How India Got to Value-Based Health Care

At first glance, India seems an unlikely place to look for breakthrough innovations in health-care delivery. After all, India’s performance on many health metrics has been abysmal. Per capita spending on health in 2014 was just $75 (see table A-1 in appendix A). Physician density is less than one-third that of the United States and nurse density is roughly one-sixth. The infant mortality rate is almost seven times that of the United States and more than four times that of China. An estimated 63 million Indians live with diabetes and 2.5 million with cancer, but most of them will never be diagnosed with those illnesses, much less treated. Similarly, less than 5 percent of the annual 2.5 million Indians who need heart surgery will actually get it.¹

But certain conditions unique to India have bred a form of value-based competition in which a handful of organizations have found the key to delivering high-quality, ultra-low-cost health care for all who seek it. Value-based competition thrives in India because highly motivated companies have found opportunities in three daunting realities of the Indian socioeconomic context.

Reality #1: The Indian population is huge, poor, rural, largely uninsured, and price conscious. India has a population of 1.2 billion people, and 90 percent of them are poor and uninsured. Uninsured Indians can get care in a government hospital free of charge, but, barring a few exceptions, government hospitals are famous for being crowded and understaffed, for providing poor care, and for being fraught with corruption. The alternative, private hospital care, is too expensive for almost everyone in a country where the average per capita income is $2,000 and where people pay 70 percent of health-care costs out of pocket. Daunting? Yes. But seen through the eyes of opportunity, India has a vast, untapped market of price-conscious health-care consumers. It is the kind of place where visionary enterprises can find ways to offer high-quality, ultra-low-cost care.

Reality #2: India has to make do with a severe shortage of doctors and facilities. In per capita terms, India has far fewer doctors and medical facilities than the United States or even China. For example, India has nine hospital beds per 10,000 people, while the United States has thirty. India’s practitioner density is less than half that of China (see table A-1 in appendix A). And neurosurgery patients often wait a year for a bed in a public hospital.² But seen through the eyes of opportunity, India is ripe for innovations that make the most-efficient use of the country’s limited resources, thereby driving up the productivity of medical experts and facilities and increasing access for people who need care.

Reality #3: Indian health care is a wide-open industry. In the United States, there are many barriers to innovations in health care, including government regulations, the fee-for-service reimbursement model, powerful insurance and pharmaceutical lobbies, workers unions, an often protectionist doctor culture, certificate-of-need laws that prevent new entrants from competing against established providers, and the constant threat of medical-malpractice lawsuits. The Indian health-care industry is relatively unfettered by regulation. It operates like any other market: consumers pay for what they consume, seeking value for money, while suppliers compete for business with rival offerings. Seen through the eyes of opportunity, India offers a health-care environment in which value-based competition can flourish.

Poverty is a great motivator. It produces an intense pressure to create value. The Indian hospitals we write about in this book pursue innovations in every facet of their operations, with a determination that is hard to imagine in rich countries, where medical resources are plentiful and third-party reimbursement is the norm. In fact, it is India’s aching poverty that motivated many of the founders of our Indian exemplars to embark on their bold experiments in the first place. Readers will notice that these founders were typically medical doctors raised in India but trained in advanced countries, who wanted to bring modern medicine to the Indian masses. We call them doctorpreneurs, because they are part physicians, part entrepreneurs, and part philanthropists. (See the sidebar “India’s Doctorpreneurs” for brief profiles of those covered in our research.) Their goal was not to make money through health care but to put health care within reach of the greatest number of people. Profit made it possible to do that, but it was not the end objective.

Now let’s take a closer look at the five principles of the breakthrough business model of health-care delivery practiced by the Indian exemplars.

Principle 1: Pursue an Inspiring Purpose: Quality Health Care for All

The most striking commonality across the Indian exemplars is an inspiring purpose—a conviction that high-quality health care should be available to all, rich and poor, regardless of ability to pay. In most cases, this has meant giving free health care to people who couldn’t afford even the ultra-low prices charged by the exemplars.

Aravind Eye Care System’s stated purpose is to “eradicate needless blindness.” At LV Prasad Eye Institute, it is “to create excellent and equitable eye care systems that reached all those in need.” At LifeSpring, a maternity hospital for the urban poor, it is to make “dignified maternity care accessible.” HCG Oncology aims to be a “leader in oncology care in South Asia, making high quality cancer care accessible by adopting global innovations.” All of the hospitals have similar missions that stress the triple aim of quality, affordability, and access.

