Lesson 2: The Narayana Model of Tertiary Care

The influence of Narayana’s Case

The next three videos discuss the influence of the Narayana Case.  Professor
Khanna speaks about how the Narayana model of healthcare has gained notoriety
beyond India, and Dr. Shetty and Kiran Mazumdar-Shaw speak of new challenges that
face the Indian healthcare system and the ways in which they might use the Narayana
hospital as a blueprint for thinking about future solutions to India's healthcare
problems.  
(insert video of Narayana’s Influence)

Kiran Mazumdar-Shaw

Kiran Mazumdar-Shaw (1953-  ) is an Indian entrepreneur who is the chairman and

managing director of Biocon Limited, a biotechnology company based in Bangalore
(Bengaluru), India. In 2007, along with Dr. Devi Shetty of Narayana Health, she helped
establish the 1,400-bed Mazumdar-Shaw Cancer Center at the Narayana Health City
campus in Boommasandra, Bangalore. In 2014, she was awarded the Othmer Gold
Medal, for outstanding contributions to the progress of science and chemistry. She is on
the Financial Times’ top 50 women in business list, and as of 2014, she has been listed
as the 92nd most powerful woman in the world by Forbes.

Kiran Mazumdar-Shaw initially introduced Professor Khanna to Devi Shetty. Here is a

conversation between Mazumdar-Shaw and Dr. Shetty regarding the state of healthcare
in India.

Assignment: 1) Watch Kiran Shaw’s interview about india’s healthcare

2) What do Drs. Shetty and Kiran Mazumdar-Shaw see as the major challenges facing India's
healthcare system?  What are their proposed solutions? Evaluate these solutions. Dr. Kiran
Mazumdar-Shaw suggests that one of Dr. Shetty's solutions is "too out-of-the-box thinking." 
Which ideas do you think are reasonable, and which ones do you think are far-fetched? 
Support your answers using what you know about India's context and/or any real world
examples or other business cases with which you are familiar.  
How Does This Innovative Model Work?

In the following videos you will learn how the Narayana model of healthcare
succeeds.  After recognizing the institutional void that needed to be addressed (namely,
that there was a missing link between patients needing cardiac surgery and specialists
offering cardiac surgery) Dr. Shetty created an efficient hospital that provided tertiary
care for its patients at a very low cost.  How does this model operate?  How does this
model differ from hospitals that you are familiar with in advanced economies?  Do you
think that the Narayana model of healthcare is effective, and if so, would you choose to
receive care at a hospital that was modeled on Narayana Hospital?  Why or why not?
Keep these questions in mind as you watch the following videos.

(insert video about Sam Walton, Narayana Hospital, and Affordable Healthcare)

PEOPLE MENTIONED IN THE VIDEO

Malcolm Gladwell (1963- ) is a Canadian journalist and wordsmith. Employed since

1996 as a staff writer for The New Yorker, he has given 3 TED Talks and written five
books, all of which made The New York Times Best Seller list. The Tipping Point- How
Little Things Can Make a Big Difference (2000), Blink: The Power of Thinking Without
Thinking (2005), Outliers: The Story of Success (2008), What the Dog Saw: And Other
Adventures (2009), a collection of his journalism, and David and Goliath: Underdogs,
Misfits, and the Art of Battling Giants (2013).

Mother Teresa (1910-1997) The Blessed Teresa of Calcutta, M.C., known as Mother

Teresa, was a Roman Catholic Religious Sister and missionary who founded the
Missionaries of Charity, a Roman Catholic group which (as of 2012) consisted of over
4,500 sisters in 133 countries. Members of the order must adhere to the vows of
chastity, poverty, obedience, and to give "wholehearted free service to the poorest of
the poor." They run hospices and homes for people with HIV/AIDS, leprosy and
tuberculosis; soup kitchens; dispensaries and mobile clinics; children's and family
counseling programs; orphanages; and schools. Mother Teresa was the recipient of
numerous honors including the 1979 Nobel Peace Prize. 

