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HEALTH CARE
The Henry Ford of Heart Surgery
In India, a Factory Model for Hospitals Is Cutting Costs and Yielding Profits
By Geeta Anand
Updated Nov. 25, 2009 12:01 a.m. ET
BANGALORE -- Hair tucked into a surgical cap, eyes hidden behind thick-framed
magnifying glasses, Devi Shetty leans over the sawed open chest of an 11-year-old boy,
using bright blue thread to sew an artificial aorta onto his stopped heart.
As Dr. Shetty pulls the thread tight with scissors, an assistant reads aloud a proposed
agreement for him to build a new hospital in the Cayman Islands that would primarily
serve Americans in search of lower-cost medical care. The agreement is inked a few
days later, pending approval of the Cayman parliament.
Dr. Shetty, who entered the limelight in
TENDING TO INDIA'S HEALTH-CARE the early 1990s as Mother Teresa's
SYSTEM
cardiac surgeon, offers cutting-edge
Dr. medical care in India at a fraction of what
it costs elsewhere in the world. His
flagship heart hospital charges $2,000,
on average, for open-heart surgery,
compared with hospitals in the U.S. that
are paid between $20,000 and $100,000,
depending on the complexity of the
surgery.
Shetty prepares for surgery. RYAN LOBO FOR THE
WALL STREET JOURNAL The approach has transformed health
care in India through a simple premise
More photos and interactive graphics that works in other industries:
economies of scale. By driving huge
volumes, even of procedures as sophisticated, delicate and dangerous as heart surgery,
Dr. Shetty has managed to drive down the cost of health care in his nation of one billion.
His model offers insights for countries worldwide that are struggling with soaring
medical costs, including the U.S. as it debates major health-care overhaul.
"Japanese companies reinvented the process of making cars. That's what we're doing
in health care," Dr. Shetty says. "What health care needs is process innovation, not
product innovation."
At his flagship, 1,000-bed Narayana Hrudayalaya Hospital, surgeons operate at a
capacity virtually unheard of in the U.S., where the average hospital has 160 beds,
according to the American Hospital Association.
Narayana's 42 cardiac surgeons performed 3,174 cardiac bypass surgeries in 2008,
more than double the 1,367 the Cleveland Clinic, a U.S. leader, did in the same year. His
surgeons operated on 2,777 pediatric patients, more than double the 1,026 surgeries
performed at Children's Hospital Boston.
Next door to Narayana, Dr. Shetty built a 1,400-bed cancer hospital and a 300-bed eye
hospital, which share the same laboratories and blood bank as the heart institute. His
family-owned business group, Narayana Hrudayalaya Private Ltd., reports a 7.7% profit
after taxes, or slightly above the 6.9% average for a U.S. hospital, according to American
Hospital Association data.
The group is fueling its expansion plans
through private equity, having raised $90
million last year. The money is funding four more "health cities" under construction
around India. Over the next five years, Dr. Shetty's company plans to take the number
of total hospital beds to 30,000 from about 3,000, which would make it by far the
largest private-hospital group in India.
At that volume, he says, he would be able to cut costs significantly more by bypassing
medical equipment sellers and buying directly from suppliers.
Then there are the Cayman Islands, where he plans to build and run a 2,000-bed
general hospital an hour's plane ride from Miami. Procedures, both elective and
necessary, will be priced at least 50% lower than what they cost in the U.S., says Dr.
Shetty, who hopes to draw Americans who are uninsured or need surgery their plans
don't cover.
By next year, six million Americans are expected to travel to other countries in search
of affordable medical care, up from the 750,000 who did so in 2007, according to a
report by Deloitte LLP. A handful of U.S. insurance plans now give people the choice to
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be treated in other countries.
Some in India question whether Dr. Shetty is taking his high volume model too far,
risking quality.
"On one level, it's a damn good idea. My only issue with it comes from the fact that if
you pursue wholesale volumes, you may give up something -- which is usually quality,"
says Amit Varma, a physician who serves as president of health-care initiatives for
Religare Enterprises Ltd., a publicly listed financial services group in Delhi. Religare is
part of a conglomerate that also owns Fortis Healthcare Ltd., a rival hospital chain.
"I think he has reached the point where if you increase volume any more, you could
compromise patient care unless backed up by very robust standard operating
procedures and processes," Dr. Varma says.
But Jack Lewin, chief executive of the American College of Cardiology, who visited Dr.
Shetty's hospital earlier this year as a guest lecturer, says Dr. Shetty has done just the
opposite -- used high volumes to improve quality. For one thing, some studies show
quality rises at hospitals that perform more surgeries for the simple reason that
doctors are getting more experience. And at Narayana, says Dr. Lewin, the large
number of patients allows individual doctors to focus on one or two specific types of
cardiac surgeries.
In smaller U.S. and Indian hospitals, he says, there aren't enough patients for one
surgeon to focus exclusively on one type of heart procedure.
Narayana surgeon Colin John, for example, has performed nearly 4,000 complex
pediatric procedures known as Tetralogy of Fallot in his 30-year career. The procedure
repairs four different heart abnormalities at once. Many surgeons in other countries
would never reach that number of any type of cardiac surgery in their lifetimes.
Dr. Shetty's success rates appear to be as good as those of many hospitals abroad.
Narayana Hrudayalaya reports a 1.4% mortality rate within 30 days of coronary artery
bypass graft surgery, one of the most common procedures, compared with an average
of 1.9% in the U.S. in 2008, according to data gathered by the Chicago-based Society of
Thoracic Surgeons.
It isn't possible truly to compare the mortality rates, says Dr. Shetty, because he
doesn't adjust his mortality rate to reflect patients' ages and other illnesses, in what is
known as a risk-adjusted mortality rate. India's National Accreditation Board for
Hospitals & Healthcare Providers asks hospitals to provide their mortality rates for
surgery, without risk adjustment.
