Indian Institute of Management, Bangalore

PGP 2021-2023
Term-4

Health Economics: Theory & Practice

Assignment 2

Submitted on

26th July 2022

Submitted to

Prof. Arnab Mukherjee

Prof. Allen Ugargol

Submitted By

Vaidehi Mahajan (2111334)

Discuss the role of ‘disruptive innovators’ in enabling healthcare service delivery in
LMIC contexts. How have business-process innovations in financing helped social
enterprises create value chains and achieve social impact.?

Why disruptive innovation is needed:

India is a country with limited resources. India’s total healthcare expenditure lies at 3.6% of
the GDP (2020) & the OOP expenditures funds almost 64% of the current healthcare.1 Under
such constraints, it becomes imperative to maximize the efficiency of the existing healthcare
systems via disruptive innovation to maximize the ROI on every penny spent on healthcare.
According to the Control Knobs Framework – financing, payment, organization, regulation,
and behaviour are a few levers we can use to improve the access, quality, affordability &
efficiency of the healthcare investments.

The role of disruptive innovations enabling the healthcare industry in LMIC contexts:

In the past, various healthcare providers in India have overcome institutional voids to provide
quality healthcare at low costs. Such firms showcased innovations in marketing, operating &
financing strategies. This included cross-subsidization (Aravind Eyecare), lowering operating
costs via simplification of medical services (Vision Spring), process re-engineering, and high
volume & low-cost business models (Narayana Hrudayalaya).

1
Article: Status of Health Systems in India at National and Subnational Levels, authored by Nachiket Mor
2
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3236300/
Such products/services fill the gaps in conventional markets without displacing previous
methodologies. They generally don’t opt for a low-cost, low-quality service strategy, but
strive to tailor their services to the requirements of their customers, by reducing excess with
an aim to provide high-quality care.

Business Process Innovations in Financing3:

Innovations in the healthcare financing systems have the potential to improve the quality,
efficiency, financial inclusion, and access of the healthcare system. Some of the innovations
are mentioned below –

Reduced operating costs via simplified medical practices

VisionSpring trains members of the rural community to make Vision Entrepreneurs who carry
out vision screening activities, identify hypermetropia and supply glasses for vision
correction. The firm helps provides and replenishes these supplies regularly. This not only
reduces cost of healthcare delivery but fills and institutional void where markets initially
failed.

High Volume & low unit costs model

Narayana Hrudayalaya charges an average of $2K for a CABG Procedure, compared to a

price tag in the order of $5.5K in most typical private hospital in India. Due to high asset
utilization, partnership with the Government & economies of scale it has been successful in
making cardiac surgeries affordable for a customer segment for which markets failed and a
value chain didn’t exist.

Cross-subsidization

Aravind Eye Care System attracts affluent patients, asking them to pay market rates. They
then provide services to the poorer patients at a highly subsidized rate or for free, without
any difference in the quality of treatment. They implement differential pricing by allowing
patients' to choose from their wide offering of amenities, as well as the type of lens that is to
be inserted in the eye. This is how they expand the access & financial inclusion of quality
healthcare delivery to underserved populations.

Capital Funding

Kisumu Medical and Educational Trust (KMET) is a franchise that provides coaching for
reproductive health to private providers (Kenya). KMET uses revolving loan programs
(microfinance) to improve the availability of funds to franchisees. This enhances the access to
funding and expands the reach of quality healthcare.

Revenue Generation

Thailand’s PDA created for-profit entities which are mandated to allot funds towards an NGO
in order to facilitate expansion and cover operating costs. One of its innovative ventures is a

3
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3236300/
chain of restaurants called “Cabbages and Condoms” where condom themed food & drink
helps raise safe-sex awareness and bring money into the organization.

Such business process innovations improve the access & affordability of quality healthcare
by improving the efficiency of resources invested in healthcare, catering to vulnerable
segments excluded by the, as well as by improving the share of pooled resources in reducing
the burden of vulnerable segments.