Sunday, May 23, 2010

A Healthcare Model Worth Emulating

Not long ago, it was a truism that the US had the world’s finest healthcare system. Patients from all parts of the world who could afford it made a beeline for hospitals there. Today, Americans generally agree that their healthcare system is grossly expensive, ineffective — even unjust. In fact, Americans have created a healthcare system that leaves millions of citizens out in the cold.

Among the world’s developed nations, the US stands at or near the bottom in most important rankings of access to and quality of medical care. In 2000, when a Harvard Medical School professor working at the WHO developed a complicated formula to rate the quality and fairness of national health care systems around the world, the richest nation on earth ranked 37th, just behind Dominica and Costa Rica, and just ahead of Slovenia and Cuba.

The one area where the US unquestionably leads the world is in spending. As per OECD Health at a Glance, 2007 health expenditure as a percentage of GDP, 2005, the US spends 15.3; Switzerland 11.6; France 11.1; Germany 10.7; Canada 9.8; Sweden 9.1; UK 8.3; Japan 8.0; Mexico 6.4; Taiwan 6.2. Even countries with considerably older populations than the US, with more need for medical attention, spend much less. Japan has the oldest population in the world. And yet Japan spends about $3,000 per person on healthcare each year compared to $7,000 per person in the US.

Americans shell out big bucks without getting what they pay for. J R Reid in a recently published book The Healing of America makes this observation: “Surveys show that Americans who see a doctor tend to be less satisfied with their treatment than Britons, Italians, Germans, Canadians, or the Japanese — even though we pay the doctor much more than they do.”

India has a healthcare model to offer the world. It is based on public-private-partnership: government the insurance-provider; private hospitals the healthcare-provider. It leverages number and volume, thereby reducing the cost of treatment.

The first part of the model — insurance and healthcare — has been in operation the last few years at Narayana Hrudayalaya (NH) in Bangalore. In collaboration with the Karnataka government the hospital started the Yeshasvini scheme — a comprehensive health insurance scheme, at Rs 10 per month, for the poor farmers of the state. It covered open-heart surgery.

The man behind it is Dr Devi Shetty, chairman of Narayana Hrudayalaya. His idea of health city is founded on a sound business model. A multi-speciality hospital can mean better utilisation of resources; the same equipment can be exploited for different specialities, thereby driving down the cost relentlessly.

Within a few years of setting up NH with world-class facilities in cardiac care, he has set up multiple hospitals with a total strength of 3,000 beds, offering facilities like neurosurgery, orthopaedics, gastroenterology and transplant surgery, ophthalmology and nephrology. Today, there is a cluster of hospitals around NH in Narayana Health City — a 350-bed Narayana Nethralaya for ophthalmology, a 250-bed Sparsh Hospital for orthopaedics, Thrombosis Research Institute for research and study, and the 1,500-bed Narayana Multi-Speciality Hospital and Cancer Research Centre for all other disciplines. Quality healthcare for the poor is no more a mirage, as the universally accepted algorithm would have us believe.

India will become the first country to dissociate healthcare from affluence,” Shetty says. But for this the government will have to become an insurance-provider rather than a healthcare-provider. Governments will realise that it is better to offer health insurance than manage hospitals. But this will only happen through big hospitals catering to big numbers at a very low price.

Healthcare, unlike other services, is a high-octane beast. Drugs and disposables take up 40 per cent of the revenue generated. The other fixed costs are salary and overheads. However, volume equips one with power to source disposables. The Wal-Mart model is the one to follow in order to drive cost down. India’s population — patients and skilled human potential — provides a unique competitive advantage. The vast untapped pool of patients not in the treatment window can be leveraged for economy of scale. This is where the government can step in — as health insurance provider.

All that it needs to do is encourage creation of large private hospitals that can leverage numbers and provide quality healthcare aided by government-sponsored health insurance cover. The mass insurance will drive premiums down. More-less duality is the mantra. More people insured means lower premiums; more patients means more honing of skills; more skills mean less time spent on procedures; less time spent means less labour cost/overhead; more patients means more exploitation of available facilities; more patients mean more use of disposables and volume discount aiding less cost of consumables; less labour/material and more exploitation of fixed assets mean less overall expenses; lower overall expense mean lower insurance payment; which translates into lower premiums, and that implies less government liability.

NH follows another ingenious technique to whittle costs. Given the high patient footfall, the number of tests is high. So NH has ‘in-sourced’ equipment by persuading manufacturers/suppliers to merely ‘park’ their machines for use by the hospital and earn their revenue from selling chemical reagents and disposables for the tests and treatment. NH saves on investment while the manufacturers/suppliers get more than their share of profit by selling disposables/consumables. And the more the merrier: NH for driving the cost down and the supplier for its earnings and profit.

Is the model replicable? Perhaps yes. Because there is a silver lining: the magic of markets. Which is why a successful NH model has the potential to push market forces to drive healthcare costs down by embracing the populace at the bottom of the pyramid — and decoupling quality healthcare from money and bridging the gaps among societal strata.

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