Dr. Lewin believes Dr. Shetty's success rates would look even better if he adjusted for
risk, because his patients often lack access to even basic health care and suffer from
more advanced cardiac disease when they finally come in for surgery.
Dr. Shetty, 54 years old, is a lanky and chatty man. He grew up in Mangalore, another
south Indian city, the eighth of nine children. Doctors were gods in the Shetty
household, swooping in to save his restaurateur father who suffered from chronic
diabetes and fell into diabetic comas several times in the young boy's life.
He had already resolved to be a doctor when his fifth-grade teacher told the class that a
South African surgeon had just performed the world's first heart transplant. In that
moment, Dr. Shetty says he decided to become a heart surgeon.
After graduating from medical college in India, Dr. Shetty trained in cardiac surgery at
Guy's Hospital in London, one of Europe's top medical facilities. He had been operating
there for six years when the Birla family, leading industrialists in India, decided to start
a heart hospital in Calcutta. Dr. Shetty was brought in as the first director.
On returning to India in 1989, Dr. Shetty performed the first neonatal heart surgery in
the country on a 9-day-old baby. He also confronted the reality that almost none of the
patients who came to him could pay the $2,400 cost of open-heart surgery.
"When I told patients the cost, they would disappear. They literally didn't even ask
about lowering the price," he says.
During that time, Mother Teresa had a heart attack, and Dr. Shetty was called to
operate on her. From then on, he served as her personal physician. Two pictures of
Mother Teresa still adorn the white walls of Dr. Shetty's office, one with white type
saying, "Hands that serve are more sacred than lips that pray."
Dr. Shetty set about pursuing a heart hospital big enough to make a difference in a
country where most of the people needing heart surgery can't afford it. His father-in-
law, the owner of a large construction company, agreed to build and finance a heart
hospital in his wife's hometown of Bangalore.
In 2001, the white-washed, red-roofed Narayana Hrudayalaya Hospital opened on 25
acres that had been a marshland around a cement factory.
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A lobby with seating for
hundreds is encircled by
dozens of offices for surgeons to consult with patients. A giant statue of a many-headed
deity -- representing gods in the Hindu pantheon -- stands in the center of the lobby.
In a second-floor operating room one October morning, Dr. Shetty finished sewing a
new aorta onto the heart of his 11-year-old patient. The process provided an example of
how he slashes costs. Four years ago, the sutures would have been bought from a
Johnson & Johnson subsidiary. Today they are made by a Mumbai company, Centennial
Surgical Suture Ltd.
Four years ago, Dr. Shetty scrutinized his annual bill for sutures -- then $100,000 and
rising by about 5% each year. He made the switch to cheaper sutures by Centennial,
cutting his expenditures in half to $50,000.
"In health care you can't do one big thing and reduce the price," Dr. Shetty says. "We
have to do 1,000 small things."
He says he would also like to find lower-cost versions of his priciest medical equipment.
But the Chinese makers that have brought good quality, cheaper machines to market
don't yet have enough local service centers to ensure regular maintenance.
So he is still buying equipment from General Electric Co. He pays $60,000 for
echocardiography machines, which use sound waves to create a moving image of the
heart, and $750,000 for cardiac catheterization labs, which produce images of blood
flow in the arteries and allow surgeons to clear some blockages using stents and other
devices.
V. Raja, head of GE's health-care business in India, declined to comment on specific
pricing, but says Dr. Shetty drives a hard bargain and wrestles some savings because he
is such a big customer. Between Narayana Hrudayalaya and another hospital he runs in
Calcutta, Dr. Shetty's group performs 12% of India's cardiac surgeries, Mr. Raja says.
Dr. Shetty also gets more use out of each machine by using some of them 15 to 20 times
a day, at least five times more than the typical U.S. hospital.
Cardiac surgeons at Dr. Shetty's hospitals are paid the going rate in India, between
$110,000 and $240,000 annually, depending on experience, says Viren Shetty, a
director of the hospital group and one of Dr. Shetty's sons.
Dr. Shetty was paid almost $500,000 last year, according to the group's audited
financial statements.
Here, too, Dr. Shetty finds additional savings on the per-patient cost. His surgeons
perform two or three procedures a day, six days a week. They typically work 60 to 70
hours a week, they say. Residents work the same number of hours.
In comparison, surgeons in the U.S. typically perform one or two surgeries a day, five
days a week, operating fewer than 60 hours.
Dr. Shetty says doctor fatigue isn't an issue at his hospital, and in general, his surgeons
take breaks after three or four hours in surgery. The morning after Dr. Shetty operated
on 11-year-old Mahesh Parashivappa, the boy sat in bed in the pediatric intensive care
unit, a white bandage on his bare chest.
Virtually all of the 80 beds in the unit were full. K. Parashivappa, the boy's father, a
sugarcane worker from a village eight hours away, held a cup of water to his son's lips.
He says he's known his son needed surgery since he was born with a congenital heart
defect. The boy has never been able to run and play cricket like other children, hobbled
by chronic shortness of breath and weakness.
Mr. Parashivappa says he can't himself pay for the surgery, but it is covered by a
farmers' insurance plan that Dr. Shetty began several years ago in partnership with the
state of Karnataka, which includes Bangalore.
Nearly one third of the hospital's patients are enrolled in this insurance plan, which
costs $3 a year per person and 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.
The father, in an untucked brown shirt, raised both hands to offer the traditional Indian
greeting, "Namaste," to Dr. Shetty as the hospital head stopped by his son's bed.
"Thank you for giving my son his life back."
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