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Industry Background Healthcare Situation In India Economics Essay

Healthcare industry in India is currently estimated to be 65 billion USD industry and is poised for rapid growth in medium term so as to reach 280 billion USD by 2020. Growing population, increasing lifestyle related health problems, cheaper treatment costs, thrust in medical tourism, developing health insurance coverage, increasing trend in disposable income, government focus on healthcare initiatives and PPP models are few of the driving factors of this sector in India.

Figure Projected Growth in healthcare sector in India [2] 

Healthcare industry can be divided into the following sub sectors:

Figure Breakup of Indian Healthcare Sector [3] 

Clearly, as depicted above hospital is the major sub sector within the healthcare industry.

Analyzing the negative aspects we found that the Indian healthcare expenditure is still way below than the developed economies and amongst the lowest as compared to other emerging economies and the existing healthcare infrastructure lags behind most of countries in the world. India boasts of being an emerging economy growing at a rate of 7-8% which is above the rate of growth of most of the economies in the world, but the actual healthcare expenditure by government is close 0.936% of GDP. Several committees have suggested increasing this level up to 2.5% in the 12th five year plan, but still the actual 12th five year plan has projected for only 1.58% of GDP as healthcare expenditure by government [4] .

Government contribution in healthcare expenditure is much low as compared to ROW as shown below:

Figure Comparison of healthcare expenditure by Governments across globe [5] 

This has led to inadequate infrastructure in healthcare sector along with the shortage of resources in a sector where high skilled professionals are a minimum requirement. The below tables will give a fare snapshot of the current healthcare statistics and shortages in healthcare sector in India.

Table Comparison of mortality rates [6] 

The above table shows that there is lot of scope in improvements in infant and maternal mortality rates as compared to ROW.

1.2 Change in Disease Profile

With the rapid development of Indian economy, the population in urban centers has increased 4.5 times between 1951-2001as compared to 3 times for the total population. This further shifted the diseases profile from infectious to lifestyle related ones.

Table Increasing Risk of lifestyle related deaths [7] 

These four diseases are projected to continue to increase over the period of time.

1.3 Health Infrastructure problems

India has inadequate no. of hospital beds and doctors (0.6 per 1000 as against 1.23 which is global average) available for entire Indian population as shown in below table:

Table Inadequate Beds and Doctor density [8] 

Table Indian Healthcare Infra compared to other economies [9] 

The above figure shows immense opportunities in grooming number of doctors and nurses along with other skilled medical staffs.

1.4 Challenges and Opportunities for the hospital industry in India [10] 

The inadequacies mentioned above presents various opportunities for the hospital groups which are mentioned below. These will not only help them in increasing revenues but also supplements their individual expansion.

Investment Trends: Domestic demand along with the ever increasing trend in medical tourism attracted a lot of investments in providing high end healthcare services. This investment has been increasing at a CAGR of 15% reaching up to $78 billion USD with 80% of investments coming from the private players. [11] 

Government focus on PPP models: In order to close the demand-supply gaps in providing quality healthcare facilities to the brimming Indian population, government is increasingly focusing on developing partnerships with the private players. Private players with their competency in operational efficiency can contribute in improving the healthcare services delivery to the masses. [12] 

Health Insurance Coverage: In India, still a large chunk of population has no health insurance coverage. 15% of the population covered under such schemes is usually government employee and 80% of health financing is private financing rather than with pre payment schemes. Any hospital group which can forge strategic partnerships with the health insurance providers can ultimately attract a large number of potential customers. [13] 

Increasing Population and lifestyle related diseases: Increase in population is accompanied with increase in other potential lifestyle related healthcare risks like cardio vascular problems, diabetes and various other occupational diseases. India would require 1.75 million beds by 2025 to reach a ratio of 2 beds per 1000 population. [14] 

Offering Expensive treatments at affordable rates: this measure can actually help any hospital group to penetrate all the sections of the society especially bottom of the pyramid which neither possess health insurance nor the ability to pay for their treatments.

Industry Analysis of hospitals in India

2.1 PEST Analysis of healthcare - hospital sector in India:

The analysis has been pictorially represented by the below mentioned figure.

Presented below is the analysis of various elements of the healthcare – hospital sector in India:

Political: Government spending on healthcare has been among the lowest in the world with 0.936% of GDP which corresponds to roughly $43 USD per capita of expenditure as compared to Sri Lanka which spends $87 USD and China $155 USD. Government is planning to increase this expenditure up to 2.5% of GDP in the 12th five year plan based on recommendations of Srinath Reddy led committee on universal healthcare coverage set up by plan model. [15] .

