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THE INDIA TODAY GROUP India Today Aaj Tak Business Today Men's Health Wonder Woman Cosmopolitan Oye! 104.8FM Travel Plus Bag it Today SENSEX 27826.22 22.77 0.08% NIFTY 8442.80 9.40 0.11% US$ R63.68 0.08 GOLD R26772 71 0.26% Type Stock Name Mutual Funds Lookup Type Commodity RELATED The challenges that await Indian healthcare industry Narayana Health's Devi Prasad Shetty What started as a 280bed hospital has, in the last 13 years, grown to become a 26 hospital network with 6,900 beds Dr Vivek Dharwar (left) performing a surgery at Narayana Health's hospital in Bangalore Photo: Nilotpal Baruah Hands that serve are more sacred than lips that pray." The words of Mother Teresa had a profound effect on Dr Devi Shetty, who was the late Nobel laureate's personal cardiac surgeon in the early 1990s. Dr Shetty then worked at the Birla Heart Foundation in Kolkata (Calcutta then). At the time, he would see over 100 heart patients daily. Most needed surgery but never came back for it. This intrigued him. He soon found out that the high cost of cardiac surgery (Rs 1.50 lakh then) was the reason. He realised that almost 80 per cent of healthcare expenses in the country were borne out of pocket. Even worse, 47 per cent of rural and 37 per cent of the urban population either borrowed money or sold assets to pay for medical expenses. Indians are genetically three times more vulnerable to heart attacks compared to Caucasians. Yet only 120,000 heart surgeries were performed annually when the need was for two million. "It was clear costs had to come down," says Dr Shetty. Quality health care and affordability did not go hand in hand. Those seeking affordability had to be content with government hospitals, while quality seekers had to spend their way into private hospitals. Dr Shetty began searching for a model that would marry affordability and quality. "I was certain of one thing though charity is not scalable while a sound business model is," he says. Home Business Today COVER STORY May 25, 2014 Story N. Madhavan Follow @madhuta Edition:May 25, 2014 Compassionate heart, business mind Narayana Health has successfully married affordability and quality health care. Search LATEST MUST READ TECH NEWS MORE Stock markets likely to open positive, says Angel Broking MHA policy to give Make in India a boost Solar-powered trains to hit the tracks soon RIL sells 49.9% stake in US joint venture for $1.07 bn Jet Airways sacks 50 expat pilots Slowdown in drug approvals, currency volatility pose stern test for Indian pharma companies E Kumar Sharma Rate cut of 25 basis points expected, but concerns remain INSIGHT

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Biggest Innovations_ Narayana Health Has Successfully Married Affordability, Quality Health Care

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  • 6/2/2015 BiggestInnovations:NarayanaHealthhassuccessfullymarriedaffordability,qualityhealthcareBusinessToday

    http://businesstoday.intoday.in/story/biggestindiainnovationnarayanahealth/1/205823.html 1/6

    THE INDIA TODAY GROUP India Today Aaj Tak Business Today Men's Health Wonder Woman Cosmopolitan Oye! 104.8FM Travel Plus Bag it Today

    SENSEX 27826.22

    22.77 0.08%

    NIFTY 8442.80

    9.40 0.11%

    US$ Rs.63.68

    0.08

    GOLD Rs.26772

    71 0.26%

    TypeStockName

    MutualFundsLookup

    TypeCommodity

    RELATED

    The challenges thatawait Indianhealthcare industry

    Narayana Health'sDevi Prasad Shetty

    Whatstartedasa280bedhospitalhas,inthelast13years,growntobecomea26hospitalnetworkwith6,900beds

    DrVivekDharwar(left)performingasurgeryatNarayanaHealth'shospitalinBangalorePhoto:NilotpalBaruah

