Did you know that every year 2.5 million Indians need a heart surgery to survive but only three lakhs of them as in only 12% of these patients get this surgery done while the rest 88% of these patients are either forced to wait, suffer or they have to hope for a miracle to happen.
Why did heart surgeries not perform ?
Why is this condition so bad? Well, do you realize 90% of the Indians make less than 25,000 rupees a month and imagine earning 25,000 rupees a month and you are handed a bill of 3 lakh rupees for a bypass surgery for most Indians this isn’t just expensive it is impossible.
Secondly India has a capacity problem in a country of 1.4 billion people India has the capacity to perform just three lakh heart surgeries annually so what’s the next option well it is to go International and if you go out the prices don’t increase by 2 times or 10 times but by 30 freaking times in the US the average heart surgery cost in 2021 was $123,000 you know how much that is, approximately 95 lakh rupees. But you Know how one Indian did something so revolutionary that he built a hospital that could conduct free heart surgery while making 400 CR rupees in profit. Free heart surgeries for thousands of people all across the world while making 400 CR rupees in profit and today the whole world is recognizing his name Dr Devi shetty and the hospital that he built is called Narayana Health.
How did Narayana Health make 400 CR profits?
The question is While most hospitals charge lakhs of rupees and still remain small how on Earth did Narayana offer free heart surgeries and that to with a 400 CR profit what are those revolutionary processes that turned it into such a remarkable case study for the Americans to study and most importantly what are the lessons that we need to learn from the extraordinary work of Dr Devi shetty also guys the business model of Narayana health in this case study is presented with the scenario and data of 2011 and now especially after covid the business models of all hospitals including Narayana Health have evolved a lot so use this case study as an inspiration of efficiency and not for industry.
The secret to Dr shetty’s success lies in a game changing business strategy that flips the traditional Hospital model on its head let’s break it down you see most hospitals aim to save cost by hiring freelance specialist doctors instead of full-time doctors and these freelance doctors are paid on a a commission per surgery basis so let’s understand this using an example let’s say a hospital performs 8 cardiac surgeries per month now this hospital has two choices now mind you guys none of these figures are accurate because the case study data is from 2011 and these numbers are only meant to help you understand the concept and not to tell you how much the doctors are exactly paid on a per surgery basis so let’s get in let’s say there is a hospital that performs 8 cardiac surgeries per month now this hospital has two choices, one is to hire a full-time doctor at a salary of 6 lakh rupees per month or they have the option to get a freelancer by paying him 50,000 rupes per surgery now if the hospital opts for freelancing they pay 50,000 rupes into 8 surgeries equal to 4 lakh rupees so if you look at the numbers freelancing seems like a smarter choice right because the hospital saves 2 lakh rupes per month as compared to hiring a full-time doctor but here’s the twist this demand-driven model only works when the the number of surgeries is limited and here’s what happens if the hospitals surgeries increase to 15 per month using the freelance model the hospital has to pay the freelancer 50,000 Rupees into 15 surgeries equal to 7.5 lakh rupees so if you see as soon as the number of operations increases the cost of freelancing surpasses hiring a full-time doctor so it becomes more expensive and less sustainable as demand grows and here’s where Dr Shetty saw an opportunity he he thought instead of limiting the demand what if he could create demand and he landed on what was a gold mine that did not just mint money but also change the lives of millions of Indians and this is something that the entire world applauds him for so here’s what he did he hired full-time specialist doctors and he built a system where they could perform a high volume of surgeries and here’s how the Brilliance of this model is reflected in the economics like we saw in the intro in India only about 12% of the heart patients can afford a surgery which leaves an untapped Market of millions of patients in a dire need of heart surgeries and these patients do not get a heart surgery done because it’s too expensive so let’s say 10,000 people can afford a heart surgery at 3 lakh rupees but if this cost of 3 lakh rupees goes down more people will be able to afford it for example at a 2 lakh rupe price point 30,000 people may be able to afford it and at 1 lakh rupes 50,000 people may be able to afford it so Dr Devi thought if he brought down the cost of heart surgery from 3 lakh Rupees to 2 lakh rupees the number of patients coming into the hospital will shoot up and if the number of patients shoots up then the number of surgeries will shoot up and if the number of surgeries shoots up he can bring in full-time heart specialists and these heart specialists can work on a salary for example instead of doing just eight or 10 surgeries per month and paying the freelancer about 4 to 5 lakh rupees a month narana Health created the capacity to perform 30 surgeries per month for every single doctor and he paid the doctors higher salaries than what an average freelancer would earn so let’s say nar pays a full-time heart surgeon a fixed salary of 7 lakh rupees per month so if you see it’s higher than what an average freelancer would earn at about four to 5 lakhs per month but now instead of Performing just a few surgeries the hospital builds the capacity for this doctor to operate on 20 patients a month so now the cost per surgery for this Doctor Who’s on a salary would be7 lakhs divided by 20 surgeries equal to 35,000 rupees per surgery now here’s the Brilliance when the per surgery doctor cost drops to 35,000 rupees the total cost of the operation goes down and when Nar Health deployed some game changing equipment usage efficiency the total cost of the surgery including other expenses like Hospital facilities could be reduced from 3 lakh Rupees to around 1.5 to 2 lakh rupees and like we saw at 3 lakh rupees of 10,000 people may be able to afford it at 2 lakh rupees 30,000 people will be able to afford it and as the price drops more and more patients will be able to afford it which will lead to higher patient inflow and then the hospital can maintain profitability while making surgeries accessible this is how Narayana health leverages a high volume low cost model to address affordability while remaining financially sustainable so if you see at the end of the day the doctors at Narayana Health earn more than what a freelancer.