That commitment appears to put them in the same class as many well-meaning NGOs, but the exemplars have another commitment that sets them apart: they are determined to be financially self-supporting. This means that after providing high-quality care to all and free care to many, they have to balance their books. The exemplars know that charity is not scalable. They know that to sustain their operations they have to be more efficient and more productive than other hospitals, so that the margins from paying patients can be used to subsidize the care of others. And for that, the exemplars have to drive down costs while improving quality. In short, they have to innovate like no one has innovated before. We think they have achieved breakthrough innovations because everyone in these organizations, including the rank and file, is inspired by the respective organizations’ purpose. Everyone understands that a penny saved is a penny that can be used to help another poor patient. The founders of these hospitals each have the proverbial social heart and business brain—the key qualification for doctorpreneurs.

To translate their purpose into action, our hospitals have to do three things. First, they have to convert the need for health care into actual demand for health care. Second, they have to target everyone—not just the rich, and not just the poor, but both—and then realize synergies from serving these dissimilar segments to make a profit. Finally, they have to turn that profit back into their pursuit of purpose. Let’s look at each of these three imperatives in turn.

Turn need into demand. This is harder than it might seem. Many of the needy patients the hospitals hope to serve live in the remote reaches of India, so the exemplars first have to find them, then educate them about their medical conditions, and then let them know that many health solutions are within their reach. The hospitals know that nonmedical expenses like lost wages and transportation often keep poor patients from seeking even “free” medical care in the cities, so they reach out to the villages and support patients when they need treatment elsewhere. Aravind, for example, runs two thousand rural “eye camps” each year, and also offers poor patients free transportation to the specialty clinics and hospitals, as well as free surgery, room and board, medications, and follow-up visits.

Outreach is geared toward prevention as well as early detection. HCG Oncology, founded in 1989 as India’s first private, for-profit cancer hospital, was by 2017 South Asia’s largest cancer-care network. Because smoking is the leading cause of cancer, HCG Oncology designs programs, based on principles from psychotherapy and nutrition, to motivate people to quit.

As demand for medical treatment has grown, the hospitals have had to expand supply, which means dealing with a perennial shortage of doctors, nurses, equipment, space, and operating capital. The exemplars have responded with various strategies: they invest heavily in training doctors, nurses, and paramedical staff and even in manufacturing their own critical supplies, such as medical devices, lenses, instruments, or medicines.

Target everyone, rich and poor alike. To make their business models work, the exemplar hospitals need rich patients, those who are willing to pay market prices—and more, for premium amenities such as private rooms, air-conditioning, and television. Those patients expect truly excellent care, and they get it, for a price that subsidizes care for the poor.

This rich-poor dynamic may sound like a modern-day version of Robin Hood, but it is far from it. Like Narayana Health, these hospitals charge their paying patients 20 percent to 40 percent less than other private Indian hospitals do, partly to compensate for the fact that the facilities are not exclusively for the well-to-do.

The arrangement works to the benefit of all, because the same high-quality care that is demanded by rich patients is available to everyone. At the same time, the exemplars’ mission to serve the poor forces them to lower their own costs dramatically. The poor increase volume, which improves the quality of outcomes for all, including the rich. It is a perfect match up: rich and poor create value for each other, and the hospitals become high-quality, ultra-low-cost players.

View profit as a means to an end. It might seem that the twin goals of serving the poor and making money are incompatible. After all, the more poor patients a hospital treats, the more money a hospital would be expected to lose. But Indian exemplars manage both to serve the poor and make money, for the following three reasons.

First, free or subsidized care actually contributes to profitability. When a hospital commits to serving all, rich and poor, it has to dramatically reduce its costs, because there is no other way to serve the poor and be financially viable. In other words, serving the poor drives cost innovation to levels that would be unimaginable otherwise. In fact, the exemplars achieve unit costs much lower than those in so-called profit-maximizing hospitals. Second, the high patient volume, which wouldn’t exist without poor patients, enables the hospitals to achieve full utilization of resources such as equipment capacity and salaried-surgeons’ time. That optimization drives the fixed cost per unit to levels far below that of other providers. Finally, poor patients also put inordinate pressure on the hospitals to reduce variable costs. Let’s say a hospital manages to serve poor patients with little or no increase in fixed costs—for example, by getting machines and doctors to work more efficiently, so that two patients can be processed in the time that other hospitals take to process one paying patient. Such a hospital would still incur the full variable cost for each poor patient, so our exemplars doggedly innovate to reduce variable costs to levels that hospitals serving only the well-to-do could never match.