Government has permitted 100% FDI in the healthcare sector which has brought about multinationals in hospital industry like Columbia Asia to India.

Indian Government is also focusing on PPP (Public Private Partnership) Model in healthcare sector. [16] 

To improve the rural healthcare situation, NHRM (National Rural Health Mission) was launched in April 2005 through which $10.15 billion USD has been allocated for up gradation and capacity enhancement of healthcare facilities in rural India. Apart from these, Government has allocated $1.23 billion USD for establishing six AIIMS (one of the topmost premier medical college and hospital) – like Institutes in India and upgrading 13 medical college and hospitals. [17] 

The above consolidated steps taken by Indian government clearly depicts its willingness to improve the healthcare situation of the 1.2 billion population of India by increasing investments in all the possible avenues and hence this confirms the enormous support of government to medical institutions and hospitals across India.

Economic: the following economic factors have led to increase in public expenditure on healthcare and hence in the emergence of hospital industry.

Tax benefits: Lowering direct taxes, increased depreciation rates on medical equipments, income tax exemption for 5 years to hospitals operating in rural areas and other tax incentives are believed to have highly encouraged opening up of hospitals and other related industries in healthcare.

Health Insurance: The coverage of Health insurance in India is growing from 10-15% to 50% at a CAGR of 24% with the entry of lot of foreign players in this sector. In tertiary care, the insurance penetration is 40-55% with employer paid coverage. These factors are also responsible for the growth of hospitals groups in India.

Growth in disposable Income: Per capita Income for Indian population has crossed the $1000 USD milestone in the current financial year which is an increase of 16.9% over the last year [18] . As per one report, households in INR 200,000+ per annum bracket can benefit from the increase in disposable income from 14% in 2009-10 to 26% in 2014-15.This ever increasing trend in per capita income also corresponds to the increase in affordability of healthcare facilities and hence supports the phenomenal growth of hospital groups in India. [19] 

Medical Tourism: India is emerging a major medical tourist destination. This market may reach up to $ 2 Billion USD by 2012. [20] 

Social: The following demographic factors also favors the growth of healthcare facilities in India:

Increase in Population: A population of 1.2 billion which is expected to increase to 1.4 billion by 2026 provides immense opportunities for the growth of hospitals in India. [21] 

Shift in demographics: 60% of current Indian population consists of youth which by 2025will become 168 million as compared to current 96 million. This will also create a market for geriatric healthcare opportunities. [22] 

Lifestyle – related diseases: The current lifestyle adopted by majority of the urban population is also marked by an increase in incident related diseases like cardio-vascular problems, oncology and diabetes.

This requires expansion of preventive medical care being offered in such urban centers.

Rising Awareness: With an increase in literacy level among the Indian population also increases their awareness related to diseases and preferences and better utilization of healthcare facilities. [23] 

Technological: Rapid growth of research and development in medical science has led to multifaceted innovations in treatments, pharmaceuticals, equipments which play an important role in the growth of hospital industry in India. This growth has been also supplemented by the introduction of generic medicines for numerous treatments.

The above analysis is represented in the following pictorial presentation.

2.2 Porter’s Five forces Analysis of healthcare hospital Industry in India:

Analyzing one by one the elements of porter’s five forces analysis, it confirms that the hospital sector in India is highly attractive. Each of the elements has been elaborated below:

Buyer’s Power: This is considered low since customers have little choice in bargaining in case of availing healthcare facilities. A single customer switching from one hospital to another makes a little impact on the overall revenues or standing of the hospital.

Supplier’s Power: Suppliers for the medical equipments, pharmaceutical companies supplying medicines possess high bargaining power in this sector. An increase in the prices of medical equipments or their maintenance can have a significant effect on the operating income of the institution.

Threat of substitute: In India, threat of substitutes comes from other clinics which practice homeopathy and ayurvedic therapies for treatment, but since they cannot provide immediate reliefs in state of emergency, so that they cannot replace the hospitals in India. Hence, threat of substitute is Low.

Threat of new entrants: High capital and highly skilled professionals are foremost requirement for this sector which makes the threat for new Entrants low.

Rivalry: Highly fragmented hospital industry makes the rivalry low in India. There are 500,000 hospital beds available in India but there are only few players in this sector possessing a very small market share of the whole healthcare facilities.

2.3 Key Success Factors (KSF) for the hospitals in India:

In order to perform the competitive analysis of the existing players in this market in India, key success factors need to be defined first which will help to clear the rule of game, i.e. what are the factors contributing majorly to the market share of a particular hospital group.

These key success factors have been mentioned below in the order of their priority:

Number of Beds: This is the most important KSF as the number of patients served by a particular hospital group is directly proportional to the number of beds available.

