Healthcare Industry

Mayank Aggarwal
MGT 546
Session -8&9
Agenda
• Healthcare Sector
• Innovation in Healthcare Delivery
• Value vs Profit
• Naryana Healthcare case
Healthcare Sector
• More than $350 billion size in India, more than $4 trillion in US.
• Healthcare include hospitals, healthcare provider, medical tourism, clinical
trials, health insurance etc.
• One of the biggest grand challenges:- Affordable healthcare for all
• Healthcare cost are rising with increasing lifestyle diseases and aging
population.
• Most of the healthcare concentrated in Urban areas
Healthcare Sector:- India

https://www.pwc.in/industries/healthcare/reimagining-the-possible-in-the-indian-healthcare-ecosystem-with-
emerging-technologies.html
Healthcare Sector in Developing world vs developed world
• Context:- Burden of disease, wealth, inequality, demography etc.
• Stewardship i.e. Role of the government
• Public sector:-
• what is the government in country, role of legislature, executive and judiciary, federalism,
accountability
• Regulatory frameworks and institutions
• Information and accountability
• Inclusion and transparency
• Private sector
• Corporate governance
• Structure
• Participation
• Financing
• Public sector:-allocation, fiscal space, resource mobilisation, pooling
• Private sector:-financing, maturity, private insurance
Healthcare Sector in Developing world vs developed world
• Service Delivery
• Public sector:- Public good, essential care
• Private sector:- Essential care, discretionary care
• Innovation and entrepreneurship
• Public Sector:- IPR, R&D, technology diffusion, policy
• Private sector:- R&D, innovation, risk taking
• Client focus
• Public sector:- client orientation, education of client
• Private sector:-coprorate culture, world view, client knowledge
• Leadership and Ethics
• Public sector:- Certification, Human resource development,ethics
• Private sectr, licensing, skilling, ethics
Innovation in Healthcare in India
• India cost of treatment are low
• One reason are salaries
• Another important factor
• Necessity spawns innovation.
• Focus is on volumes.
• Wealth at bottom of pyramid
Innovation in Healthcare in India
• India cost of treatment are low
• One reason are salaries
• Another important factor
• Necessity spawns innovation.
• Focus is on volumes.
• Wealth at bottom of pyramid
Social Enterprise
• Primary Objective of Social enterprise is to improve social welfare of
communities and individuals beyond financial profits for employees,
shareholders etc.
• They integrate social considerations in their regular decision making.
• Social enterprise rely on goodwill of stakeholders involved.
• Low financial returns to funders
• Social motive of employees
• Below cost pricing
• Guided by mission in governance
Social Enterprise and Healthcare
• They face challenges due to healthcare access as well as other societal
challenges
• To solve this they follow different strategies including focusing on
intermediate goals to achieve immediate goals (obliquity). E.g., hospitals
helping community through skill development programs to ensure quality of
life and ultimately healthcare
• They also need to embrace contradictory demands (paradoxical). Best
treatment and affordability. Having both paying wards and regular wards
• Working in resource constrained environment so focus on what is essential
and shift other activities (frugal). Find partners, simply core offerings etc.
Frugal Innovation
• Juggad Innovation:- Frugal, flexible and inclusive way of innovation
• To fulfill objectives firms need to mobilize resources but resources are
limited in developing countries.
• Jugaad focuses on both consciously reducing costs and producing inclusive
solutions in response to the community's needs

