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The Henry Ford of Heart Surgeries

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December 12, 2009 – Comments (11)

What an interesting story. This Indian doctor has introduced economies of scale into the health care field, a concept that many CAPS bloggers have said was impossible. They were wrong.  Not only that, he has made expensive health care procedures available to the masses at affordable costs, up to 95% less expensive than some U.S. health care providers while maintaining high standards of quality. 

What's even better than that?  He was Mother Theresa's heart surgeon. 

The Henry Ford of Heart Surgeries by Geeta Anand 

"Dr. Shetty, who entered the limelight in the early 1990s as Mother Teresa's cardiac surgeon, offers cutting-edge medical care in India at a fraction of what it costs elsewhere in the world. His flagship heart hospital charges $2,000, on average, for open-heart surgery, compared with hospitals in the U.S. that are paid between $20,000 and $100,000, depending on the complexity of the surgery.

The approach has transformed health care in India through a simple premise that works in other industries: economies of scale. By driving huge volumes, even of procedures as sophisticated, delicate and dangerous as heart surgery, Dr. Shetty has managed to drive down the cost of health care in his nation of one billion.

His model offers insights for countries worldwide that are struggling with soaring medical costs, including the U.S. as it debates major health-care overhaul.

"Japanese companies reinvented the process of making cars. That's what we're doing in health care," Dr. Shetty says. "What health care needs is process innovation, not product innovation."

At his flagship, 1,000-bed Narayana Hrudayalaya Hospital, surgeons operate at a capacity virtually unheard of in the U.S., where the average hospital has 160 beds, according to the American Hospital Association.

Narayana's 42 cardiac surgeons performed 3,174 cardiac bypass surgeries in 2008, more than double the 1,367 the Cleveland Clinic, a U.S. leader, did in the same year. His surgeons operated on 2,777 pediatric patients, more than double the 1,026 surgeries performed at Children's Hospital Boston.

Next door to Narayana, Dr. Shetty built a 1,400-bed cancer hospital and a 300-bed eye hospital, which share the same laboratories and blood bank as the heart institute. His family-owned business group, Narayana Hrudayalaya Private Ltd., reports a 7.7% profit after taxes, or slightly above the 6.9% average for a U.S. hospital, according to American Hospital Association data."

Full Article

11 Comments – Post Your Own

#1) On December 12, 2009 at 12:21 PM, Option1307 (29.97) wrote:

Mr. Parashivappa says he can't himself pay for the surgery, but it is covered by a farmers' insurance plan that Dr. Shetty began several years ago in partnership with the state of Karnataka, which includes Bangalore.

Nearly one third of the hospital's patients are enrolled in this insurance plan, which costs $3 a year per person and reimburses the hospital $1,200 for each cardiac surgery.

That is about $300 below the hospital's break-even cost of $1,500 per surgery.

The hospital makes up the difference by charging $2,400 to the 40% of its patients in the general ward who aren't enrolled in the plan. An additional 30% who opt for private or semi-private rooms pay as much as $5,000.

Did everybody catch this part? We do much the same thing here in the US. Charging higher rates to certain patients to make up the difference.

Interesting article David, I had not seen this one. Although I have discussed this general topic many times with those in the medical field.

One thing that always comes up is the fact that hospitals are simply much cheaper to build in India/etc. than here in the US. Thus, they are not starting so far down into the holes as similar US hospitas would be.

--> Construction costs are lower, labor and materials

--> Staffing a hospital is cheaper

--> etc.

Any thoughts on this?

 

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#2) On December 12, 2009 at 12:38 PM, whereaminow (46.24) wrote:

Option1307,

Dunno, but those are good questions.  I will say this though, if he opens one up in the Cayman islands like the article suggests, you can bet your behind that it will put a major dent in the profits of American health insurers. 

Why pay for years of medical coverage for heart surgery when I can fly to the Caymans for $1,000 and get the surgery for $3,000.

Who in America, besides the absolute poorest among us couldn't afford that life saving measure?  Who among the absolute poorest in America couldn't find a charity to help with the $4,000? And then to think about all of the other services he provides.  

And what if this system was copied by an American entrepreneur?!  Imagine if you could fly to Tennessee and receive the most difficult treatments at 10% of the cost you currently pay.  

I know I'm engaging in some wishful thinking, but this kind of process innovation could lead to the death of the health insurance industry. (Though it would be another 25 years before Congress caught up and repealed all of their ridiculous regulations.)

David in Qatar 

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#3) On December 12, 2009 at 2:34 PM, Option1307 (29.97) wrote:

Ya I'm totally for process innovation like this. We need more entrepreneurship to makes it over into the healthcare field.

And what if this system was copied by an American entrepreneur?!  Imagine if you could fly to Tennessee and receive the most difficult treatments at 10% of the cost you currently pay.  