In short, the exemplars’ purpose to serve the underserved motivates them to innovate to achieve the ultra-low-cost position that in turn boosts profit margins on the paying patients and allows the hospitals to serve more poor people. Purpose drives these enterprises, and profit enables them to achieve their purpose. Profit also means that the hospitals don’t have to depend on fickle sources of funding—such as government subsidies, charitable contributions, or bank loans—to balance their books.

Of course, it takes more than a noble purpose to produce results. It takes disciplined execution and constant experimentation. This is exactly where the Indian exemplars excel, as the next four principles demonstrate.

Principle 2: Configure Assets in a Hub-and-Spoke Design

Over time, each of the hospitals we studied has evolved into a system of hubs and spokes. That structure helps the hospitals reach India’s underserved patient populations, most of which live in villages and towns far from major urban centers, and also helps them to direct all patients to the appropriate level of care. In most cases, the hub hospitals were built first, in dense urban centers, where the exemplars assemble the scarcest talent and house the most expensive and sophisticated equipment. One by one, spokes were added in outlying villages and towns. The spokes, staffed by more widely available talent and outfitted with less-expensive equipment, treat patients with less-serious or -urgent conditions, and send those requiring higher-level diagnosis and treatment to the hub. Unlike suburban outposts of urban hospitals in the United States, the spokes are not miniature hubs, attempting to treat all things for all patients. Rather, they are gateways, focusing mainly on diagnosis, routine treatment, and follow-up care.

HCG Oncology has three hub hospitals in major cities, including a center of excellence in Bangalore, and it has twenty spoke hospitals oriented around those hubs. The hubs provide radiation, medical, and surgical oncology, while most spokes provide only radiation and chemotherapy treatments but no surgeries. Similarly, LV Prasad Eye Institute has a five-tiered “pyramid” model extending up from the village level through small towns and major urban areas and ultimately to its lead hospital in Hyderabad. (See the sidebar “LV Prasad Eye Institute’s Five-Tiered Pyramid.”)

There is a good reason that the hub-and-spoke configuration has been adopted by every exemplar: it works. It allows them to capture a high volume of patients and to put that volume to work to lower costs and improve quality. Let’s see how they do it.

Principle 3: Leverage Technology

Our Indian exemplars see technology as a means to extend their reach, lower cost, and improve quality of care. Generally unencumbered by legacy investments or practices, they leverage technology to offer telehealth services across their hub-and-spoke networks, facilitate home care for the chronically ill, reduce the cost of critical supplies and equipment, and build information systems and electronic medical records across their organizations. In doing so, they take advantage of India’s considerable capabilities in frugal innovation and software development. Let’s see exactly what they do.

Promote telehealth services. HCG Oncology has built a telemedicine network across its hub-and-spoke system that allows doctors in the hubs to efficiently and economically serve patients seeking care at the spokes. Hub specialists can read medical images and design radiation treatment plans remotely. Unless expensive equipment, complex tests, or in-person consultations with superspecialists are required, patients can get care closer to their homes. This lowers their nonmedical out-of-pocket expenses (lost wages during time away from work, the cost of travel, and room and board), the kind of expenses that often deter poor patients from seeking even “free” care. Indian hospitals are highly sensitive to the total cost to the patient, factoring in not just medical expenses but also collateral nonmedical costs. Telemedicine dramatically lowers the cost of treating patients.