    Handsthatservearemoresacredthanlipsthatpray."ThewordsofMotherTeresahadaprofoundeffectonDrDeviShetty,whowasthelateNobellaureate'spersonalcardiacsurgeonintheearly1990s.DrShettythenworkedattheBirlaHeartFoundationinKolkata(Calcuttathen).Atthetime,hewouldseeover100heartpatientsdaily.Mostneededsurgerybutnevercamebackforit.Thisintriguedhim.Hesoonfoundoutthatthehighcostofcardiacsurgery(Rs1.50lakhthen)wasthereason.Herealisedthatalmost80percentofhealthcareexpensesinthecountrywereborneoutofpocket.Evenworse,47percentofruraland37percentoftheurbanpopulationeitherborrowedmoneyorsoldassetstopayformedicalexpenses.IndiansaregeneticallythreetimesmorevulnerabletoheartattackscomparedtoCaucasians.Yetonly120,000heartsurgerieswereperformedannuallywhentheneedwasfortwomillion."Itwasclearcostshadtocomedown,"saysDrShetty.

    Qualityhealthcareandaffordabilitydidnotgohandinhand.Thoseseekingaffordabilityhadtobecontentwithgovernmenthospitals,whilequalityseekershadtospendtheirwayintoprivatehospitals.DrShettybegansearchingforamodelthatwouldmarryaffordabilityandquality."Iwascertainofonethingthoughcharityisnotscalablewhileasoundbusinessmodelis,"hesays.

    Home Business Today COVER STORY May 25, 2014 Story

    N. Madhavan Follow@madhuta Edition:May 25, 2014

    Compassionate heart, business mindNarayana Health has successfully married affordability and quality health care.

    Search

    LATEST MUSTREAD TECHNEWS

    MORE

    Stock markets likely to open positive,says Angel Broking

    MHA policy to give Make in India a boost

    Solar-powered trains to hit the trackssoon

    RIL sells 49.9% stake in US joint venturefor $1.07 bn

    Jet Airways sacks 50 expat pilots

    Slowdown in drug approvals,currency volatility pose sterntest for Indian pharmacompanies

    E Kumar Sharma

    Rate cut of 25 basis pointsexpected, but concerns

    remain

    INSIGHT

  • 6/2/2015 BiggestInnovations:NarayanaHealthhassuccessfullymarriedaffordability,qualityhealthcareBusinessToday

    http://businesstoday.intoday.in/story/biggestindiainnovationnarayanahealth/1/205823.html 2/6

    across16citiesemploying13,000peopleand1,500doctors

    In2001,hefoundedNarayanaHrudayalaya(laterrenamedNarayanaHealthorNH)inBangalorewithamissiontotakeaffordablehealthcaretothepeople.Whatstartedasa280bedhospitalthenhas,inthelast13yearsgrowntobecomea26hospitalnetworkwith6,900bedsacross16citiesemploying13,000peopleand1,500doctors.Ithassofarperformedover100,000cardiacsurgeriesand250,000cathlabprocedures.Thegroupperforms150majorsurgeries(including44cardiacsurgeries)daily.NHsaysabout12percentofallcardiacsurgeriesdoneinthecountryareperformedatitshospitalsand50percentofitspatientsarefromtheeconomicallyweakersections.

    FULLCOVERAGE:BiggestInnovationsThisCenturyNHhasbeenabletoachievethisbybringingthecostofsurgerydown.AccordingtoanarticlebyVijayGovindarajan,innovationguruandCoxeDistinguishedProfessoratTuckSchoolofBusinessatDartmouthCollege,US,inHarvardBusinessReview,NH'saveragecostofabypasssurgeryis$1,500(Rs90,000)comparedto$1,44,000intheUS,$27,000inMexicoand$14,800inColombia.Interestingly,NH'scostofcardiacsurgeryissignificantlylowerthanwhatitwasinIndia13yearsago.