That's just it, I don't think this is realisitc, at least not in the near future. Although it would be an amazing thing! I think India has a lot of advantages for a system like this and I'm not so sure this would be realistically possible to copy here in the US. Simply b/c of things like I mentioned above. I have no data to bak me up, just throwing out thoguhts.

But like I said, I'm definitely hoping for the best, just not so sure on the probability.

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#4) On December 12, 2009 at 7:03 PM, devoish (99.10) wrote:

I have read this story and it is wonderful. 

While it certainly would be nice to bring $2400 open Heart surgery to US citizens where the median per capita income is $26,000, it is very different perspective than bringing $2400 OHS to an Indian State whose average annual income is $290.

That probably explains why he is also developing and following and the early Blue Cross/Shield model of not for profit insurance in order to develop a market that can afford his hospital which is exactly how insurance got started in the United States in the early 1900's. Just as he is doing, the BCBS model started with one hospital and then networked in many others. Its goal was originally to provide a way for hospitals to get paid, not to be its own profit center.

That said he did a nice job of using existing technology to halve the cost of OHS for Indians. His dedication to providing affordable care for the masses is an admirable driving motivation. I hope that whoever follows him has he same inspiration.

In Calcutta, Dr. Shetty was also the personal cardiac surgeon of Mother Theresa and was able to observe first-hand her charitable work which set the direction for his ambitions in healthcare. According to him, “I believe she is singularly responsible for much that I have achieved. Somehow, even though I am a scientist and do not expect to find God, meeting her was almost like an encounter with the divine.”

There are many mobile heathcare clinics doing charitable work in the USA to, they are just lacking the investment dollars offered by a wealthy father to build it out. Unfortunately their Uncle Sam was talked out of helping to.

For a much less "free market" and much more "socialist values" version of this story where he charges 65% of his customers a high enough amount in order to subsidize 35% see this link.

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#5) On December 12, 2009 at 10:02 PM, whereaminow (46.24) wrote:

devoish,

Charging different rates for similar service is a familiar pricing structure that almost every business uses to clear inventory. 

David in Qatar

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#6) On December 12, 2009 at 10:15 PM, NOTvuffett (< 20) wrote:

Let us hope the anology doesn't extend as far as the equivalent of the UAW, lol.

 

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#7) On December 12, 2009 at 11:10 PM, starbucks4ever (98.98) wrote:

If instead of sweating over the food stamps and welfare checks, Libertarians had the good sense to focus their campaign on Dr. Shetty's right to open a hospital in the US, their 0.4% of popular vote could easily turn into 40%.

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#8) On December 14, 2009 at 2:21 PM, devoish (99.10) wrote:

David,

Dr Shetty says his price structure is done the way it is to provide heart surgery to those who cannot afford it, including giviing some surgerys away for free.

He does not suggest he is "clearing inventory".

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#9) On December 15, 2009 at 6:44 AM, whereaminow (46.24) wrote:

devoish,

That's nice. That's his choice. He owns the business. In that case, wouldn't that be charity from the rich?  Something that conflicts with the Marxist theory class exploitation?

David in Qatar

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#10) On December 16, 2009 at 9:40 PM, devoish (99.10) wrote:

David,

Actually I thought his charitable endeavour violates your libertarian principles that charity hurts self reliance and does more harm than good.

You seemed to be representing him as some kind of pursuit of profit hero.

I don't know about Marxists, but throughout history there have been wealthy people who have done generous things. There's the other kind of wealthy people too.

And there are people who have done both bad and good things, with or without wealth.

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#11) On December 20, 2009 at 6:12 AM, whereaminow (46.24) wrote:

devoish,

Actually I thought his charitable endeavour violates your libertarian principles that charity hurts self reliance and does more harm than good.

I don't know when I've ever said that. I have said that charity works just fine, and that forced charity is not charity.

You seemed to be representing him as some kind of pursuit of profit hero.

It's a great story.  I like it.  I'm not sure if he is a hero, or how to properly apply that term.  I like what I have read.  If he continues to grow his service, I hope he can help as many people as possible.

I don't know about Marxists, but throughout history there have been wealthy people who have done generous things. There's the other kind of wealthy people too.

There are violent and non-violent dentists. There are racist and non-racist carpenters.  There are good and bad parents.  There are smart and dumb libertarians.  People should be judged on an individual basis.  Marxists as well.  I shouldn't paint with such a broad brush. I was referring to the Marxist class warfare theory, which certainly doesn't fit with this situation.

And there are people who have done both bad and good things, with or without wealth.

Yes, and I feel that the ultimate judge of whether people have used their wealth wisely or not should be the consumer.  I believe consumer sovereignity is the greatest check on power ever discovered.  I think the person that makes the best microwave does more for humanity than the politician.  I think the person that makes people's lives better by making a higher quality, less expensive automobile should be far wealthier than all the professors and politicians combined.

But that's just me.

David in Qatar

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