Support home care for chronic conditions. Some Indian hospitals encourage patients with chronic conditions to get treatment at home rather than in costlier outpatient facilities. One interesting example is Deccan Hospital’s practice of encouraging home-based peritoneal dialysis instead of the hospital- or clinic-based hemodialysis that is more common in the United States (see the sidebar “Deccan Hospital’s Home-Based Renal Care”). In 2017, the annual cost of Deccan’s home-based treatment was about $8,200, roughly 9 percent of the cost of outpatient hemodialysis in the United States ($89,000), yet the five-year survival rate for Deccan was better than that of the US average for hemodialysis: 50 percent versus 41 percent.¹⁷

Engineer cheaper, locally manufactured supplies. Several of the Indian hospitals have developed cheap local substitutes for expensive imported supplies and devices. In the 1980s, when the intraocular lens (IOL) used in cataract surgery was introduced in the West, lenses cost $200 apiece—a price that was unaffordable for all but a very few affluent patients in India. Aravind signed a technology-transfer agreement with an obscure Florida firm and created its own manufacturing operation called Aurolab, which made IOLs for $5 apiece.¹⁸ By early 2013, the price had dropped to $2, and the lab had expanded its product line to include rigid and foldable IOLs as well as low-cost sutures, blades, other ophthalmic consumables, and equipment for eye surgery. In 2017, Aurolab’s low-cost supplies were being exported to 120 countries.²⁰

Similarly, Care Hospitals’ founder helped develop stents priced between $240 and $360 whose performance was comparable with that of imported stents costing between $2,000 and $3,000. Care Hospitals subsequently created a subsidiary to manufacture stents, catheters, and other devices for sale in India and abroad.

Embrace value-added technological innovation. The Indian hospitals take advantage of India’s flourishing ecosystem for frugal innovation to source ultra-low-cost equipment and tests. Oncologist Dr. Vishal Rao at HCG Oncology, for instance, invented a $1 voice prosthesis device that helps patients with stage 4 cancer whose voice box has been removed to speak properly. Similar devices in the United States cost as much as $700. Another example is the 3nethra, an inexpensive portable ophthalmic instrument developed in India that can take refractive index measurements and screen patients for four eye conditions (cataracts, diabetic retina, glaucoma, and cornea issues) without requiring a skilled operator. In the United States, the same tests require three expensive instruments and trained operators. 3nethra uses an image-processing algorithm to generate a report within five minutes of screening and can be integrated into a telemedicine network for remote diagnosis. LV Prasad partnered with the Massachusetts Institute of Technology to develop the next generation of optometric technologies. An Indian entrepreneur developed an easy-to-use, Android-based health tablet (Swasthya Slate) that can conduct thirty-three diagnostic tests and if produced in volume could cost only $150 per unit.²¹ Another entrepreneur, Myshkin Ingawale, developed a noninvasive (needleless) test for anemia that features a portable, easy-to-use device that costs between $200 and $300 to buy and less than ten cents per test. The standard Western procedure costs several times more and requires equipment priced up to $10,000.²²

Create EMR and IT systems. Well before health care in the United States made meaningful use of electronic medical records, our Indian exemplars were knee-deep in bits and bytes. HCG Oncology created electronic medical records (EMRs) for its cancer patients from the outset as a way to lower recordkeeping costs and avoid errors when patients were treated across the hub-and-spoke system. Narayana Health developed and installed a software program called iKare on iPads connected to all ICU beds. The software automatically updates patient records as changes are generated and directs staff on next steps of care, helping to reduce hospital errors. Narayana has also built an information system across its entire twenty-three-hospital network, with data stored in the cloud and easily accessible at all levels. There is a cultural norm for data sharing that allows the hospitals to compare performance measures for such things as surgeon productivity and operating-suite utilization, which encourages the diffusion of best practices across the chain.

Instead of leveraging telehealth opportunities or offering inexpensive home-based care, as the Indian exemplars do, health-care providers in the United States tend to keep their patients in expensive hospital settings, even those patients with chronic conditions or in end-of-life situations who prefer to be at home.

Principle 4: Adopt Task-Shifting

By shifting tasks from highly specialized workers (primarily doctors) to nurses and paramedical staff, the best Indian hospitals match the skill level of their people with the requirements of the tasks (see figure 2-2). In India, where highly skilled workers are scarce, this kind of task-shifting is often necessary to optimize specialists’ time and energy. The practice saves money, of course, but it also improves quality, because doctors and paramedics perform tasks that best fit their expertise. The exemplars have redesigned their staffing and delivery of health care in three ways.

