Ian CasselKeymasterOfflineTopics: 63Replies: 22
Here is an excerpt from our new book, Intelligent Fanatics: Standing on the Shoulders of Giants:
Healthcare’s Change Agent: Dr. Devi Shetty
“Like we get oxygen, air and water, health care should become available to everyone on this planet naturally. And that can be done.”
—Dr. Devi Shetty, on “All Things Considered”
More than three million Indians need cardiac care each year. Only a fraction, or roughly sixty thousand, of those procedures are done in a given year. What prevents the other 98% of individuals from getting treatment? In a country where the gross domestic product per capita is roughly $1,500 (₹100,000), cardiac surgery and other health care is cost prohibitive for a vast majority of the Indian populace. Those unfortunate poor individuals with serious heart problems can’t receive the proper medical care and will eventually perish.
Dr. Devi Shetty, India’s leading cardiac surgeon and the former personal cardiac surgeon for Mother Teresa, felt a calling to do something about this. Health care needed a new way of thinking if it were to tackle the challenge of providing care to all individuals, regardless of socioeconomic status.
Health care all over the world faces the same challenge. Costs continue to increase well above inflation and income growth. As time goes on, quality health care is becoming less attainable for a large proportion of the world. Health insurance companies and governments continue to be constrained by costs. Dr. Devi Shetty was convinced that the health care problem can be solved. He questioned why hospitals could not be like technology companies such as Infosys or Electronic City, whose world-class status is a result of their “quality going up as their costs decrease.”1 Shetty was convinced that the same thing could be true for health care.
It would take years of experimentation and significant courage for Dr. Devi Shetty to go against conventional wisdom. When trying to raise capital in the beginning, Shetty had to convince potential investors about his vision and model. His vision was that high volume would increase the quality of care and lower costs, while wealthier patients could subsidize the care of poor individuals.
Shetty met resistance. Most thought it was infeasible, impossible, and ridiculous to run a hospital as he proposed. That did not matter. Dr. Shetty would later quote Louis Brandeis, former associate justice of the U.S. Supreme Court: “Most of the things worth doing in the world had been declared impossible before they were done.”2 Nothing would stand in the way of achieving his vision: to never turn a person away from care due to cost and to make a sustainable business that could scale.
As George Bernard Shaw often said, “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself.” Intelligent fanatics have the capacity to mold the world to their vision. Dr. Shetty himself would perform up to ten surgeries a day, while other cardiac surgeons around the globe would perform only one to three per day. He proved that doctors were an underutilized asset. India’s health care system, like that of other countries, had a productivity problem, not a technological problem. Costs needed to be reined in. He would have to convince other top-quality cardiac surgeons to join, and convince them that they, too, could achieve the productivity he had been able to maintain.
There was also a cultural mind-set about costs within hospitals, which needed to be changed. Instead of the marble floors, air-conditioning in every conceivable spot, and many other luxuries, a hospital could be built much more cost-effectively. Shetty believed that, with proper planning, a hospital could be built for a substantial discount to the normal rate. Outside of critical equipment, many other costs could be reduced. Ongoing operating costs, such as heating, cooling, and lighting, could be reduced with careful thought and planning.
Dr. Shetty’s Narayana Health (NH) is an outstanding example of what an intelligent fanatic–led organization can accomplish. With the right vision, characteristics, and business model, difficult societal problems can be solved for the benefit of our world. By 2011, Narayana had performed 11,288 open-heart surgeries and significantly drove down the break-even costs. While most surgeries in India cost $5,500 (₹3.2 lakh), scale and productivity enhancements have allowed NH to charge only $2,400 (₹1.5 lakh).
Today, more than 60% of all the company’s operations are provided at a reduced cost or free, while the remainder are funded by those who can afford to pay; however, the cost for those who pay is significantly less than the cost at other Indian hospitals. The quality of care is also world class. The hospital has evolved from a single specialty cardiac hospital that owned and operated “greenfield” hospitals to a multispecialty, multilocation hospital operator that doesn’t own all its assets.
How did Narayana succeed, how is it likely to maintain success, and what makes it so special? It started with the early Narayana Health founding team. They were like the dentist described by Peter Drucker:
“Let me tell you what a dentist will do if he’s your best person. He’ll walk into that building, tour the plant, and speak to the employees. He’ll immediately realize he doesn’t know anything about a brass foundry. But he’s going to get his people together and figure it out. He’ll try to find someone on that team who is highly qualified to run the plant. If he doesn’t come up with one, he’ll find the best foundry man in the country. The dentist will soon learn how to improve the leadership and the culture and reinforce the values.3″
Like many other fanatics, Dr. Shetty and the early founding team of Narayana Health had no formal business experience. They took all the best ideas they could find, from a multitude of industries, in creating their evolutionary business model. What they have created and are building is an institution that has the capacity to maintain its success, just as the Mayo Clinic has done over the past one hundred years. No matter who is running these organizations, or whether you can name them, the companies will likely succeed many years into the future. Narayana Health is in the early innings of its business life cycle.
Dr. Shetty possesses many of the same characteristics as the Mayo brothers who started the Mayo Clinic over a hundred years ago. The similarities between Narayana and the Mayo Clinic will be brought to the fore. The only difference is that today, in India and in the global economy, a new business model was necessary to compete and to solve the crisis of fewer people receiving quality health care due to rising health care costs.
You can read Dr. Devi Shetty’s story in our latest book, Intelligent Fanatics: Standing on the Shoulders of Giants. Become a Member and we’ll send you the eBook-Kindle version for Free. [Join Today]p13saravanpParticipantOfflineTopics: 0Replies: 4
I have a basic question. NH being a listed company where shareholder wealth creation, pressure at end of each quarter to show improved results and the endless questions during conference calls, will they be able to continue their “Service” first motto and cross subsidizing theory for 60% of the patients ?Sean IddingsKeymasterOfflineTopics: 86Replies: 12
@p13saravanp, That is a really good question. Being a publicly traded company does make it harder to maintain a long-term view for the leader and the overall organization. That is why many quality private companies would never dare go private.
However, some intelligent fanatic-led organizations do go public, and they have been successful. Take for instance two companies we highlighted in our first book: Nucor Corporation, led by Ken Iverson, or Southwest Airlines, led by Herb Keller. Both have been public for more than three decades. They continue to stick to their high-quality culture.
Then you have Berkshire Hathaway which has never swayed an inch on their operational strategy or culture, whilst being public.
I think it all comes down to how steadfast the leader can keep to their long-term principles. In every case I mentioned above, the leaders and their team stuck to their process always. They never budged.
Their operating style attracts like-minded shareholders. As Ken Iverson said [HERE]:
We’re not dogs on a leash, doing tricks to manage the stock price or maximize dividends quarter-by-quarter. We’re eagles. We soar. If investors want to soar, too, they’ll invest in us. The speculators, we don’t need.
I think Narayana operates much more like Nucor, Southwest Airlines and Berkshire Hathaway in that regard than not.
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