Agarwal,N., Chakrabarti, R.,Prabhu, J. C., & Brem,A. (2020). Managing dilemmas of resource mobilization through jugaad: A multi‐method study ofsocial enterprises in Indian healthcare.Strategic EntrepreneurshipJournal, 14(3), 419-443.
Aravind Eyecare
• Opportunity identification and serve consumers
• Establishing source capability. Paramedics from rural background
• Reduce total cost of eye care including travel and stay
• Using IT to reduce service cost
• People and Process are critical to success of rural service delivery. Need
motivate staff
• Mix of eye care and vision centre and hospital
• Have both payer and free service
• Physician to learn, more surgeries done then private hospitals. This learning
allows them to charge higher salaries when they quit
Healthcare Pricing
• The pricing of healthcare in perfect economic setting
• For monopoly model let demand be 𝑞𝑑 = 𝑎 − 𝑏𝑝 + 𝑐𝑦 + 𝑒
• Where p is price and y is income. Assuming profit maximization price given
marginal cost d is 𝑝 = (𝑎 + 𝑐𝑦 + 𝑏𝑑)/2𝑏
• For competitive market let supply i.e. time available to patient 𝑞𝑠 = 𝑓 +
𝑔𝑝 + ℎ𝑛 + 𝑢 where n is number of physicians in a place
𝑎−𝑓+𝑐𝑦−ℎ𝑛+𝑒−𝑢
• For market clearing supply=demand and hence 𝑝 =
𝑏+𝑔
• Number of physicians don’t change in an area. What is founded in that
pricing is mostly monopolistic (Newhouse, 1970)
Hospitals Pricing and Revenue in India
• Hospitals also earn money through
consumables and other services.
• Medical Tourism, cross subsidization are
other models of revenue
• Health service utilization, number of beds,
location and facility level determine
pricing. For district hospital the cost is
higher compared to community health care
centre. (Bahuguna, et al., 2020)
• Institutions are also a factor for pricing in
India.
https://timesofindia.indiatimes.com/india/private-hospitals-making-over-1700-profit-
on-drugs-consumables-and-diagnostics-study/articleshow/62997879.cms
Hospitals Pricing and Choices

https://scroll.in/pulse/845539/private-sectors-profits-in-healthcare-soar-as-
indian-government-investment-stagnates

Chauhan, A. S., Guinness, L., Bahuguna, P., Singh, M. P., Aggarwal, V., Rajsekhar, K., ... & Prinja, S. (2022). Cost of hospital
services in India: a multi-site study to inform provider payment rates and Health Technology Assessment. BMC health services
research, 22(1), 1-12.

• For a public hospital average household spend Rs 400 per episode while for
profit formal hospital it increases to Rs 2643 (Garg et al., 2021)
• Private hospitals also need to invest in technology
Health city Caymen Island
• Why is NH relevant and successful in India.
• HCCI consider adapting the NH business model in India
• Cost in NH for coronary bypass graft is $10000 compared to $100000 in US.
What should be price in HCCI
Reverse Innovation
• Innovation developed in developing countries used in developed countries.
• Examples are GE, CT machine converted to portable machine in china and
India now used in US.
• The core principle is innovation requires market, while market for low cost
innovation may be small in developed countries by aggregating demand from
developing world it can exploited.
Narayana Healthcare
• Their success model can be described as a virtuous cycle of specialisation,
routinization, scale, efficiency and high quality.
• Operating strategies and routines
• Scale volume of surgeries
• Economies of learning
• High quality improved learning and outcomes
• Specialisation and reputation for heart surgery
Indian environment and NH evolution
• Institutional voids exist in India
• Regulatory agencies are weak
• Healthcare infra is weak
• Lack of financing
• NH setup health insurance, telemedicine etc
• They experimented with different models to come up with solutions
• Come up with solutions for international patients
• Also rural patients and cross subsidisation
• Develop capabilities to work in resource constrained environment.
Think about these question
• How legal challenges influences transferability of NH business model?
• What are patients expectations in US and Cayman island?
• What are quality of care norms and how they are different?
• Will patients in US buy into cross subsidisation model?
Transferability of model to Caymen Island
• Open ICU
• Will patient want better service
• Task shifting
• Litigation
• What are patient expectations
• Multi tasking
• Regulation
• Medical device reuse
• Patients will find it unethical
• Cross subsidisation
• Patients may not prefer it
Pricing choice
• Cost based pricing
• But what cost are to taken into consideration (Exhibit 3)
• Also think about what patients will come to NH.
• Pricing at US prices
• Make investors happy
• Why leave money on table
• Low price will be seen as lack of quality, also why not subsidise poorer
geographies.
• Or develop a segmented pricing approach.
Wrap up
• Pricing:- Initially at $40000 but soon realised that Columbia and other
countries are giving discounts so finally price came down to $20000.
• Low number of patients in first year only 250 inpatient procedures mostly
from island. Initially US patients don’t know about Cayman island health city.
• Good quality performed 2 LVADs (artificial hart transplant) and 90% rated it
as excellent.
• Also hired local doctors and staff to establish themselves in community
• NH also went for IPO and IPO was oversubscribed.