Sam Walton (1918-1992) gained experience expanding discount retail chains before

opening his first Wal-Mart in 1962. Over the next 30 years, Walton grew Wal-mart into
the world’s largest company. In 1983 he opened Sam’s Club members-only stores.
Forbes ranked Sam Walton as the richest person in the United States from 1982 to
1988, the year Walton was included in Time's list of 100 most influential people of the
20th Century. President George H. W. Bush recognized Walton’s pioneering efforts in
retail in March of 1992 with the Presidential Medal of Freedom.

(insert video about how does this innovative model work?)

Definition of Economies of Scale

Economies of Scale
Economies of scale can be defined as the cost advantage that arises with
increased output of a product. Economies of scale arise because of the inverse
relationship between the quantity produced and per-unit fixed costs; i.e., the greater the
quantity of a good produced, the lower the per-unit fixed cost because these costs are
shared over a larger number of goods. Economies of scale may also reduce variable
costs per unit because of operational efficiencies and synergies. Economies of scale
can be classified into two main types: Internal – arising from within the company;
and External – arising from extraneous factors such as industry size.

Assume you are a small business owner and are considering printing a
marketing brochure. The printer quotes a price of $5,000 for 500 brochures, and
$10,000 for 2,500 copies. While 500 brochures will cost you $10 per brochure, 2,500
will only cost you $4 per brochure. In this case, the printer is passing on part of the cost
advantage of printing a larger number of brochures to you. This cost advantage arises
because the printer has the same initial set-up cost regardless of whether the number of
brochures printed is 500 or 2,500. Once these costs are covered, there is only a
marginal extra cost for printing each additional brochure.

Economies of scale can arise in several areas within a large enterprise. While the
benefits of this concept in areas such as production and purchasing are obvious,
economies of scale can also impact areas like finance. For example, the largest
companies often have a lower cost of capital than small firms because they can borrow
at lower interest rates. As a result, economies of scale are often cited as a major
rationale when two companies announce a merger or takeover. 

However, there is a finite upper limit to how large an organization can grow to
achieve economies of scale. After reaching a certain size, it becomes increasingly
expensive to manage a gigantic organization for a number of reasons, including its
complexity, bureaucracy, and operating inefficiencies. This undesirable phenomenon is
referred to as "diseconomies of scale."

(insert video – where does the scale came from?)

Assignment: What is the key distinction between “access” and “quality,” and do you see these as
complementary or competing issues in healthcare? What role might the private sector play in improving
access to high-quality healthcare services in India, and what role is it playing right now? How might
changes in technology affect access to reliable, high quality care?  Finally, where would you choose to be
treated (at the Narayana Hospital, which could provide you with surgery for free or at a minimal cost, or at
another hospital such as Massachusetts General Hospital, which would charge you $10,000 or more for
surgery)?  Why would you choose this option?  What is the relationship between price and value, and has
the Narayana Health Model challenged you to re-examine the relationship between price and value?
Charity and the Pricing Strategy
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In the following videos, we look at the pricing strategy used by the Narayana Hospital.
We have seen some of the ways in which Dr. Shetty’s hospital is providing world-class
cardiac care to South Asians at a much lower price than other South Asian hospitals.
But how does its financial model work? In this unit, Professor Khanna will dig into some
of the details of the NH pricing model, and will help you understand how even a poor
patient who pays nothing for her cardiac care is, in a way, contributing to the financial
success of Dr. Shetty’s model.

(insert video – Charity and Narayana’s Pricing Strategy)

Assignment: Do you think that a similar subsidized healthcare system could work in your country or
region? Why or why not? Do you think that a subsidy system could work successfully in other areas of
healthcare besides heart surgery?

(insert video – interpreting the pricing strategy)

(insert video – Why dr. Shetty refuses to increase the prices)

Evolution and Transferability

As Dr. Shetty’s entrepreneurial experiment continues to grow, how has it been

received around the world? Professor Khanna tells us in this unit about the initial
responses to the Narayana model, and to Dr. Shetty’s own ambitions for global
healthcare.