Create new job categories. The Indian exemplars have taken task-shifting to the next level by creating new categories of low-cost health-care workers at one end of the spectrum and highly focused specialists at the other. When Dr. Venkataswamy founded Aravind, he had plenty of patients but too few ophthalmologists and optometrists to screen them. His solution was to hire village women with high-school diplomas and train them for two years to work in a new position called “midlevel ophthalmic paramedic.” Over time, these village-based paramedics have made up 64 percent of Aravind’s workforce and perform tasks such as admitting patients, maintaining medical records, and assisting doctors. Similarly, unable to lure trained personnel to rural villages, LV Prasad, as mentioned already, has developed a cadre of vision guardians and vision technicians to carry out basic vision tests at the village level. In addition to being inexpensive, the paramedics bring previously unseen skills such as cultural competency, loyalty to the organization, strong work ethic, and the ability to connect more deeply with patients and families whose socioeconomic background is similar to their own. This last contribution is especially helpful in dealings with rural patients, who are unfamiliar with the health-care system and may even fear physicians.

At the high-skills end of the spectrum, HCG has developed a new category of “onconurses” to assist doctors in chemotherapy and radiation treatments, and Narayana Health trains nurses to advance to the higher-skilled position of “nurse intensivist,” akin to a nurse practitioner in the United States. Narayana Health also encourages general physicians to become specialists, and specialists to become superspecialists. Similarly, LV Prasad’s vision technicians have the option of enrolling at its optometry school to become optometrists. This practice has opened up new career possibilities for rural Indians: for instance, one vision technician at LV Prasad rose to become an optometrist and later obtained a PhD in ophthalmology.

In these ways, the hospitals have expanded their organizations’ skill base, enlarged their patient reach, and created new labor pools that make up for deficiencies in India’s public education system.

Pursue process innovations. The exemplar hospitals maximize their efficiency by overinvesting in the staff supporting their most skilled surgeons and specialists, radically extending their reach. Each Aravind surgeon, for example, has help from six paramedics in the clinical domain and four assistants for administrative and support services. Paramedics go to villages, screen patients, transport them back to the hub hospital, measure their vitals, have tests performed, prepare the patients for surgery, deliver postsurgical care in the ward, transport them back to the village, and provide follow-up care. The surgeon performs only the actual procedure, which is a small but vital fragment of time to which all other tasks contribute.

Like Southwest Airlines, the best Indian hospitals focus on reducing the turnaround or downtime of their most costly resources. They increase surgeons’ productivity by decreasing the amount of time it takes to move one patient out of the operating suite and to bring in the next one. Turnaround time is the key factor limiting efficiency and a key driver of costs, according to a global study of performance benchmarks in knee-replacement surgeries. Dr. Eric Wadsworth, a cofounder of Dartmouth’s Master of Health Care Delivery Science program, concurs. “Instead of looking at ‘wheels in to wheels out,’” he said, “we must reframe the question to look at ‘wheels out to wheels in.’ Of course, efficiency is possible during surgery itself, the time when patients are wheeled in to and out of surgery. But the bigger cost savings are during the interval between when one patient is wheeled out and the next is wheeled in.”²³

Aravind tackles the challenge in cataract surgery by setting up two surgical stations side by side, with the surgeon positioned between them, assisted by a swiveling microscope and two pairs of nurses. For each patient, one nurse assists the doctor by administering local anesthesia, providing sterile instruments and the right implants, focusing the microscope, and bandaging the patient. The other—actually a paramedic called a “running nurse”—replaces used surgical instruments with fresh surgical tools from a sterilization area about thirty yards away and moves patients in to and out of the operating suite. Switching smoothly from one patient to another, Aravind’s doctors perform surgeries briskly in ten-to-twelve-minute intervals. This is how Aravind’s doctors are able to perform five or six surgeries per hour, compared with one or two per hour in a conventional operating suite with a single assisting nurse.

Aravind’s doctors are not overworked. They are more productive because of rational task-shifting and clever process design.

Encourage self-service. An extreme form of task-shifting is self-service, in which patients or their family members take over tasks traditionally performed by hospital staff. For example, LifeSpring Hospitals, a maternity center, provides an extra bed next to the new mother so that a family member can stay and help care for her. Another hospital encourages family members to use a shared kitchen to prepare meals for their patients. Similarly, Narayana Health encourages family members to provide post-ICU care for patients after undergoing a four-hour audio-and-video curriculum developed with Stanford University. This kind of self-service care backed by training reduces staffing costs and allows for more-personalized care for the patient, while also ensuring continuity and uniformity of care when the patient goes home, thereby reducing postsurgical complications and readmissions. More broadly, self-service encourages patient ownership of health and disease management.

