An Indian Alternative to Obamacare

Lowering Costs With Sound Business Principles, Rather Than Reducing Costs by Denying Service

November 22, 2009

While the President and his hard left allies in Congress struggle to get rid of our present, less than perfect health care payment system, and replace the entire United States health care system by forcing a failed European socialist model on the nation, Indian Dr. Devi Shetty and his Narayana Hrudayalaya Private Ltd hospital company is using the free market system to deliver low cost, high quality care.

According to an article in the November 21-22, 2009 Weekend Edition of the Wall Street Journal, entitled The Henry Ford of Heart Surgery, on page A1, Dr. Shetty's hospital charges U.S. $2,000 for the same open heart surgery that costs $20,000 to $100,000 in a U.S. hospital.

This is low cost, not low quality, as evidenced by the fact that the death rate for patients who die within 30 days of the surgery in his hospital is 1.4% compared to a rate of 1.9% in U.S. hospitals.

Not only are Dr. Shetty's fees and death rates lower than comparable surgeries in U.S. hospitals but he actually makes a higher profit than U.S. hospitals.

His Narayana Hrudayalaya Private Ltd hospital showis an after tax profit of 7.7% versus an average after tax profit for U.S. hospitals of 6.9%.

How Does Dr. Shetty Do This?

The secret to Dr. Shetty's success is basically due to three things:

- Economies of Scale which allow his company to make up in number of served what he loses from lowering prices as well as the ability to spread his fixed costs over a larger amount of output.

- Specialization which allows his surgeons to concentrate on one or two types of surgery and become very good at it.

- Managing costs which involves keeping all costs under control.
Each of these is explained in more detail below.

Economies of Scale

Learning from mass production techniques in manufacturing, Dr. Shetty's company relies on large volume to achieve economies that smaller operations are unable to realize.

At his Narayana Hrudayalaya Hospital in Bangalore, India he has beds for 1,000 patients compared to the average U.S. 160 bed capacity of U.S. surgical hospitals.

Like other capital intensive industries, such as steel or automobiles, greater volume allows the high fixed costs to be spread over a much larger output thereby lowering the fixed cost per unit.

Further, just as companies like Wal-Mart and Costco can use their huge buying power to get favorable pricing from suppliers, so too can Dr. Shetty's operation get volume discounts on supplies and equipment.

Specialization

Rather than performing a number of different types of heart surgeries, or other procedures, the doctors working for Narayana Hrudayalaya Private Ltd. each concentrate on one or two procedures.

This constant repetition allows them to become very proficient with these procedures and enables them to perform them quickly and accurately the first time thereby enabling them to perform more surgeries with higher quality.


According to the WSJ article, the 42 cardiac surgeons at the Narayana Hrudayalaya Hospital in Bangalore performed 3,174 cardiac bypass surgeries in 2008 while the U.S. leader in this area, the Cleveland Clinic, only did 1,367 bypass surgeries. And cardiac bypass surgeries are only one type of surgery in which Dr. Shetty's hospital group outperforms their U.S. counterparts in terms of volume.

Managing costs

Dr. Shetty also keeps a close watch on costs. As any beginning finance or economics student will tell you, there are three ways to increase bottom line profit and these are:

- increase revenue while holding costs constant

- decrease costs while holding revenue constant

- a combination of increasing revenue and cutting costs

Dr. Shetty has an advantage here in that, for the most part, it is his patients, and not the government or insurance companies, who pay for his hospitals' services.

In order to get the volume of patients he needs to fill his hospitals, especially in a low income nation like India, he has to keep his prices low and competitive. This means that he has to watch all of his costs closely.

A problem with third party payers like the government or insurance companies is that the patient doesn't care about the cost and the government or insurance company doesn't have time to comparison shop or negotiate with each provider for each patient.

The result is a system where the third party payer publishes a schedule of what they will pay for each procedure and, so long as this is profitable for the provider, the provider has no incentive to cut costs since patients have no choice but to use their assigned physician/hospital or go without care thus giving the physician/hospital a guaranteed income from the third party payer.

Outsourcing Medical Care to India

n a previous Hub, Medical Tourism - a Growing Niche Market, I described the growing practice of people traveling to the developing world in search of affordable medical care.

That Hub also described how doctors in places like India, Thailand and Mexico, to name a few, many of whom received their medical education in universities in Western Europe and North America, were setting up practices to serve these medical tourists.

According to this article, the medical tourism business is growing by leaps and bounds as they are projecting that next year six million Americans will be seeking medical services abroad as opposed to the 750,000 Americans who went abroad for medical services in 2007.

