Transcription
Hi everybody. Did you know that every year, 2.5 million Indians need a heart surgery to survive? But only three lakh 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.
India has the highest number of people with heart conditions in the world. The majority have no chance of survival because their families are unable to afford an operation. Healthcare doctors are not available, facilities may not be available, and people may have less money. Country where 80% of all medical bills are paid out of pocket. So, what you see is not a health problem only, it is an economic problem.
But the question is, why? Why is this condition so bad? Well, do you realize 90% of 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.
Every day, I see about 60 to 80 patients in my clinic. Most of them are little kids sitting on the mother's lap. I examine the kid and I tell the mother that your baby has a hole in the heart, he needs an operation. She has only one question, you know what that question is? How much it is going to cost?
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 two 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? That is approximately 95 lakh rupees.
But you know what, guys? One Indian did something so revolutionary that he built a hospital that could conduct free heart surgery while making a 400 CR rupees in profit. I repeat, 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 genius. This man goes after the name Dr. Devi Shetty. And the hospital that he built is called Narayana, N-A-R-A-Y-A-N-A, the Temple of the Heart. It's been called the Henry Ford of heart surgery, a hospital with a difference, determined to make a difference to some.
Dr. Shetty was either a crazy visionary or perhaps just crazy. For me, heart is the center of the universe. So, we created Narayana and Narayana Health group of hospitals about 20 years ago with the idea of democratizing high-tech healthcare. Dr. Shetty operates on more than half of his patients for nothing. So, if the parents are not in a position to afford the high cost of heart operation, and if the babies come to us, we have to do the operation whether they have money or no money.
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 too 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?
Before we move on, let me thank Ditto for supporting our content. People, as we all know, healthcare costs in India are skyrocketing, and these expenses can push families to the brink of poverty. The hard truth is that even with insurance, things can go wrong. Why? Because most people end up purchasing insurance policies without understanding them. Insurance being a complex document can be difficult to read, and this can create problems at the time of claim. This leaves you unprotected when you need it the most.
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Also, guys, the business model of Narayana 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, have evolved a lot. So, use this case study as inspiration of efficiency and not for industry know-how of today's world. I'll attach all the sources in the description so that you can read through them and understand these models better.
People, 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 commission per surgery basis. So, let's understand this using an example. Let's say a hospital performs eight 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 eight cardiac surgeries per month. Now, this hospital has two choices. Number 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 rupees per surgery. Now, if the hospital opts for freelancing, they pay 50,000 rupees 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 rupees per month as compared to hiring a full-time doctor.
But here's the twist. This demand-driven model only works when the number of surgeries is limited. And here's what happens if the hospital's 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 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 changed 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 rupee price point, 30,000 people may be able to afford it. And at 1 lakh rupees, 50,000 people may be able to afford it.
So, Dr. Devi Shetty 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, Narayana 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 Narayana 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 five 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 be 7 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 Narayana 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, if 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 earn more than what a freelancer can earn. Number two, 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.
And this brings us to the second point. And that is, how did they 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. The question is, how is that even possible? Well, to explain this, instead of using too many technical terms in the heart operation procedures, let's understand 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 tests and anesthesia prep. And then comes the surgery itself, which is divided among senior surgeons, junior doctors, and skilled nurses. And then comes the post-operative 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 post-operative 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 tasks 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 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 sous 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 post-operation tasks, here's what the Narayana Health doctors did. Look at this. Just like the head chef 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 valve 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 tasks. So, they prepare the grafts, position the patient, and set up the surgical site. And they assist with the sutures 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 post-operative 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 tasks 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, charting, 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 increased 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 PET CT scanners are barely used for 3 to 5 scans a day. And this is the reason why scans were and still are expensive in the US. But Narayana 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, their 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 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 following a strict sterilization protocol. So, a 13,000 rupee clamp is reused multiple times, which reduces its effective cost to just 200 to 300 rupees per use. This again ensured cost saving without compromising on patient safety.
But there is one question that still remains unanswered. How on earth did Narayana Health conduct free heart surgeries and still make a profit of 400 crores? Well, here's where there is one amazing model that Narayana 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 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 inpatient 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 Harvard Business School. And this remarkable story has three very, very important business lessons for all of us.
Lesson 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 world-class heart surgeries at a fraction of the global cost.
Lesson number two: You know, Dr. Viman once said at our podcast that if your profits come from the customer's pocket, you can sustain. But if your profits come from your operational efficiency, you can scale to millions. In this case, Narayana'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 Shetty's compassion and business has given India a gift that we must remember and celebrate forever. Which is why we made this episode as a tribute to Dr. Devi Shetty. So, if you love this episode, please tag Dr. Devi Shetty and Narayana Health on Twitter and share it with as many people as possible. And don't forget to check out Ditto for an honest and spam-free experience. And use the link in the description to book a free call with Ditto today. Thank you so much for watching. I will see you in the next one. Bye-bye.