While the Indian exemplars have developed protocols for all scheduled procedures, such as knee and hip replacements, angioplasties, and open-heart surgery, not all US hospitals have done so, as Atul Gawande, an American surgeon and writer, famously pointed out in his The Checklist Manifesto.²⁴ Similarly, when US hospitals go after costs, they seldom embrace the kinds of task-shifting strategies we saw in India. Instead, cost reduction typically starts with cuts in low-cost staff jobs, forcing doctors to spend more time on simple, routine tasks such as transcription, logistics, and billing. At Mayo Clinic, for example, doctors reportedly spend more than half their time on nonmedical matters. This is exactly the wrong kind of task-shifting, and it has led to physician dissatisfaction and burnout.

Principle 5: Create a Culture of Ultra-Cost-Consciousness

In the best Indian hospitals, the goal is to maximize the number of patients treated rather than the number of procedures conducted. To achieve that goal, those hospitals embrace a mindset of old-fashioned frugality. In medical matters, of course, frugality must not come at the expense of quality. But absent a compelling medical reason not to cut costs in each particular case, the hospitals are relentless. Cost cutting is an ongoing priority, even among doctors. Had the hospitals served only rich patients, as many private providers in India did, cost wouldn’t have mattered so much, but when the goal is to serve as many poor patients as possible, every penny of cost matters.

Here are six cost-cutting measures widely used by our exemplars.

Avoid needless waste. Some hospitals selectively reuse medical devices that are sold by their foreign manufacturers for single-use applications. One such device is a $160 single-use steel clamp used during beating-heart surgeries that Care Hospitals and Narayana Health routinely sterilize and reuse from fifty to eighty times before throwing away. “If no hospital in the world throws away its needle holders, forceps, and scissors, which are drenched in blood after every operation, why throw out the clamps?” asks Devi Shetty, Narayana’s founder and chairman.

Other hospitals have asked their suppliers to shorten the length of sutures—and to lower the price accordingly—after finding that their doctors were routinely discarding one-third of each suture after tying it off.

Avoid unnecessary procedures. The exemplars strive not just to control costs and prices but also to be cost-effective. That means avoiding unnecessary procedures and tests. At Care Hospitals, for example, new recruits are specifically taught that the hospital exists solely to provide quality health care at affordable prices, not to generate income from unnecessary tests. Care’s doctors’ compensation is team-based, a structure that creates peer pressure to avoid unnecessary tests. Unlike many private clinics and hospitals in India that engage doctors mainly as consultants who use its facilities, Aravind, LifeSpring, LV Prasad, and Care pay their doctors a fixed salary and engage them directly on the hospital’s payroll, offering no bonuses or other incentives for internal referrals for tests or procedures.

Offer bundled pricing. Indian exemplars offer fixed-price packages, or bundled pricing, for common medical procedures rather than à la carte pricing. At LifeSpring, prices for delivery (vaginal and cesarean) are displayed prominently all over the hospital. Bundled pricing motivates the hospital to accurately measure the costs incurred in each step of the treatment process, to eliminate waste and unnecessary steps and tests, and to reduce inefficiencies. To ensure quality outcomes, hospitals have established protocols that make sure necessary procedures are not skipped.

Control variable costs. The zeal of our exemplars to lower costs through frugal innovation has no end—otherwise Aravind would have been content with a $5 intraocular lens and would not have pushed the cost threshold lower. Aravind knows, down to a fraction of a penny, its variable costs for every type of cataract surgery and patient. It watches material consumption very closely, looking to shave pennies here and there. If it were serving only rich patients with high willingness to pay, as many private providers do, there would be no pressure to track costs with such precision. But when the price is often zero (for free patients), even a few cents can seem like a lot.

Be frugal in capital expenditures. The hospitals we studied think carefully about fixed costs as well. For instance, they match the sophistication of equipment to the task. LifeSpring, for instance, orders smaller and simpler beds for its maternity wards, but the company does not skimp on the delivery tables for operating rooms in its twelve hospitals in Hyderabad. It also uses low-resolution black-and-white ultrasound machines unless a complicated case requires more-advanced equipment. Rigorous maintenance and repair of equipment are also high priorities among the exemplars so as to prolong the working life of expensive technology. For example, Narayana Health contracts with an American maintenance company, TriMedx, to double the life of the hospital’s expensive diagnostic equipment.