Reach/Coverage: In order to capture market share within national/international arena, it is equally necessary that the hospital group has a presence in all the important locations. It will directly help in attracting patients from as many locations as they have and hence create awareness among the targeted population.

Awareness: Branding is also important in order to attract patients in an urban location which has presence of other big competitors and also to bring in patients from other far flung areas that came to know about a particular hospital by word of mouth or through other publicity mechanisms. Branding develops a level of expectation of patient care and service administered by the hospitals.

Price Mechanism: The price mechanism directly relates to the affordability standard of the patients. It is of little importance for a small section of Indian society which has coverage from health insurance companies either personally or under employer paid insurance coverage schemes. But for majority of the population in India which cannot afford high quality service, patients are price sensitive and mostly go to the government hospitals which do not have quality infrastructure, skilled staffs and adequate medical equipments in most of the locations. Here, price can play an important role in attracting such customers/patients.

Cost Efficiency: The hospital should make sure to utilize its resources and other inputs tactfully while maintaining the same quality of operations, and hence achieve the operating margin required for efficiently running the hospital group and fuel its growth and expansion plans too.

Apart from the above mentioned key success factors; there are some minimum level requirements which are called threshold factors required for the existing players in the hospital industry. These factors are – rendering high quality services, highly experienced medical staff and specialty in treatment of variety of diseases. All the major players are already successful in achieving these and need to work on the KSF to boost their individual market share.

2.4 Competitor Analysis

As already stated before, Indian healthcare industry especially the hospitals part is highly fragmented. India has close to 567,000 hospital beds of which very small proportion is being served by big players like Apollo, Fortis etc. The individual figures and locations are mentioned in the below table.

Key players in healthcare industry [24] 

Company

No. Of beds

Presence

Apollo Hospitals Enterprise Ltd

8,500

Chennai, Madurai, Hyderabad, Karur, Karim Nagar, Mysore, Visakhapatnam, Bilaspur, Aragonda, Kakindada, Bengaluru, Delhi, Noida, Kolkata, Ahmedabad, Mauritius, Pune, Raichur, Ranipet, Ranchi, Ludhiana, Indore, Bhubaneswar, Dhaka

Aarvind Eye Hospitals

3,649

Theni, Tirunelveli, Coimbatore, Puducherry, Madurai, Amethi, Kolkata

CARE Hospitals

1,400

Hyderabad, Vijaywada, Nagpur, Rajpur, Bhubaneshwar, Surat, Pune, Visakhapatnam

Fortis Healthcare Ltd

5,044

Mumbai, Bengaluru, Kolkata, Mohali, Noida, Delhi, Amristar, Rajpur, Jaipur, Chennai, Kota

Max Hospitals

800

Delhi and NCR

Manipal Group of Hospitals

+7,000

Udupi, Bengaluru, Manipal, Attavar, Mangalore, Goa, Tumkur, Vijaywada, Kasaragod, Visakhapatnam

Wockhardt

+1500

Bhavnagar, Goa, Nasik, South Mumbai, Nagpur, Rajkot, Surat, Vashi

Narayana

+5700

Bangalore, Kolkata, Jaipur, Dharwad, Jamshedpur, Kolar, Hyderabad

Source: E&Y, November 2010

Below mentioned is the snapshot of each major competitor like Apollo, Fortis, Manipal and Wockhardt followed by a competitive matrix which gives a clearer picture of the standing of each one in the Indian market of organized healthcare facilities.

Apollo Hospitals: Apollo Hospitals is a major hospital chain based in Chennai, India. It was founded by Dr Prathap C. Reddy in 1983. Apollo is a private healthcare provider in Asia with hospitals in India, Sri Lanka, Bangladesh, Ghana, Nigeria, Republic of Mauritius, Qatar,Oman and Kuwait. Several of the group's hospitals have been among the first in India to receive a form of international healthcare accreditation, in their case by the America-based Joint Commission International (JCI). The Hyderabad hospital was the first in the world, outside the US, to receive JCI's Disease- or Condition-Specific Care (DCSC) Certification in addition to general accreditation when it received this for its Acute Stroke treatment in 2006. The group has developed services in telemedicine, after starting a pilot project in 2000 in Dr Pratap C. Reddy's own home village. It is now the largest telemedicine provider in India with 71 centers. [25] 

Fortis: Fortis Healthcare Limited is a leading, integrated healthcare delivery provider in the Pan Asia-Pacific region. The healthcare firm has an asset base in 10 countries, many of which represent the fastest-growing healthcare delivery markets in the world. Currently, the company has its presence in Australia, Canada, Dubai, Hong Kong, India, Mauritius, New Zealand, Singapore, Sri Lanka and Vietnam with 75 hospitals, over 12,000 beds, over 600 primary care centres and a talent pool of over 23,000 people. [26] 

