Narayana Health: The factory of Cheapest Heart Surgeries

In the early 1950s, nobody would have known that a boy born in a tiny village in Karnataka would revolutionize how the Healthcare Industry works. Devi was the eighth of nine children born in a humble background. Pampered by his mother, he was also ambitious as a boy on a Mission from an early age.

It’s funny that his first mission was to build up big muscles to bash his siblings, who bullied him while growing up. What’s even funnier is he took up martial arts & body-building classes to fulfil his little aspiration.

This laughter & joy of childhood turned into remorse a few years later when Devi’s mother got seriously ill. That was the first time he was introduced to the world of healthcare & doctors. He perceived Doctors as Gods that saved lives. 

Sadly, his beloved mother could not be saved due to the lack of quality healthcare & costly treatments. Devastated, Devi knew this was a massive societal problem that needed a solution. That day he decided to become a Doctor. 

This young one was on a mission again, but this mission needed a direction that was some time away. As time passed, Devi developed an interest in heart surgeries after hearing about the first heart transplant in the world. That day his aspiration of becoming a doctor got the direction it required.

Henry Ford of heart surgery business

The mission of becoming a heart surgeon was set. Coming from low-income family background, money constraints were always there, but with the help of funding from an NGO, he completed his MBBS. 

Devi’s career took a positive turn when, after receiving a scholarship, he went to the Royal College of Surgeons, England, where he learned more about Cardiac surgery. Soon, he began working in London. He was hard-working, never complained about anything, and spent his spare time studying. It seemed like he could spend the rest of his life in that city. 

But fate had something else in store for him. Devi was given a position at a new heart hospital in Kolkata; looking at this opportunity, he decided to move back to India. Again a new life began in India, and he became a famous surgeon, Dr. Devi Prasad Shetty.

Years passed, and he received a call to treat a unique patient one day. The patient was non-other than Mother Teresa. He took care of her during the last four years of her life. The most remarkable thing Mother Teresa told him while he was examining a poor kid with a hole in the heart was,

“Dr. Shetty, I know why you are here. When god created these kids with a hole in the heart, he realized there was a problem, and he wanted someone to fix it & that’s the reason he sent you”.

At that moment, Dr. Shetty had a single agenda, a new mission: To ensure that everyone on this planet has access to life-saving surgeries, whether they can afford it or not, as a surgeon’s skill should be available to all. To achieve the mission of providing the cheapest & best quality surgeries to anyone in need, In July 2000, Narayana Hrudayalaya was incorporated.

What Henry Ford did by building an assembly line technique of mass production for cars, Dr. Shetty did the same for his patients. Narayana Hrudayala is bravely fighting with one of India’s most significant problems when it comes to healthcare. So what was that problem?

The biggest Villain

The massive expenses are borne by the patients and their families. This was one of the biggest enemies the healthcare industry faced. Even the government spending on Healthcare was as low as it could get. Not only in India, but this problem is faced around the world.

It’s curious that, while returning to India, Devi performed his first bypass in Kolkata; the costs paid by the patient were Rs. 1.5 Lakh, and today the same bypass is performed in less than Rs. 1 Lakh. 

Devi always said It’s not a solution if it’s not affordable, and he solved this problem and ensured it’s affordable. Just take a look at the average cost of open-heart surgery at Narayana Hrudayalaya v/s US Research Hospital or the data for bypass surgery in private hospitals, US Medicare & Narayana Hrudayalaya.

You must have noticed the difference of $98,000 in open-heart surgery when it comes to spending in Narayana vs the US hospital. The same applies to Indian private hospitals compared with Narayana Health for a bypass. Devi and Narayana Health did something different than any of the ones in the world. What was that? How did they manage to defeat the biggest enemy of their mission? 

The mechanism behind the cheapest surgeries

1. Creating a supply-driven model

In traditional hospitals, whenever the ‘demand’ or ‘need’ for heart surgeries is raised, a free-lance surgeon is appointed to perform that surgery on a commission basis. This way, the cost of every surgery is increased and transferred to the patients. This was done to ensure the demand-driven model is asset-light; these hospitals were smart and saved a lot for themselves.