And, if Obamacare passes, this number will only increase assuming Americans can afford to pay for such care after being taxed to death paying for the multi-trillion dollar spending projects that the Administration is trying to enact.

However, in addition to making the cost of medical care affordable for the average person, Dr. Shetty and his company are also working to cut the travel costs as well.

Outsourcing Works in Both Directions

One of the little publicized facts about outsourcing is the fact that it is a two way street. Of course it is both easier to find and report as well as being a more dramatic story to cover the closing of a business and the laying off of its workers due to the jobs being exported to places like India, than to report on the jobs created in the U.S. due to outsourcing.

However, as one reporter looking at the other end while visiting a call center in India. The workers and building were Indian, while the telephone lines, computers, software, training, support and even the bottled water in the cafeteria all came from the U.S.

Also, once companies in places like India get started in the outsourcing business they look to grow and expand beyond the entry level services they started with. Much of this high end (and high paying) work ends up being outsourced back to the United States and Europe.

Next Project - A Hospital for Americans in the Cayman islands

Currently Dr. Shetty is in the process of planning the building of a 2,000 bed hospital in the Cayman Islands in the Caribbean an hour's flight from Miami, Florida, where he will offer medical services for 50% or less than they cost in the U.S.

Lessons for the United States

n my Hubs, A Jobless Recovery and A Jobless Recovery - Part II, I stressed the fact that, for the economy to both recover, as it is doing now, AND grow so that jobs can be created for the over 10% of the American workers who have lost their jobs, we will have to provide incentive for investors and businesses to invest and grow the economy.

This will require reducing taxes, cutting government spending and reducing regulations. The opposite of what our current government is doing now.

Logically, Dr. Shetty should have built his hospital in Miami, Florida rather than in another nation a hour's plane ride away.

However, even without the passage of Obamacare or some watered down version of the thousand page plus bills currently before Congress, the cost of complying with the numerous existing regulations alone would have driven up his costs and wiped out much of the savings he now offers patients in India.

The existence of Dr. Shetty's hospital in the Cayman Islands will be a boon to Americans without employer paid health care as well as Medicare recipients who are denied treatment by Medicare and are unable to find a doctor to treat them on a self-pay basis.

If Obamacare is passed this hospital and others that will certainly begin to sprout up in other parts of the Caribbean and Mexico (which is looking to expand its infant Medical Tourism sector) will enable Americans to continue to receive quality health care at affordable prices despite the certain destruction of our own system by Washington politicians and bureaucrats.

New jobs will be created but they will be in the small neighboring nations to the south of us, and not in the United States.

Other Economic Mistakes by U.S. Government

There are also a couple of other facts in the article that do not portend well for the U.S. economy and these deal with Dr. Shetty's attention to costs - big and small.

In their heart and other surgeries his hospitals use a large number of sutures. While the cost of sutures are small relative to total costs and revenues, Dr. Shetty noticed that he was paying $100,000 per year to the American company, Johnson and Johnson, for sutures at his hospital in Bangalore. Today, he purchases the same quality sutures from Centennial Surgical Suture Ltd. in Mumbai, India for $50,000.

U.S. taxes and regulations contribute to helping to make Johnson and Johnson sutures more expensive than those of Asian competitors.

Similarly, the doctor currently purchases his expensive medical equipment from General Electric, a major U.S. producer of medical equipment. However, he can get same equipment of the same quality from Chinese companies for a much lower price. But, at the moment, the Chinese do not have sufficient local service companies to provide needed service and maintenance in a timely manner.

However, once the Chinese companies get a large enough local service base he will switch and General Electric will lose both the initial sales of the equipment as well as the parts needed for ongoing repair and maintenance.

Ronald Reagan Was Right

Again, American taxes and regulatory compliance are helping to drive up costs which result in U.S. companies business which translates into less of a need to hire more workers.

This article and the current health care fiasco being played out in Washington provide a perfect illustration of former President Ronald Reagan's famous saying:

The Government is the problem, NOT the solution.

More by this Author


Comments 21 comments

Shalini Kagal profile image

Shalini Kagal 6 years ago from India

That's a very balanced, practical hub you have there! It makes so much sense to look at alternatives when it comes to the most essential of all things - health. And while I am an Indian, I must say that it's not just India but countries like Thailand as well where medical tourism is going great guns simply because they can offer the same facilities at a fraction of the cost. A large part of it right now is dental work and these can be offered at much lower rates in developing countries because of the much lower overhead rates and the cost of living.


vrajavala profile image

vrajavala 6 years ago from Port St. Lucie

by controlling healthcare, the government also gets to control our lifestyle.

nice hub


Legacy Wellness profile image

Legacy Wellness 6 years ago from Katy, Texas

ObamaCare is socialism. He doesn't really care if it works or NOT. He just wants to control 1/6 of our economy.