    Thelowercosthasnotcomeattheexpenseofquality.NH'smortalityrate(1.27percent)andinfectionrate(onepercent)foracoronaryarterybypassgraftprocedureisasgoodasthatofUShospitals.Incidenceofbedsoresafteracardiacsurgeryisgloballyanywherebetweeneightand40percent.AtNH,ithasbeenalmostzerointhelastfouryears,pointsoutDrShetty.

    ThefocusonbothcostandqualityhasnothurtNH'sfinancialseither.WhileNH'srevenuesgrewbyover200percentinthelastfiveyearstoRs827.35crorein2012/13,itsearningsbeforeinterest,taxes,depreciation,andamortisation(EBITDA)marginisahealthy13percent.(NH'sEBITDAfor2012/13stoodatRs97.79crore.)PrivateequityfundsJPMorganandPineBridgehavepickedupa24percentstakeinNH.TheyclearlybelieveNHiscreatinglongtermvalueforinvestors.

    HowdidDrShettymanagetosuccessfullytieaffordabilityandqualitytogether?"ThemostimportantreasonforNH'sexecutionsuccessisitscommitmenttopurpose.Organisationsthatpursuebolddreamscaninspiretheiremployeestoachievetheimpossible.NHattractsdoctors,nursesandotherstaffwhobuyintothisvisionthattheymustprovidehightech,highqualitycaretoall,irrespectiveofmeans,"saysGovindarajan.

    Commitmenttopurposeisjustonereason.DrShettycameupwithamodelthatleveragedeconomiesofscale.Hebuiltlargehospitalsandattractedlargenumberofpatientsthroughinnovativeschemessuchasmicroinsuranceandtelemedicine.Highervolumescutperunitcostofsurgeries."HenryFordtaughtusthissimpleprincipleover100yearsago.Automobileswentfromcrafttomassproduction.Dr

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  • 6/2/2015 BiggestInnovations:NarayanaHealthhassuccessfullymarriedaffordability,qualityhealthcareBusinessToday

    http://businesstoday.intoday.in/story/biggestindiainnovationnarayanahealth/1/205823.html 3/6

    Shettyhastransformedopenheartsurgerytomassproductionusingindustrialorganisation'sexecutionplaybook,"saysGovindarajan."Bytheway,whenyouperformopenheartsurgeryonanassemblyline,notonlydoesthecostgodownbutqualitygoesup.Performingamedicalprocedurerepeatedlyimprovesadoctor'sskillandreduceserrors."

    DrShettythenleveragedthehierarchyofmedicaltalentinoptimisingsurgicalprocedures.AtNH,doctorsoperateasteams.Eachteamhasaspecialist,juniordoctors,trainees,nursesandparamedicalstaff."Abypasssurgerytypicallytakesaboutfivehours.Thecriticalpart,whichistheactualgrafting,takesonlyanhour.Thespecialistdoesthatwhileharvestingoftheveins/arteries,openingandclosingofthechest,suturingandotherproceduresaredonebyjuniordoctors.Thepreparationofthepatientishandledbynursesandparamedicalstaff,"saysDrLloydNazareth,PresidentandGroupChiefOperatingOfficeratNH.Thisprocessleavesthespecialistfreetoperformmoresurgeries.AtNH'sBangalorefacility,asurgeon,onaverage,performsfoursurgeriesaday,sixdaysaweek,takinghisweeklytallyto24.NHsaysthisisfarhigherthanthenumberperformedinanyhospitalglobally,anddramaticallyreducescost.

    Also,frugalityisthewatchwordatNH.Itdoesnotbuyallitsequipment.Itleasessomeonapayperusebasis.Thiskeepscapitalcostslow.Greatemphasisisgiventomaintainingequipmentandextendingitslife.Thebuildingsaredesignedtokeepcostslow,too.NH'sMysoreHospitalwasdesignedandbuiltatacostofRs18lakhperbed,whenthethumbrulecostofasimilarhospitalisRs50lakhtoRs1croreabed.