On the Contrary, Narayana Health keeps the doctors & surgeons in-house on a fixed salary basis instead of appointing a free-lance surgeon whenever the need arises. This way, they don’t have to pay commission to freelance doctors, and incremental cost is saved, reducing the total expenses of surgeries.

We should understand this more clearly; let’s imagine the commission of a freelance surgeon is Rs. 5,00,000, and he performs 2 heart surgeries; this way, the cost per heart surgery becomes Rs. 2,50,000, and this cost is transferred to the patients.

On the other hand, an in-house doctor has a fixed salary of Rs. 6,00,000 per month, and he performs 15 surgeries in a month. Thus, the per surgery cost is only around Rs. 40,000. Huge difference! [Remember: These are just imaginary figures to make you understand the concept :)].

Thus, instead of bringing doctors on demand, they keep a steady supply of patients for the in-house doctors. This way, they changed the demand-driven model to a supply-driven model.

2. Economies of scale

On average, Narayana Hrudayalaya performs 150 major surgeries per day. This gives them the advantage of Economies of Scale, where the cost per surgery is reduced by increasing the number of surgeries performed per day.

They built the surgery process like a production line to perform operations quickly and effectively. With the help of task-shifting, every surgeon takes up only the task they are qualified to do. This way, many surgeries are performed in a row driving the cost down without compromising the quality. Each surgeon performs 400 to 600 procedures annually.

They also reduce costs when it comes to buying equipment or medicines. Due to the power of scaling, negotiations for these things become easy in centralized purchases.
They use a pay-per-use model for some diagnostic equipment to minimise capital costs. Also, reuse some devices after the strict sterilization process.

3. Tier 2-3 cities are the target

Narayana Health has continuously tried to expand its presence in all tier 2-3 cities where they partner with the existing hospitals to provide them with equipment, technology & managerial expertise.

In small cities, the existing hospitals are run by a group of doctors who lack administration expertise. Also, they don’t get the advantage of scaling. thus, these hospitals are expensive, transferring the cost to patients. Narayana targets such hospitals and tie-up with them. And naturally, people prefer to be treated in hospitals with the ‘Narayana’ brand.

4. Choosing the right infrastructure

The cost to build a fully functional infrastructure of hospitals can be crores; on the other hand, it takes at least 4 years to build one. Narayana Hrudayalaya saves this excess spending as mostly they do not build their own infrastructure but lease one. Mostly in Tier 2 & 3 cities, they get into a contract with a local hospital and rent it. 

Narayana Healthcare also has telemedicine networks (exchange of information from one location to another electronically to treat patients in different locations) connecting more than 800 centres globally; this increases Narayana’s reach with no investment in physical infrastructure.

5. Operationally smart

Typical heart surgery is completed in one day, but the number of days a patient spends in a hospital is more, and this staying cost is huge. Narayana doesn’t keep a patient in the hospital for many days; rather, they increase the occupancy in operation theatres, decreasing the unnecessary cost spent on rooms, Wards & ICU.

This practice reduces the expenses of total treatment. Thus, because Narayana’s operation theatre is always full, a 100-bed hospital in Narayana earns as much as a 200-bed hospital anywhere else.

6. Major focus on surgeries

The major focus of Narayana Hrudayalaya is the treatment that involves surgeries rather than focusing on communicable diseases. Even though an emergency ward is always present, they voluntarily seek only to treat major diseases requiring surgeries.

The Bottom Line

It’s interesting to know that the very building in Narayana in Bangalore has 4 floors, each having 5 to 6 operation theatres which means the building is created to do a minimum of 100 heart surgeries every single day. This is a lot but still not enough. 

According to Dr Shetty: “India requires 2 million heart surgeries a year. Today, all the heart surgeons in India put together perform less than 150,000 heart operations. What happens to the remaining 1.9 million people.?” The mission goes on because 1.9 million people still need to be saved.