(insert video – evolution and transferability)

Additional Sources

Assignment: Please review the following article from The Economist in which Devi Shetty
proposes innovative solutions to finding healthcare for the billions of people living without health
insurance.

Devi Shetty, "India can show the way on health." The Economist. November 21, 2012.

( insert video – how should David Shetty proceed?)

Assignment: What do you think Devi Shetty and the Narayana Team should do? Should they
keep the geography fixed (stay in India) and apply the cardiac care model to other therapeutic
settings? Or should they keep the therapeutic setting fixed and expand the geography? 

Evolution of the Model

Here Professor Khanna tells us the ways in which Dr. Shetty decided to expand
his treatment model. We will see how the cardiac care model has been expanded not
just to new geographies within India but also globally, and to vastly different medical
fields as well.

(insert video – evolution of the model)

People mentioned in the video

Dr. Paul C. Salins is the Medical Director and Vice-President of the Mazumdar Shaw
Cancer Centre at Narayana Health. His specialty is in Cranio-Maxillofacial Surgery. And
he is recognized for many contributions to healthcare including bringing the
examinations of the Royal College of Physicians and Surgeons to India.

Wassily Kandinsky (1866 - 1944) was a Russian painter who created both abstract
and still-life works. Today, his paintings sell for millions of dollars at auction.
Expansion in Cardiac Care
How does the Narayana Heart Hospital share its expertise with other cardiac
care hospitals around the world? One way is telemedicine.
(inser video – Expansion in Cardiac Care)

People mentioned in the video 

Dr. Julius Punnen is the Senior Consultant Cardiac Surgeon at the Institute of Cardiac
Sciences for Narayana Health Hospital. Punnen helped Dr. Devi Shetty set up
Yeshaswini, the world's cheapest comprehensive health insurance program for the poor
farmers in the Indian state of Karnataka. The farmer pays approximately three cents a
month; the government puts in one and a half cents and farmers cooperatives operate
the program. The insurance doesn't cover routine doctors visits, but rather the tertiary
care of surgical procedures.
Assignment: Read the article "Contextual Intelligence", written by Professor Khanna for
the Harvard Business Review.

Narayana in the Cayman Islands

In addition to the telemedicine experiment, Dr. Shetty decided to expand the
Narayana cardiac care model directly abroad. One of the most ambitious of these is a
new "health city" that has just opened in the Cayman Islands.
( insert video - Narayana in Cayman Islands)

Sustainability, Profit, and Expansion

How should Narayana fund its expanding operations? Due to the scale of the
Indian operation, the system has not required a great deal of outside funding. However,
as it expands, and as it decides to expand even more rapidly, its need for funds is going
to grow. What ethical and pragmatic dilemmas and other issues might arise given
different means of fund-raising?
Assigment: Would you feel comfortable taking money from Wall Street investors if it
enabled you to provide more services and to care for poor people faster? Or do you
think money should come from charitable contributions even if it means a slower rate of
growth? 
Narayana as Incubator

Narayana is also willing to innovate outside the purely "medical" sense. Here
Professor Khanna talks about its support of a startup incubator for health-related issues,
to promote innovation and to solve problems. (Note how this connects with Professor
Goldie’s point on innovations outside the health sector that nevertheless have huge
implications for improving healthcare.)

( insert video – Narayana as Incubator )

Summarizing the Entrepreneurial Innovation of the Narayana Model II

(insert video - Summarizing the Entrepreneurial Innovation of the Narayana Model I and
2)

Institutional Voids and the Narayana Case

(insert video)

Assignment: In response to Professor Khanna's question above, please discuss with your peers in the
discussion forum. How would you apply Dr. Shetty's model to an example that did not pertain to
healthcare? What are some other domains where process innovation and economies of scale could be
generalized to other problems in emerging economies?

Understanding Chronic Diseases

In this section of the module, Professor Goldie provides a deeper dive into the
growing global health importance of understanding and tackling chronic disease. This
context is intended to deepen your understanding of the context for Devi Shetty's
innovative approach, and also inspire you to apply the lessons of the Narayana Model
to other aspects of health. 

(insert video – Understanding Chronic diseases)