John Locke Update / Research Newsletter

What The American Health Care System Can Learn From India

posted on in Health Care & Human Services

When assessing India’s health care landscape, one could argue that it’s ripe with competition. It hosts the fourth-largest number of physicians in the world accompanied by the second-highest number of hospitals at 15,000 and counting. But even with that supply of available health care resources and a booming economy since the 1990s, there are critical environmental factors that still make it difficult for the majority of the Indian population to access health care needs. Over half of the population lives in rural areas that lack adequate health care infrastructure. There are high levels of impoverishment. And demand for care outweighs available supply, given that the physician to patient ratio is 1:2,000.

It’s amazing what a freer market and little bit of price transparency can do to help mitigate these factors, however. Price transparency is still a foreign concept in America’s mainstream health care landscape. But for nations like India, price transparency is mainstream, and it is the driving force behind Dr. Devi Shetty’s relentless passion to provide the highest quality cardiac care to the masses at the lowest possible cost.

A “maniac on a mission,” Dr. Shetty is a world-renowned surgeon, having performed over 60,000 cardiac surgeries in the span of his career. His privately funded flagship hospital that was established in 2001, Narayana Hrudayalaya (NH) – which translates to “God’s compassionate home” – is a well-oiled machine that specializes in cardiac care, with 40% of its cases in pediatric heart surgery. It is what Harvard Business School Professor Regina Herzlinger would call a true focused factory, given that case volume is on average two times higher than U.S. competitors – a positive correlation to quality care.

So how exactly does price transparency help?

In India, there isn’t much of a choice but to be price transparent. Less than 14 percent of the population has private insurance, and just one percent of the nation’s GDP is spent on public health expenditures. So Dr. Shetty and his team leverage price transparency to their advantage to be able to perform open-heart surgeries at an average price of $2,000. Compare that to a minimum of $20,000 and as much as upward of $100,000 in the U.S. Here’s how:

  • Keep operational costs low: Since most patients in India pay out of pocket, they demand to know what the costs will be and that those costs remain as low as possible. And since the Indian population is genetically prone to cardiac disease, there continues to be a high demand for cardiac care. NH prides itself on keeping its support and delivery service costs as low as possible as a means to expand its services to more people via its telemedicine software implementation, mobile cardiac diagnostic centers, coronary care satellite campuses, and 19 postgraduate training programs for physicians and nurses. For example, the hospital has determined that high patient volumes produce a lower unit cost when leasing major medical equipment versus acquiring fixed diagnostic equipment. Moreover, NH established itself as a market trendsetter by being the first in its area to adopt generic cardiac-diabetes medications that cost 80% of market rate for brand name drugs.
  • Medical tourism: Imagine knowing upfront how much you’d have to pay for heart surgery. Price transparency brings this value to prospective patients, and it is one of medical tourism’s critical success factors. In 2003 alone, NH attracted over 150,000 foreign patients who willingly paid roughly $2,000 out of pocket (or their employer did) for open-heart surgery. Narayana has since captured more medical tourist market share by expanding its presence into the Cayman Islands. Revenue from this line of business helps advance NH’s mission by allowing them to provide more charitable care, and serves to strengthen its 60:40 paying-to-non-paying patient mix.
  • Philanthropy: Price transparency cultivates philanthropic relationships – especially when limited government funds are spent on health care infrastructure. And donors want to know how their funds are being used. To maintain a solid philanthropic foundation at NH, the internal financial department has devised a unique accounting system that determines how many surgeries can be performed and how many urgent charitable cases can be taken care of based on daily cash flow.

 

Katherine Restrepo is the Director of Health Care Policy at the John Locke Foundation. Before joining the John Locke Foundation, she interned at the Cato Institute under the direction of Michael Cannon, Director of Health Policy Studies. … ...

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