How Dr Devi Shetty and Narayana Healthcare Genuinely Disrupts The Healthcare Industry

In 1967, Dr Christiaan Barnard performed the first heart transplant.

A 14 year old boy in Mangalore named Devi Shetty was so inspired by this event that he instantly knew becoming a doctor was his calling.

He graduated from Kasturba Medical College in Manipal with an MBBS degree (Bachelor of Medicine, Bachelor of Surgery) in 1979. He then went to England to join Guy’s Hospital in London - considered one of Europe's best cardiac centers. At the time, the cardiac team at Guy’s could perform up to six surgeries a day and Shetty wondered if that could be replicated at home. He returned from Heathrow to India in 1989 and set up the cardiac surgical unit at BM Birla Hospital in Kolkata. There, Shetty achieved national recognition for performing India’s first neonatal heart surgery in 1992. The downside is he was the only heart specialist in the city.

In one of the early days of his career, Dr Shetty received a call from a patient who requested a home visit. Although surgeons typically didn’t do home visits, Shetty still did the visit to see his patient. That patient was Mother Teresa.

Once in a while, when Mother Teresa was admitted to the hospital, she would follow Dr. Shetty during his rounds in the pediatric ICU. In her words, when God created these kids with a hole in their hearts, he realized his mistake and sent Dr. Shetty to Earth to fix those mistakes.

This accolade redefined the way Dr Shetty approached his profession.

Less than 1% of the patients he attended in India could afford heart surgeries. In the country, two million people needed heart surgeries each year, but less than a hundred thousand surgeries were performed. Unless the patients could afford the surgeries, Dr Shetty would not have a practice.

Dr Shetty took it upon himself to reduce the cost and bring cardiac surgery to everyone. Narayana Hrudyalaya (Now Known as Narayana Health) was born in 2000 as a 280-bed hospital in Bangalore.

Dr Shetty’s father-in-law provided him with the initial seed capital of 20 million dollars needed to set up the facilities on the hospital premises.

His only condition was that he never refuse surgery on any child suffering from heart disease

On average, Narayana Health cardiac centers performed 40 heart surgeries for less than $1600 each, less than 2% of the cost of a similar operation in the U.S.
How is Narayana Healthcare able to do this? The obvious answer - the difference in the cost of labor - does play a role. Cardiothoracic surgeons, ophthalmologists, and oncologists in India for instance earn anywhere from 20% to 74% of what their US counterparts do. For instance, Narayana Healthcare’s cardiothoracic surgeons gross between $150,000 and $300,000, whereas the median income for their U.S. counterparts is $408,000. And the salaries of nurses, medical staff, and administrators in India are dramatically lower with some earning only 2% to 5% of what a U.S. hospital would pay.

However, the labor cost difference is just a small part of the story. After adjusting the salaries of Narayana Healthcare’s doctors and other staff to match U.S. levels, the cost was only 4% to 18% that of a comparable procedure in a U.S. hospital even with the higher wages factored in.

Additionally, other costs in India are higher than in the United States. Equipment, such as MRI machines are more expensive and so are the costs of capital and urban land. As a result, a 21-point labor cost advantage relative to Cleveland Clinic, for example, is mostly offset by a 17-point disadvantage in cost of supplies, equipment, pharmaceuticals and other direct expenses.

So how is Narayana Healthcare able to provide high quality surgeries at affordable prices ? The answer resides in how the hospital is operated and managed. One such strategy they use is a hub-and-spoke architecture system that allows surgeons to perform a large number of operations. This in turn increases physician productivity. At Narayana, each surgeon performs from 400 to 600 procedures a year, compared with 100 to 200 by U.S. surgeons. They now carry out more open-heart surgeries than any other hospitals in the world.

The large number of patients that come for treatment enables hub doctors to focus on specific types of medical problems. As volumes increase, relatively rare conditions are treated often enough that doctors become world-class experts in those areas. That’s how Narayana Healthcare became a global leader in pediatric open-heart surgery, attracting patients from across the world.

At the high-skills end of the spectrum, the hospital encourages general physicians to become specialists, and specialists to become super-specialists. It also trains nurses to advance to the higher-skilled positions.

In regards to post surgical care, family members are encouraged to provide non-ICU postoperative care. Working with Stanford University, Narayana Healthcare developed a four-hour audio and video curriculum that explains how to care for patients during the three days following heart surgery. Allowing family members to provide those services reduces costs, allows for personalized care, and ensures continuity of care at home, reducing post surgical complications.

The hospital also tries to reuse equipment so long as it is safe to do so. According to Dr Shetty, “If no hospital in the world throws away their needle holders, forceps, and scissors, which are drenched in blood after every operation, why throw out the clamps?” He now runs his hospitals with minimal amounts of waste. They reuse all suitable equipment so long as they adhere to strict sterilization procedures.

At their collection of hospitals, all doctors receive a daily text message with the previous day’s profit and loss data. The practice induces doctors to be prudent. They can see how their decisions about which medicines, supplies, or tests to use affect the cost of treating patients. It also motivates them to suggest ideas for cost savings and process improvements. Narayana's doctors get comparative performance data for their own hospital and 21 others in the group, which encourages them to share best practices.

The result of all this is that surgery for head and neck cancers starts at $700, endoscopy is $14, and a lung transplant is $7,000. Even a heart transplant will set a patient back only about $11,000. Narayana is dirt cheap even by Indian standards, with the investment bank Jefferies estimating that it can profitably offer some major surgeries for as little as half what domestic rivals charge.

In the words of Dr Shetty himself “I would like in my lifetime for every citizen of this planet to get health care at a price they can afford to pay without having to beg or sell something”