world. “We’ve been doing these things for fifteen years,” says Shetty. “Eventually, it will become the mainstream of medicine. We are making the building blocks for that transition, which will happen first in India. Then it will move to the Western hemisphere.”

Once again, Devi Shetty is thinking big. But he’s not just daydreaming. In fact, Mother Teresa’s man in Kolkata has already sent his medical mission abroad. In 2015, Narayana Health opened its own multispecialty hospital in the Western hemisphere—in the Cayman Islands, just 450 miles from Miami, a story we turn to in the next chapter.

The Promise of Reverse Innovation

The Indian hospital exemplars that we have profiled in these three chapters show us that even under extremely constrained circumstances, it is possible to deliver world-class health care at ultra-low prices. Their business model is based on five principles that are mutually reinforcing, and it applies equally to complex and simple medical conditions. It is also financially sustainable over time.

But is reverse innovation of these practices to other parts of the world possible? In developing countries that wrestle with doctor and equipment shortages, poverty, and self-paying patients, the answer is clearly yes. In fact, Aravind has already shared its innovative practices with more than 335 hospitals in India and twenty-seven other poor countries across Asia, Africa, and Latin America. Dr. Aravind Srinivasan, administrator of Aravind Eye Care, estimates that its best-practice evangelism group had helped such hospitals increase their annual treatment volume to more than 800,000 surgeries per year—twice Aravind’s own volume. LV Prasad has similarly helped dozens of centers and hospitals in India and abroad.

Several of the Indian hospitals also treat patients from other poor countries, especially in South Asia and Africa, a practice that led some of them to set up hospitals in those regions as well. The new owners of the Hyderabad-based Care group are looking to take its model to Kenya and Ethiopia. Narayana Health plans to open a 130-bed cardiac hospital in Nairobi and offer its services for 20 percent the price of those offered by local competitors. Similarly, HCG Oncology is setting up comprehensive cancer centers in East Africa, modeled after its Indian practice.

But what about developed nations, and specifically the United States, which is the focus of part 2 of this book?

For many years, while Indian patients shopped around for value, American patients were indifferent to price, because of third-party payment. While Indian exemplars developed hub-and-spoke networks, too many US hospitals became hubs with excess capacity and little specialization. For instance, in 2016, almost half a million people underwent open-heart surgery in the United States, versus only 100,000 in India, but the US volume was spread across so many hospitals that none (including Cleveland Clinic and Mayo Clinic) came close to matching Narayana’s volume of 14,700 cardiac surgeries that year. And even when US hospitals consolidate, they do so to gain bargaining power over insurance companies rather than to lower costs. Similarly, US hospitals do the wrong kind of task-shifting, by cutting low-cost staff jobs, which forces highly paid doctors to waste time on medical transcription, logistics, and billing. And frugality is the last thing on hospital administrators’ minds, as they build hospitals with the ambience of seven-star hotels.

Yet this cannot go on forever. US health care has crossed the point of financial unsustainability. In the coming decade, change is inevitable. In 2017, Medicare was already demanding that providers sign risk-sharing agreements involving capitation and bundled pricing—steps consistent with value-based competition. And as Medicare goes, so too will go private insurers, eventually. Therefore, the things that the Indian exemplars are good at—high quality, low cost, and access—will become much more important in the United States.

We turn next to the innovators who are already putting the Indian principles into practice in the United States.