Manipal: Manipal Hospitals group is five decades old and the third largest healthcare providers in India. It has a network of 15 hospitals and three primary care centers across five states in south India and caters to 2 million customers from India and overseas every year. [27] 

Wockhardt: Wockhardt is a renowned pharmaceutical company that ventured into the hospital industry and followed rapid expansion strategy. Within a short span of time they have built a capacity of 1500+ beds across various locations in India. [28] 

2.4.1 Strategic Canvass

This Strategic Canvass has been prepared based on the secondary data available on the various reference websites and hence does not clearly indicate the actual market share possessed by each competitor.

Company background [29] 

Narayana Hrudayalaya (NH) headquartered in Bangalore, India is one of the largest hospital chains in India. It is also considered as one of world’s largest pediatric heart hospitals. NH holds the record of performing 15000 cardiac surgeries for patients from 25 nationalities.

Dr. Devi Shetty founded NH in 2001 as a 280-bed cardiac specialty hospital and it has grown rapidly within ten years to 5,700 beds across 14 cities in India and has an asset value of 7.5 billion INR.

Dr. Shetty studied medicine in Mangalore, India and has an extensive work experience of 25 years in cardiac care with six years at Guy’s Hospital in London, then BM Birla Heart Research Institute in 1989 and the Manipal Heart Foundation in 1997. He co-founded Asia Heart Foundation (AHF), a non-profit organization with Dr. Alok Roy which decided to promote their own heart hospital in Kolkata, The Rabindranath Tagore Institute of Cardiac sciences, a 150 bed hospital with 3 operation theatres and a 22-bed intensive therapy unit.

Dr. Devi Shetty was personal cardiac surgeon for Mother Teresa whom he believed is the single person who has actually given him directions in healthcare domain. He started NH in 2001 which was constructed by Shankar Narayana Construction owned by his father-in-law as a generous contribution. This hospital when constructed was two stories and housed 280 beds and 5 operation theatres.

Since inception, the NH group intends to make quality healthcare accessible and affordable to all using economies of scale. NH has created a new model for healthcare in India by containing costs drastically for expensive cardiac treatments by tweaking the process as well as driving bargains and creative partnership deals.

With this innovation, NH has brought the average cost of a typical cardiac surgery from 5000-7000USD to less than 3000USD and now they are working on further reducing the cost up to 800 USD. To achieve this, over the next five years, the group is planning to set up 5,000 beds health care cities across India which will increase their capacity to 30,000 beds.

NH is following an effective strategy of attracting the paying patients by the virtue of high quality reputation and combining this with the focus on subsidizing the cost to a level such that the surplus gained by paying patients can be used to cover the cost of patients who cannot afford to pay full fee. In 2004, the proportion of paying v/s patients who cannot pay full fee was 60:40. Despite helping so many poor people, the profit after tax margin is around 7.7% which is quite well as compared with average of the American private hospitals (6.9%).

Narayana Hrudayalaya started a scheme for poor farmers known as Yeshaswini Insurance scheme which allow more than 30 million people to access the hospital network of 350 hospitals in 28 districts of Karnataka and other states for a minimal insurance payment of 11 cents per month. These patients receive free treatment at NH.

Also, he has agents stationed at the Indo-Pak border which as soon as receives a patient from Pakistan alerts the authorities at visa desk in NH, Bangalore. Currently, no other hospital in India has such facility for Pakistan nationals. NH authorities get involve with Indian government for clearance of visa processes and the patient is then airlifted to the concerned hospital for heart treatment in the shortest possible time [30] .

As per Dr. Shetty, there are around 2.5 million people living in India which require cardiac surgery but only 80,000 to 90,000 operations are done yearly which leaves a huge scope of offering treatment by making it affordable for everyone.

Apart from cardiac care they are now expanding into other treatments also such as cancer care and have come up with a 1400 bed cancer hospital which is the largest in the country at present. The expansion plans also include a 500-bed orthopedic centre, eye hospital, research facilities and 50 training rooms.

3.1 Mission/Vision/values [31] 

The following gives the description of Narayana’s Vision, Mission, Objectives and Values provided in the hospital’s website -

3.1.1 Our Vision

“Affordable Quality Healthcare for the Masses Worldwide”

3.1.2 Our Mission

“A dream to making quality healthcare accessible to the masses worldwide”

3.1.3 Our Objectives

Provide holistic, timely patient care

Continually upgrade the knowledge and technology in patient care

Enhance customer relationships and provide an enriching experience

3.1.4 Values:

We firmly believe that any patient who comes to us seeking our expertise in care and treatment should not be deprived – it is this service based approach to health care, which has created the team of global experts who are striving round-the-clock to serve the needy. All the efforts of our medical staff are centered on our core value of making healthcare accessible and affordable to the common man. An early detection of any type of disease makes the treatment affordable as well as less complicated in its administration.

