Devi Shetty's doctors perform the most heart surgeries in India. He is using that scale to cut the cost of treatment
Twenty-day-old Samuel Idoko’s parents were worried sick. The boy’s heart condition needed urgent surgery but back home in Nigeria, there were no hospitals dealing with such cases. They didn’t even have the time to celebrate his birth as they rushed him to Bangalore. Their destination: Narayana Hrudyalaya Institute of Cardiac Sciences.
Leveraging Scale
But how does Shetty do it? The answer lies in what he likes to call his “Wal-Mart approach to healthcare”. Wal-Mart proved that with size, the cost of inputs could be challenged. “They had the size which let them dictate terms to anyone starting from a giant like Procter & Gamble to potato growers,” he says.
The Wal-Mart Effect
Dr. Devi Shetty’s Narayana Hrudyalaya in Bangalore uses economies of scale to keep the cost of treatment low
Rs 8.50 for a blood gas analysis
This normally costs Rs. 350-400 per test and forms the bulk of the cost for an ICU patient. Where others do 30 tests a day, Narayana Hrudyalaya does 2,000. It used these numbers to persuade manufacturers to install machines — which cost Rs. 12-15 lakh each — for free and make money instead by charging only for chemical reagents for the test.
Rs 110,000 cost of a heart surgery; 6,088 heart surgeries (in 2008), 1,232 fully paid for; Rs. 300 crore turnover (2008-09)
Unlike other hospitals, the bulk of its profits come from the out- patients ward, where the cost to the patient is low but the margins are as high as 80 percent. The number of walk-in patients remains high because they know the cost of surgery will be subsidised should they need it.
30 heart surgeries, 1,000 walk-in patients a day
Medicines and equipment account for 40 percent of revenue outflows, but original equipment makers for instance, don’t usually supply directly to hospitals. Narayana Hrudyalaya used these numbers to convince them to supply directly, at a low cost.
(This story appears in the 03 July, 2009 issue of Forbes India. To visit our Archives, click here.)