Pseudonymous profile image

Pseudonymous 6 years ago

The European 'socialist' model has failed? I guess no-one bothered to tell me. The last time I went to an NHS drop-in centre I waited fifteen minutes to be seen with no appointment and no hassle.

I'm pretty sure the statistics show that the NHS delivers a better quality of service for half the cost in GDP terms than the American system.

I think there's a good point in your hub about using economies of scale to deal with widespread but non-emergency operations, but this is not really practical to the operation of most hospitals. Dr. Shetty seems to have developed a very efficient factory model of medicine, but unfortunately a lot of medical problems are not so easily planned for, resourced and dealt with.


sunitjain 6 years ago

Mr chuck deserve a good pat for making such a good study

swetty doctors are not low paid in india as Mr chuck said as compair to std . of usa

I like to ref. the upcomimg huge moderen medical facilities in gurgaon in the south of new delhi, I think this will boost the medical tourisum in india in a big way.

Now the indians docs are very highquality of medical knowledge &remain updated with the latest research in medical science

Hope this will alert the us medico,s in the coming time


Chuck profile image

Chuck 6 years ago from Tucson, Arizona Author

sweetie1 - thanks for your comments.

There is obviously a difference in pay in India vs the United States. However, the cost of living is also different between the two nations so if you adjust the pay of doctors in India vs what doctors earn in the United States for the cost of living in the two nations you will probably find that they are similar.

Further, while the pay, in terms of absolute number of dollars per year, of U.S. doctors is large so are their costs and debts resulting from having to set up their practices. This has the effect of reducing their after expenses pay.

And an increasing portion of costs that doctors incur is the result of government regulations such as the information gathering, reporting and storing, much of which is simply to comply with government regulations and has nothing to do with patient care.

There is also the skyrocketing cost of malpractice insurance which the President and his Democratic allies refuse to do anything about because trial lawyers are major contributors to the Democratic party.

You will also note in the Hub, that the hospital Dr. Shetty is building in the Cayman Islands is planning to offer medical services at about 1/2 the price in the U.S. which means that his group would be charging about $10,000 in the Cayman Islands for an operation that would cost $20,000 in the U.S. and not $2,000 as he is able to charge in India. This reflects the fact that many of his doctors at the Cayman Island hospital will probably be coming from the U.S.

Finally, while working hours are longer in India than in the U.S., (although doctors in the U.S. are generally not known for short work days), what Dr. stressed in the videos I included was working the equipment longer hours not necessarily the staff. Three, eight-hour shifts on a machine leaves doctors and staffs working an eight hour day but has the equipment in use 24 hours per day.

Dr. Shetty is merely using techniques that are already in use in the United States in other industries and applying them to medicine. Our manufacturing sector is among the lowest cost producers in the world yet we pay the highest wages.

You can also check out Southwest Airlines which, the last time I looked at that company it was a very profitable airline, in an industry not known for profitability, as well as having the highest paid pilots in the industry.

Thanks again for your comment.

Chuck


sweetie1 profile image

sweetie1 6 years ago from India

Since what Indian Doctors are get paid is a joke thus the treatment cost in India is very very low. this would be very difficult for Obama to get for simple reason they in USA dont pay doctors 800$ a month and then expect them to work 24X7.


Chuck profile image

Chuck 6 years ago from Tucson, Arizona Author

Fisk - thank you for your comments.

As to why I claim that European medicine has failed is that, from all the statistics I have read there are long waits for treatment in nations with socialized medicine and equipment and procedures tend to be antiquated.

I don't know much about how the citizens of France feel but enough Canadians got upset with their system, which previously limited medical choices to the government system only, that they went to court and two years ago the Supreme Court of Canada ruled against the government and included in their opinion a statement to the effect that "waiting in line is not the same having access to medical care". Furthermore, as I noted in the Hub above, many Canadians prefer to come to the United States and pay for their care rather than waiting months or years for the "free" care that they have paid for with their taxes.

Chuck


Fisk 6 years ago

I'm wondering why you claim that Europian medicine has failed. From what I have read the citizens of France and Canada seem rather pleased with the level of care they are being provided.


earnestshub profile image

earnestshub 6 years ago from Melbourne Australia

A wonderfully informative group of hubs Chuck!

The good Indian doctor seems to have a grip on sound principles.

As an Australian who follows American politics keenly a balanced opinion that is based in fact can be a hard find.

Top marks for this hub particularly, as it points out the current problems and poor decisions of this Government.

I do support Obama as many Australians do. I like him because he seems better equipped as a young man who is calm and listens. I hope he can clean out the treasury soon though or I will begin losing faith!