We continue to improvise our systems to make the treatment less painful thus ensuring a better level of service to the society.

3.2 Organization structure:

The Board of directors is the governing body for NH.

JPMC – JP Morgan Chase and Pine Bridge Investments (Formerly known as AIG investments) each hold 12.5% stake in the company. Kiran Mazumdar-Shaw from BIOCON firm owns a 2.5% stake and Shetty and his family own the remainder within the company.

The BOD structure is shown below [32] :

C:\AIM\MRR\NH\organisationchart\image002.png

The organization structure that is followed in governing the network of hospitals is mentioned in the below figure.

C:\AIM\MRR\NH\organisationchart\image003.png

The major hospitals at Bangalore and Kolkata have positions for CAO (Chief Administrative Officer) and CMS (Chief of Medical Services). CAO manages the administrative part for the hospital while CMS handles all the important decision making from medical perspectives.

As shown in figure, all the CAO, CMS, other CXOs and planning and strategy office directly reports to Group CEO.

3.3 Functional assessment

Operations

3.3.1.1Flow of patients care service: The below figure provides the flow of patient care services in Narayana Hrudayalaya, Bangalore [33] (Study of OPD at NH):

Flowchart mod1

The outpatient department at Narayana Hrudayalaya handles 2500 patients covering two types of patients – Paying patients and patients covered under Yeshaswini Insurance scheme. Patients covered under this scheme are given free of cost treatment. The only expense for such patients is medicine.

NH provides packages for treatment like cardiac care. Angioplasty package costs around 1500 USD while coronary artery bypass graft (CABG) procedure costs around 2500 USD which covers the hospitalization, surgery and routine check-ups. Patient has to provide 20% of the total fee as a down payment and if the treatment cost goes above the estimated costs then a heads up is given to the patients. Special care charges are extra.

NH also has a central website which provides helpline numbers and online appointment requests. The call has 12 agents which cover 24 hrs a day in a team of 6 per shift.

To handle emergency situations, NH in Bangalore has 15 ambulances and a team of 10 doctors of which 3-4 doctors are available round the clock basis. Emergency call numbers for doctors have been set up to receive immediate consultations from senior doctors. The clinical volumes received at NH, Bangalore is mentioned below:

Table 5 Clinical Volume at NH, Bangalore [34] 

Particulars

2010 – 11

Cardiac Surgeries

8,944

Multispecialty Surgeries

12,154

Cath procedures

44,926

Dialysis

62,570

OPD

6,97,200

Admissions

94,260

Facilities and equipments: NH group brings down the cost of treatment by striking innovative partnership deals with the suppliers of equipments and other requirements. Instead of buying surgical gloves in India, for example, Narayana Hrudayalaya saves about 40% by importing them in container loads from Malaysia. To economize the recurring expense of film, hospital started using digital X-Ray technology. Narayana Hrudayalaya manages to offer lower rate tests to patients by using CT Scanners and MRI for 14 hours day where as other hospitals use it for only 8 hours a day. Increase in volume of such tests helps in drawing per unit cost down [35] .

For procedures like blood gas analysis which requires purchasing costly equipments, NH team has given special provision to vendor that, instead of selling the machine to the hospital, they could simply keep it there and make money by selling the chemical reagents required for the test. In this way, the hospital actually saves on the cost of such costly machines while the concerned supplier also generates profits. Some other vendor has also parked his catheterization laboratory equipment at the hospital free of charge. The deal was possible because the vendor wanted to use reputation of being associated with Narayana Hrudayalaya as a referral. Dr. Shetty wants to replicate such business models at other places too across the world.

NH team uses this advantage of high patient volumes in driving hard bargains with vendors on prices for basic supplies to sophisticated medical equipment. The new cancer hospital has purchased two linear accelerators (for producing X-rays) that typically cost US$6.4 million each for the price of one machine. The cost of the machines was spread out, interest-free, over seven years. "Given [the hospital's] volumes and Shetty's own credibility, every negotiation is as tough as it can be. He certainly gets his pound of flesh," notes V. Raja, president and CEO of GE Healthcare South Asia, who has been associated with Narayana Hrudayalaya from the beginning. GE healthcare is already in discussion with NH Team on exploring the various other partnerships which can be mutually beneficial to both supplier and the hospital group which is on the way of expansion across India and other international locations.