    Attimes,nodoubt,thefrugalapproachdidnotwork.Theconceptofzeroinventory,forinstance,wasonesuch.NHdidnotstoreconsumablesandgotsupplierstodeliverthemjustintime.Therewereproblemsandthemeasurewasreversed,andaninhousestoresetup."Animportantelementofinnovationistoacceptfailuresandtakecorrectivemeasures,"saysDrA.Raghuvanshi,ViceChairmanandGroupCEO,NH.Thehospitalhassetupacentralbuyingunit(CBU)andstandardisedpurchaseofconsumablesanddevices.Closeto80percentofallpurchasesarethroughtheCBU.Thishascutinventorycostsby15to40percentandensuredquality.

    NHalsoadoptedtechnologytoaidinformationflow.Heretoothefrugalmindsetcameintoplay.Itdeployeditsenterpriseresourceplanning(ERP)onthecloudratherthansettingupdatacentres.Thisnotonlycutinitialcostsbutwaseasilyscalable.TheITsystemhelpsNHinmanyways.Ansmsissentatnoondailytoseniordoctorsandadministratorsinformingthemofthepreviousday'srevenue,expensesandEBITDAdetails.Thisenablesthemanagementtodecidequicklywhenrequestsforfreeorsubsidisedsurgerycome."Thisisourwaytonotturnawaysuchrequestsandatthesametimekeepournosesabovewater,"saysDrShetty."Also,lookingattheP&L(profitandloss)accountattheendofthemonthislikereadingapostmortemreport."

  • 6/2/2015 BiggestInnovations:NarayanaHealthhassuccessfullymarriedaffordability,qualityhealthcareBusinessToday

    http://businesstoday.intoday.in/story/biggestindiainnovationnarayanahealth/1/205823.html 4/6

    NHalsominesdatatoraisequalitylevels.Itsbusinessintelligencemodelthrowsuprealtimedataon30differentparametersthatthemanagementmaywanttotrackforimprovingefficiency.ThoserelatedtoclinicaloutcomesarethendiscussedattheweeklyMortalityMorbidityMeetingheldeveryThursdaywhereallmajorclinicalproceduresarediscussedamongdoctorsandbestpracticesshared."Throughbusinessintelligence,wearetryingtomaptheperformanceofeachdoctorintermsofclinicaloutcomeandfinancialdatasuchasconsumableusedduringsurgery,timepatienthasspentinICUanddurationofstayinthehospital,"saysDrRaghuvanshi.

    NHhasalsobeenopentoexperimenting.Whenitsetupa104bedhospitalatCaymanIslandsintheCaribbean,itchosetousethecoldwateravailablefromtheseatoreplacetheenergyintensiverefrigerationsystem.Energysavings,asaresult,wereashighas90percent.ThisissignificantconsideringthatpowercostintheislandswasthreetimesthatoftheUS.NH'sdecisiontosetupoxygenplantthereratherthansourcethemwillsoonbeimplementedinitsotherhospitalsastheplantpaysbackinjustsixmonths.

    Therearechallenges,ofcourse.Cashflowisalwaysaproblemasover50percentoftheoutstandingisfromthegovernment."Weneverhavemoney,"saysVirenShetty,sonofDrShettyandVicePresident(StrategyandPlanning)atNH.Thishasforcedthehospitaltoshifttoanassetlightmodelforexpansion."Weprefernottoinvestinlandorbuildingbutjustinequipment,"headds.

    NH,meanwhile,continuestogrowandDrShetty'stargetistoreach30,000beds.HeisconfidentthatIndiawillsoonbecomethefirstcountryintheworldtodisassociatehealthcarefromaffluence."Thewealthofanationhaslittletodowithqualityofhealthcareitscitizenscanenjoy,"hesays.Notmanywilldisagree.

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    Dr Dinesh Raju (right) of Narayana Health preparing a patient for surgery in Bangalore

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  • 6/2/2015 BiggestInnovations:NarayanaHealthhassuccessfullymarriedaffordability,qualityhealthcareBusinessToday

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