Leasing arrangements are also common, even for land and buildings, which are both very expensive in India. Some hospitals negotiate pay-per-use deals with equipment suppliers instead of buying expensive diagnostic equipment outright. Many hospitals economize on furnishings for their lobbies, wards, patient rooms, hallways, and offices. LifeSpring has a no-frills, simple physical space. The non-air-conditioned rooms feature basic furniture, and the hospital has no food services. Senior managers at Aravind and Care often share small offices, freeing up space for more mission-critical needs such as operating suites.

The capital-investment savings add up. In 2013, Narayana Health spent just $7 million on a 300-bed superspecialty hospital in Mysore, which it built as a prototype for expansion into smaller cities. The Mysore hospital’s capital expenditure per bed ($23,300) is a little more than 1 percent that of comparable hospitals in the United States.²⁵

Focus doctors’ attention on consequences of their decisions. One particularly interesting way of building cost consciousness across the organization is Narayana’s practice of sending daily updates to doctors by cell phone that include data on occupancy, emergencies, and numbers and types of surgical procedures. The practice encourages doctors to be prudent: they can see how their decisions about which medicines to prescribe, supplies to use, or tests to order affect the cost of treating patients. Taking its cue from the Toyota Production System, Narayana also encourages frontline medical practitioners to continually suggest ideas for cost savings and improvement.

While Indian health care focuses on frugality, for the last fifteen to twenty years US hospitals have splurged on excess capacity and costly, high-tech equipment, which has led to even more pressure to utilize hospital facilities. Despite all this spending, cost accounting in US health care is rudimentary at best. When it comes to the cost of procedures, for example, few US doctors—or even hospital CFOs—can provide accurate or fine-grained estimates. Eric Wadsworth of Dartmouth put it this way:

Very few doctors and nurses can tell you how much they charge for a clinical procedure. The clinical folks don’t know, the administration doesn’t know, and the dirty secret is the finance department doesn’t know really, either, because they’ve never had to measure cost. All they had to do was add up all their revenue on one side, all their expenses on the other, and make sure there was some sort of a positive margin or, if not, find some way to fill in the gap with philanthropy.

Conclusion

The five principles, unsurprisingly, work best when used in conjunction to reinforce one another. Aravind, LV Prasad, and Narayana probably apply all five principles to the fullest, and they see greater success in serving a larger proportion of free or subsidized patients while still remaining profitable. Purpose, which really stems from the desire to bring modern medicine to the greatest number of people, energizes innovation on all fronts, and leads to fuller use of the remaining four principles. But the principles can also be applied individually. Structuring a hospital network as a hub-and-spoke system can stretch resources without compromising on quality, but when done in conjunction with technology (such as telemedicine) it is even more effective. Task-shifting by itself is a useful principle, but when combined with continuous process improvements and technology, it pushes even farther the boundaries of what the hospitals can do. Similarly, frugality in operating and capital expenditures lowers costs without lowering quality, but purpose influences the fervor with which frugal practices are discovered, adopted, and diffused.

The five principles are also consistent with bottom-up innovation. Pursuing an inspiring purpose, configuring the assets of a health-care system in a hub-and-spoke design, deploying technology effectively, or being frugal in operating and capital expenditures does not require the consent of anyone in Washington, DC, or the government. Task-shifting may be constrained by regulations on who can do what, and telehealth consultations may not be reimbursable in some policy contexts, but organizations that are determined can still pursue one or more of our five principles to improve the quality of care while lowering costs.

In conclusion, the key lesson for other hospitals in India and elsewhere is this: Consider adopting parts of the business model described in this chapter even if you can’t adopt all of it. Some is better than none, but firing on all five cylinders will allow health-care organizations to really push the frontiers of high quality, low cost, and maximum access. And each of the principles can be applied to some extent by any established player or new entrant, regardless of the prevailing policy environment. That’s what makes them particularly powerful as a means for bottom-up transformation of health care.

In the next chapter, we will take you on a close-up tour of one of our exemplars, Narayana Health.