Partnership with TriMedX, India [36] : TriMedX is one of the key partners for Narayana Hospitals group. TriMedX, USA is partner for Ascension Health, USA – largest non-profit hospital chain in USA. It has large team of engineers which can service any medical equipment. Normally, the equipment providers do not provide maintenance after 7 years of buying but, NH has entered into a joint venture deal wherein the TriMedX can service for the equipment for 14 yrs across Asia and Africa which again brings down to a very low level. This joint venture has actually changed the rule of game in India in medical equipments category.

Utilization: NH Bangalore has a utilization rate of 75% which is very good as compared to other hospital groups in India. The doctors are paid a fixed salary and they are required to work more as compared to other hospitals, bringing down the costs per procedure. But this does not mean they are getting less monthly compensation when compared to cardiac surgeons from other hospitals. The salary for the staff is generally 22% of revenues as compared to hospitals in the USA where it accounts for more than 60% of revenues. But, the doctors work around 12-16 hrs a day which is again a cost-saving instrument for the hospital group [37] .

Sub contracting of support services: All the support services like housekeeping and security have been outsourced to individual firms which help in keeping the costs low while maintaining a professional quality of such support functions.

Accreditation: NH has several prestigious certifications like NABH and JCI. National Accreditation Board for Hospitals & Healthcare Providers (NABH) is a constituent board of Quality Council of India, set up to establish and operate accreditation program for healthcare organizations. The board is structured to cater to much desired needs of the consumers and to set benchmarks for progress of health industry [38] .

JCI standards provide meaningful metrics to improve the quality and patient safety in all clinical and managerial functions of acute care hospitals, as well as embrace continuous performance improvement. (http://www.jointcommissioninternational.org/Programs-Hospitals/ )

The standards are applicable for:

Public and private hospitals

Medical and psychiatric hospitals

Related outpatient clinics

PEARLS [39] – Problem resolution system in NH: Patient and Employee Ailment and Resolution and Learning System is a fact based tool which helps the management in decision making and this system treats patients/employees alike. This is a niche technology based initiative which is implemented in Narayana Hospitals and makes it different from other players in the industry in this area.

The Features of PEARLS are shown in below figure:

Below mentioned figure shows the workflow of PEARLS system.

The data captured like delay in resolution through PEARLS system is reviewed weekly by the management and proper recommendations are derived.

This is the screenshot of the PEARLS system where complaints are being registered:

Below one shows the statistical data generated by the PEARLS system which is reviewed by the Top Management on a weekly basis:

Telemedicine [40] : A major achievement of NH in cardiac care was telemedicine, though it was started earlier by Apollo hospitals in India but NH and RTI constitutes the largest network of telemedicine centers or cardiac care units (CCU) and for free. It was funded by AHF initially and Karnataka state government which funded setting up of 29 CCU in the state. Now, there are total of 100 telemedicine centres with 13 coronary care units.

Telemedicine serves the rural poor who do not have access to cardiac care centres in their villages. Such people have to rely on services offered by a general practitioner who may not have adequate knowledge on cardiac primary treatments and hence may lose the patient’s life too. Now, with CCU the general practitioner handling such unit are given general training on providing primary treatment in such cases and also send the scanned results of ECG and other tests to NH, Bangalore and RTI, Kolkata for further analysis by the experts. The main feature of these CCU is video conferencing facilities for direct diagnosis of the patients which require critical care. ISRO – Indian Space research Organization helped in setting up this video conferencing facility with satellites which enabled them to send clearer images compare to phone lines which are too costly. ISRO provides this service free of cost to NH group. NH CCU uses indigenous software for this purpose developed at SN Software established in Bangalore.

Over 53,000 patients have been treated entirely free at these centres. More than 10,000 patients have been treated at CCU. The service receives more than 250 ECG per day for analysis from remote locations across India. Now, telemedicine networks have been extended to 53 centres in Africa. NH has conducted around 25 online training programs for African doctors to handle the emergency situations at telemedicine centres.

3.3.2 Marketing

3.3.2.1 Current marketing profile: The marketing profile of NH does not include a specific class since it caters to all the classes. Class A and B people come to NH because of its high reputation and lower class people come under various schemes like Yeshaswini. NH does not have a specific marketing budget for each year, since it relies only on word of mouth marketing. Universities from the west like Harvard and Wharton have written case studies on Narayana Hrudayalaya. The various programs started by NH are extensively covered by media which further spread their reputation across the globe and hence enable them to serve patients which come from as many as 50 nationalities.

