December 14, 2017  
 
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Low Cost Health Care Delivery

Written by Gautam Patil for Gaebler Ventures

The national health care systems of many developing countries are ill equipped to provide health care to their burgeoning populations thereby necessitating the use of novel and innovative health care delivery models. The Aravind Eye Hospitals based in India offers many lessons for those yearning to sustainably provide cheap and effective health care.

Established in 1976 as an 11 bed hospital by Dr. Venkataswamy (fondly called Dr. V), Aravind Eye Hospitals (AEH) now have about 3900 beds and have treated more than 23 million patients and performed over 1.6 million surgeries.
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AEH has employed many unique and innovative strategies to provide health care at such a large scale without any government aid or subsidies. Some of these could be easily adopted by others to establish similar health care solutions.

Cost savings through in-house production

In the early 1980s Intra Ocular Lenses (IOLs) artificial lenses which replace cataract infected natural lenses cost about $600, making them unaffordable for the poor. Dr. V set up an in-house manufacturing facility and today it produces these lenses at a little over $5 each and has a 10% global market share in IOLs.

Such a dramatic reduction in IOL cost makes cataract surgery a lot more affordable. While technology transfers, manufacturing capability and capital outlay may be a problem, entrepreneurs interested in social entrepreneurship could do well to identify costs which could be minimized through in-house manufacturing.

Price discrimination

Nearly 35% to 40% of the patients at AEH are treated for free. This works as a result of a system of cross subsidization wherein the revenue generated from 'paying' patients helps subsidize costs of the poor patients.

With a self enforced rule of sustainability without government subsidies or private grants, one would expect AEH and other socially entrepreneurial businesses to run into constraints on the number of poor patients that can be treated.

Despite this challenge, price discrimination if practiced in an appropriate way can help maximize revenue without pinching the paying patients' pockets too hard.

Scale and Efficiency

In low-cost delivery models, scale and efficiency assume even more importance.

AEH has an extensive rural outreach programme under which rural patients are diagnosed by local doctors and those requiring a surgery are given an appointment while the rest are given an appropriate prescription. AEH has conducted over 2700 such medical camps so far and currently makes use of IT doctors now diagnose patients over the internet using a webcam to further increase its reach. As an added benefit, the low cost of IOLs mentioned earlier can also be partly attributed to the production volumes generated by these medical camps.

As for efficiency, AEH is regarded as one of the most productive medical facilities in the world.

On an average an ophthalmologist performs about 220 eye surgeries in India while surgeons at AEH perform about 2200 surgeries annually. Apart from a firm commitment, this stunning factor of efficiency arises from good planning. Paramedical personnel are given special training on joining which allows them to perform over 70% operation theatre activities thereby saving a surgeon's valuable time. Thus, AEH has been able to effectively tide over manpower constraints routinely faced by other health care facilities.

It would be unfair to say that it's just good management and sound economic principles that have enabled AEH achieve its goals. Dr. V's unwavering commitment, attention to detail, laser like focus, and excellent leadership through example have also been instrumental in shaping AEH.

Entrepreneurs can use these lessons to replicate such models elsewhere to augment overburdened and underprovided health care facilities in developing countries.

It is important to realize that good health is also an important pre-condition for earning a decent livelihood, and thus better health care has a very positive impact on an individual's economic well being.

Gautam Patil is a recent MBA graduate from the Indian Institute of Management, Bangalore. In addition to serving as a contributing writer for Gaebler.com, he will join the consulting firm Oliver Wyman at their London office.


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