Secondly, the cost of operation goes down so more people are able to afford it and because of economies of scale Narayana Health makes a healthy profit. This is how the supply driven model revolutionized Healthcare in India and proved to the world that compassion and profitability can go hand in hand.
How did Narayana Health achieve economies of scale and maintain the consistency and quality of the operation?
Because most people would think that as the cost of the operation goes down the quality of the doctors may also go down but here’s why ladies and gentlemen Dr Shetty used such a smart model that even the American doctors were shocked because as the number of operations increased the cost went down and the quality of the operation also increased and another reason why the Americans were shocked was because they saw that Narayana surgeons were so efficient that while an American doctor does only 100 to 200 surgeries a year a Narayana surgeon does about 400 to 600 surgeries a year.
How did Narayana Health did 400 to 600 surgeries in a year?
Well to explain this instead of using too many technical terms in the heart operation procedures let’s understand and this using the restaurant operation and the making of a Biryani Yes you heard that right we are going to understand how Narayana made heart surgeries more efficient using the example of a restaurant and the making of a Biryani so let’s get started you see the assembly line for surgeries at Narayana health is divided into three parts pre-operative procedures like test and anesthesia prep and then comes the surgery itself which is divided among senior surgeons Junior doctors and skilled nurses and then comes the postoperative procedure like monitoring and Recovery support and if you look at the Biryani Masala preparation you again have a very similar set of procedures there is a pre-operative process like collecting ingredients roasting the spices and grinding the spices and then there is the main operation where all the ingredients are perfectly put into a mix and the Masala is prepared and then there is a postoperative process like cleaning and organizing of tools and organizing the leftover ingredients so now if you look at a restaurant does the head chef go and buy the spices and clean the utensils not at all these tasks are divided between a set of Juniors Specialists and one super special head chef and here’s how the kitchen would organize these stars for efficiency the kitchen Staff first procures the vegetables spices knives spoons and cookers and they clean the tools and the workspace to keep the kitchen ready for operation similarly they handle all repetitive and Preparatory tasks so the time spent by the junior staff is around 2 hours then comes the the sous chef the sous chef collects and preps ingredients to ensure that they are clean and they are ready for roasting also they operate the grinder to prepare the Masala ingredients so the Sue Chef might spend an hour into this operation but after everything is done what does the head chef do the head chef only oversees the operation and comes in only for the core process of mixing the spices and all other ingredients to ensure that the final Masala blend has the perfect balance of all the flavors so the head chef barely spends half an hour in the process of making the Masala right and after he’s done making the Masala what happens the kitchen staff comes in they clean the kitchen they wash the utensils and they keep them back on the Shelf so this is how the tasks are divided in a kitchen between semi skilled, skilled and super skilled people to complete an operation efficiently and this division of labor is what Narayana health applied to their operation to divide the task between senior surgeon Junior doctors and nurses and technicians so while the American surgeons did a lot of pre-operation tasks the operation and the postoperative tasks here’s what the Narayana Health doctors did look at this just like the head chief handles the most critical task of roasting the spices the ]senior surgeon only handles the core surgical tasks of Performing precise incisions like the bypass grafting or wall replacement and most importantly she ensures that the heart is functioning properly during the surgery this is the most crucial step that determines the success of the surgery so the senior surgeon might spend close to 30 to 45 minutes in the entire operation focusing solely on the critical parts of the operation everything else is done by the junior team so just as the sous chef grinds and portions the Masala the junior doctors assist with important Preparatory and supportive task so they prepare the grafts position the patient and set up the surgical site and they assist with the susers and Equipment handling so the junior surgeons ensure that the surgeon has everything they need to perform the operation efficiently and with 100% concentration and here the time spent by the junior doctors may be anywhere between 1 to 1.5 hours and lastly just like the kitchen staff in a restaurant the nurses and technicians ensure that the tools are clean and they’re in place for the surgery so they prepare and sterilize the surgical instruments they set up the monitors and after the operation they manage the postoperative care and they spend a