3.3.2.2 Positioning: NH has its tagline as “accessible and affordable healthcare for all”, this is supported by the international standards it follows, state of the art medical equipment which are at par or better compared to other international hospitals, and its competent medical practitioners many of which are internationally trained and fellows of international associations. All of which contributes to its accreditation from Joint Commission International. And equally important is the cost implication which they make every effort to drive down in order to remain competitive as well as within affordable range for all the needy ones. The discovery channel and Australian Broadcasting Corporation have made documentaries on Narayana Hrudayalaya, which have been broadcasted throughout the world.

Articles, case studies and Books [41] :

The Wall Street Journal: The Henry Ford of Heart Surgery

Knowledge@Wharton:

Wharton.gif

Pricing policy/strategy: NH has a peculiar strategy like Arvind Eye Hospital by compensating the cost of treatment of non paying patients with payment received from the paying patients. NH takes all the required steps with process innovation and partnerships with suppliers to minimize the costs of treatment to make it accessible and affordable for everyone.

Charity programs [42] : NH serves the poor and needy ones through several charity programs like Karuna Hrudaya, which allows financially constrained patients to pay up to 1400 USD and the remaining costs are taken up by Narayana Hrudayalaya Trust which arranges funds from other programs and corpus.

Yeshaswini: Yeshaswini, pioneered by NH Group, is the world’s largest self funded micro-health insurance scheme catering to more than 3 million people.

In 2002, NH launched Yeshaswini, an insurance scheme for farmers, in partnership with the state of Karnataka. For premium as low 11 cents per month, cardholders have access to free treatment at 350 hospitals in 29 districts of the state for any medical procedure costing up to Rs. 100,000. Approximately one third of the hospital's patients are enrolled in this insurance plan, which reimburses the hospital $1,200 for each cardiac surgery. That is about $300 below the hospital's break-even cost of $1,500 per surgery. The hospital makes up the difference by charging $2,400 to the 40% of its patients in the general ward who aren't enrolled in the plan. An additional 30% who opt for private or semi-private rooms pay as much as $5,000.

This program covers 1600 surgeries per month. Now, this model is being replicated in two other states in India covering roughly 30 million people.

These Charity programs serve the purpose of marketing through word of mouth and help other rural poor people to get enrolled in such programs. This unique model was studied by Harvard Business School for replication across the globe. World Bank is also working out a similar model for adapting to African nations.

Udayer Pathey: This program was started by NH in order to provide financial support to children from poor background in remote locations to receive quality education and become doctors for tomorrow. NH arranged to guarantee bank loans taken up by students to cover fees and living expenses.

Corporate tie ups: NH has tie ups with various other prestigious organizations like Biocon and other charity organizations like Karuna Hrudaya. It also has alliances with state governments in India which is instrumental in getting land allocation for fulfilling its social purpose of serving people.

3.3.2.5 Marketing organization: NH group does not have a well defined organization structure for marketing. It simply follows the below mentioned hierarchy of functions:

Social Organization tie-ups: This group intends to build up connections with other Social Organizations to increase their offerings to more number of people across the globe. This is how they have earned a global recognition also.

Collection Insurance: Though this should be function finance department but it still comes under marketing department in NH, these people are responsible to track down the collection of money approved by private as well as government insurance companies on the treatment of their concerned patients.

Corporate Patients: NH has tie ups with corporate to get the patients from these companies directly to NH for consultation and treatment purpose.

Media, Banners and Holdings: This functional department is responsible for putting up hoardings, banners and media coverage for all the social programs started by NH.

3.3.3 Human resources:

3.3.3.1 Manpower: The current number employees for NH, Bangalore is shown below:

Table 6: Number of Employees [43] 

Category

Number of Employees

Medical Staff

836

Nurses

3802

Nursing Students

1102

Paramedics

1339

Administration

1528

Outsourced*

1579

Recruitment: The recruitment process at NH is not well defined and highly irregular as there are need based hiring only. The various staffs are recruited in the following way:

Medical Staff: Most of it is done through campus hiring from local medical colleges since knowing local language is important. While hiring for senior doctors are mainly done through referral process.

Technicians: Hiring is done on need basis by the concerned department.

Nurse: NH Bangalore houses a nurse training institute which serves as an excellent training ground for young nurses. At the end of training, they receive a certificate of completion and absorbed in one of the hospitals of NH group.

Administrative and Management Staff: Hiring is controlled by Human Resources Department. It is also outsourced to head hunters and external consultants which are contracted for hiring on executive positions.

HR organization structure: HR department in NH group has a workforce of 100 personals. The organizational hierarchy is shown below:

These group heads are again responsible for the HR related activities in their concerned areas for the individual units/hospitals.