Ten Blogger profile image

Ten Blogger 6 years ago

Very true on the cost of heart surgery in India. One of my relative recently went through a heart surgery in India. Total cost about $3000 USD (all with best medical care.)


Nan 6 years ago

Chuck, you did a lot of research on this article. The reason the cost in the US is high and not affortable is that the doctors and hospital have duplicated the same equipment. If 10 hospitals in one big city all did the same procudure, then the cost goes higher for the patients. If one or two did the procudure we would be lowering the cost. They all want to out do one another. They all want to specialize. They all want to buy the most expensive equipment and charge it off to the patient. We need more regulations, that is the reason we are in a DEPRESSION. We all want a new car. status is at stake. Insurance companies were allowed to run wild, banks, Wall Street lied to the clients, like Madoff, and the rest. Why didn't the clients check the newspapers every on their investments. Were they that dump to give all that money and not check on the companies that they invested in? They stole from us as Americans. If you want a cheap surgery go to the cheap source. I hate to think of a discount doctor. I am happy with the people here in Illinois, I know them and like them, whatever the cost. Their reputation is good, and we have excellent facilities! President Regan was for the Rich Only! Not the poor, if you could not make it too bad! I was formerly in Medicine, and I have a lot of respect for Doctors! I cost a lot of money to go to medical school, as to go to any college or school, and many years. Our country does have the finest of anywhere!


theguru-reports profile image

theguru-reports 6 years ago from Montana

One of the single best descriptions of why Obama Care can't work and why President Reagan was right. Great job.


johnwindbell profile image

johnwindbell 6 years ago from - the land of beards and buggies

Hi Chuck, I have no problem whatsoever in calling our Prez and his administration socialist. I would even add the word cunning and conniving into the description.

....and yes there are enough rational choices, and this Prez and the one before him, have opened the door wider for the 'sheeples' to make their vote. Obama-ness .....thank goodness.


drbj profile image

drbj 6 years ago from south Florida

You make a good case for "the government is the problem." But in the final analysis, we, the people, are the problem since we choose the folks who represent us. And often, as ocbill states, we don't have enough rational choices.


ocbill profile image

ocbill 6 years ago from hopefully somewhere peaceful and nice

Well, I'd love to argue with you here but I can't. So, if the majority of people feel it is wrong govt goes ahead anyway. There is not a fear of change, just a fear of "told you so". It is true, there is a lot fo good healthcare outside of the USA, less cost and really good quality.

Supermodels going to Brazil for oeprations, India for high-end surgeries, etc.

In the end, it will come down to a lack of Pres. candidates we had to choose from


Chuck profile image

Chuck 6 years ago from Tucson, Arizona Author

ainehannah - Thank you for visiting my Hub and for your comments.

I choose to use the words "hard left" in place of the word "socialist" since many people get upset when that term is applied to the President and his policies.

According to every source I am aware of "socialism" is defined as government ownership of the means of production. So, when the President and his allies in Congress move to have the government attempt to take over and run an industry that makes up one-seventh of the U.S. economy they are certainly not acting like free market moderates.

But, thanks again for your comment.

P.S. you might want to do a Google search on the word "stereotyping". The last time I checked the act of stereotyping people or groups and making broad assumptions about their character was not considered to be politically correct.


ainehannah profile image

ainehannah 6 years ago from Dublin

Characterising Obama as being hard left identifies you in my mind as being hard right. Hard right to me in American terms is fundamentalist religion, screw your neighbour every chance you get regardless of whether or not it's contextually needed and is even secularly intolerant of everyone who lives out an openly different set of values to your own. I didn't bother reading the rest of your treatise beyond your lazy characterisation of Obama.


guidebaba profile image

guidebaba 6 years ago from India

Great Hub and Excellent explanation. I appreciate all your explanations. Cost reduction is not impossible if done wisely.


bobmnu profile image

bobmnu 6 years ago from Cumberland

Great Hub. It made me think of another program that has cut insurance costs. Safeway Foods has a better plan than Obamacare. In Non Union stores the Co offers health savings incentives. They have identified several health risk behaviors and pay people incentives to quit smoking, lose weight, reduce blood pressure etc. They have cut insurance costs drastically and have the people wanting more incentives for more health concerns. Safeway puts the health care on the employees and lets them decide how and what to spend the money on. If the government would just get out of the way the problem could solved.


eovery profile image

eovery 6 years ago from MIddle of the Boondocks of Iowa

Interesting concepts. I hear that there is a Program set up in Costa Rica where the cost is about 10$ of what it is here. This may be the future of expensive procedures.

Keep on hubbing.

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