lot more time on the patient than the surgeon and the senior surgeon and this time could be anywhere between 2 to 10 hours depending on the operation and the patient this is how the division of labor in the heart operation process enabled the senior surgeons of Narayana Health to only focus on the core task and everything else was taken care of by the junior surgeon nurses and technicians whereas if you look at American hospitals back in 2011 the American Senior surgeons used to oversee and do a lot more task in the operation which could be done by Junior surgeons and nurses so while the American surgeons did tasks such as pre-operative preparation patient education char and even more routine surgical tasks a Narayana Health surgeon only performed the actual critical surgical procedures and this gave Narayana Health three incredible superpowers as compared to the American Hospitals number one the overall cost for surgery dropped significantly because the most expensive resource which is the senior surgeon he is used only for the most critical task number two and because a traditional surgeon in the US handled both critical and non-critical tasks they stayed limited to just one or two surgeries per day but at Narayana Health surgeons were able to perform three to four surgeries per day so this model doubled or sometimes tripled the productivity of senior surgeons allowing Narayana Health to cater to a much larger number of patients and lastly with faster turnaround times the operating room is utilized more efficiently which again reduced downtime and increase the number of surgeries performed daily this is how Narayana Health reduced the cost of operations and reduced the stay of the patients in the hospital which again reduced the cost of the stay per patient and they did not just do this for the doctors they even did it for the machines in the US big Scanning Machines like MRI and CT scanners are barely used for 3 to five scans a day and this is the reason why scans were and still are expensive in the US but narana health does it very differently their machines work 24/7 non-stop they even give patients discounts to come for scans at odd hours like late at night and because of this they scanners did up to 20 scans a day which was way more than in the US and guess what this made each scan much cheaper because of which more people could afford it and eventually the hospital did not need to buy extra machines similarly they also practiced Frugal Innovation by reusing single- use devices for example in the American hospitals many surgical devices such as the steel clamps for heart surgery are discarded after a single use but at Narayana Health these devices are sterilized and reused 50 to 80 times by by following a strict sterilization protocol so a 13,000 rupees clamp is reused multiple times which reduces its effective cost to just 200 to 300 rupees per use this again ensure cost saving without compromising on patient safety.
How did Narayana Health conduct free heart surgeries and still make a profit of 400 CR ?
well here’s where there is one amazing model that narana has has built and this model is called the cross subsidy model so under this model higher income patients pay more and the poor patients pay less so while a wealthier patient pays about 2.5 to 3 lakh rupees for a surgery a low-income patient might pay 50,000 Rupees and if they cannot afford it Narayana Health uses its profits and donations to make these surgeries free for these people and look at this each year more than half of the patients received free or subsidized in patient care with an average discount of 15% this is how ladies and gentlemen Dr shetty revolutionized heart surgeries in India to such an extent that he was able to provide free heart surgeries to thousands of people all across the country so this is how using efficiency and profits Narayana Health has revolutionized the process of heart surgeries which is now being studied all across the world including the Howard business school.
This remarkable story has three very very important business lessons for all of us lesson number number one true Innovation doesn’t require unlimited resources it emerges from the need to solve pressing problems with what is available in this case by applying Concepts like the assembly line model and frugal Innovation Narayana Health delivered worldclass heart surgeries at a fraction of the global cost lesson number two you know Dr Wiman once said that if your profits come from the customers pocket you can sustain but if your profits come from your operational efficiency you can scale to millions in this case nar’s profit did not primarily come from high heart surgery fees instead they stemmed from running a highly efficient system that can serve more people at a lower cost which enabled scalability and the last lesson that we all have to learn from the story is that compassion without strategy is naive Business Without a purpose is hollow but when business is driven by compassion it has the power to transform the world in this case Dr Devi compassion and business has given in India a gift that we must remember and celebrate forever which is why we made this Article as a tribute to Dr Davi shetty so if you love this Article please share it with as many people as possible.