Termination: Any new joiner is kept on probation of 6 months before hiring him permanently while there is 1 month notice period for leaving the organization which is served on a two way basis. There is no clear firing policy since they are still in hiring stage to increase manpower.

3.3.3.5 Training and Development: NH offers an excellent training ground for doctors as well as nurses. NH ran 78 training programs for doctors and other medical staff in cardiac thoracic Surgery, cardiology and medical laboratory Technology. NH started offering Diploma in cardiology from 2005 in partnership with IGNOU – Indira Gandhi National Open University. This was done in order to bridge the gap between supply and demand of cardiologists, as per Dr. Shetty, this gap is the leading reason for cardiology treatment being so expensive. This program requires the MBBS to undergo two year training program at NH or at other 50 recognize hospitals. NH has similar programs for other areas of healthcare as well to serve this purpose. This is also one of the initiatives to drive down the costs of treatments in tertiary sector.

Surgical Skill Lab: Across the globe, the trainee doctors get to operate for the first time on the patient’s heart directly. NH believes that before a doctor operates on a human heart and strive towards perfection, he should have experienced the same operation on an animal heart at least 1000 times. NH has the Asia’s largest Surgical Skill Lab which can accommodate 40 heart surgeons at a time. These skill labs actually act like simulator which is used for pilot training programs [44] .

Nursing Institute [45] : Besides this, NH also has a nurse training institute for over 70 nurses which offers a year of nursing training which includes a six-month stint in the critical care unit.

Though the turnover rate for nurses are quite high because they are highly sought after in the overseas because of their rigorous training, but there is no dearth of applicants who wish to join such programs. This institute offers them a diploma and degree courses for trainee nurses.

3.3.3.5 Performance Management and Compensation: NH follows the standard performance management system of one way communication. Employees set their performance goal for each year and these are approved by their corresponding supervisors. Every year, HR communicates the rating to each employee on scale of 1 to 5 with 5 being the highest.

Variable component is not paid to all the employees. Doctors and Management staff are paid a variable component but it is not measured quantitatively. Doctors are paid a fixed component and variable component based on patients they have served.

3.3.3.6 Internship programs: NH also offers internship programs for MBA students from Indian Institute of Management and medical staff from reputed colleges for RMOs – Resident Medical Officer. This training for RMOs extends up to one year.

Financial and capital structure

3.3.4.1 Budgetary system: NH does not have too many hierarchy levels in finance department. The GM – Finance comptroller for each individual unit directly reports to Chief Financial officer (CFO). NH follows the Indian fiscal year which starts from April every year to March next year. Each quarter, board meetings are held to review the revenue projections and budgets. Board handles all the important decisions regarding new projects to be undertaken in the next quarter. Variances are also one of the major points of discussion. The budgeting system follows a bottom-up approach wherein all the individual units submit quarterly budgets to the corporate headquarters. The size of budget is on an average around 400-500 million INR and it may change depending on the proposed budget of the new upcoming projects.

3.3.4.2 Revenue and operating cost structure and profitability:

If we take a look at the exhibit 1 which shows the income statement of NH from 2007 to 2011 we can see that revenues have grown from 1.15 billion INR to 4.75 billion INR, which gives a CAGR of 43%. Similarly the profit after tax or Net Income has increased from 43 Million INR to 227 million INR with a CAGR of 51%. The hospital maintains average profit margin of 6% while operating margin remains on an average of 9%. The biggest operating expense comes from surgical equipment, medical stores consumed and Hospital operating expenses which accounts for more than 65% of revenues. There is steep decline in profit before tax in 2011 owing to increase in financial expenses which are utilized for capital expenditure. These financial expenses reached 5% of revenues in year 2011.

For detailed balance sheet and Income statement, check exhibit 1 and 2.

3.3.4.3 Credit and collection: As mentioned earlier, marketing professionals are currently doing this job of recovering collections from the private insurance companies and disbursements from the government agencies.

3.3.4.4 Capital structure – debt and equity: As per the balance Sheet of 2011, the D/E ratio of NH group is 1:4.

Management Information and control system: NH management uses two methods for control system:

PEARLS: As discussed earlier in detail, this system is used to track down all the issues raised by patients and employees and their proper closure and turnaround time. This process helped them to close 96% issues within the expected turnaround time.

3.3.5.2 Daily Profit and Loss Statement: NH is perhaps the only hospital that circulates profit and loss statement daily to all of its doctors and administrative staffs. These updates are sent across the concerned staff via email or text messages. NH believes that monthly P&L statements are actually post-mortem while daily P&L can act as diagnosis and help the management staff identify the root cause and its proper solution.

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