NARAYANA HRUDAYALAYA

Our Vision: To provide high quality healthcare with care and compassion at an affordable
cost on a large scale.
Our Mission :The Company’s mission is to deliver high-quality, affordable services to the
broader population in India.

PRESENT STATISTICS:

50 Healthcare Facilities Operational beds

21 Owned / Operated Hospitals 5,294 Beds

2 Managed Hospitals 498 Beds

7 Heart Centres 371 Beds

19 Primary Healthcare Facilities 10 Beds

1 Hospital in Cayman Islands 110 Beds

7,155 Capacity Beds

6,283 Operational Beds

3.0 mn Average Effective Capital Cost per Operational Bed

PRESENCE:
 Present in; Kakriyal(Jammu), Delhi NCR, Jaipur, Ahmedabad, Mumbai, Shimoga,
Bellary, Bengaluru, Mysuru, Jamshedpur, Raipur, Durgapur, Kolkata and Guwahati.
 Karnataka region: 7 hospitals (4 in Bengaluru), 6 heart centres with 2,213 and 322
operational beds respectively.
 Western region: 4 hospitals with 860 operational beds.
 Northern region: 3 hospitals with 614 operational beds.
 Eastern region: 9 hospitals (6 in Kolkata in which 3 are acquired), I heart centre with
2,105 and 49 operational beds respectively along with 10 primary facilities
operational beds.

FINANCIAL PERFORMANCE:
 Consolidated operating revenues of INR 7,652 mn in FY19, an increase of 18.3%
YoY translating into INR 28,609 mn in FY19, an increase of 25.4% YoY
  Consolidated EBITDA of INR 968 mn in FY19, reflecting a YoY growth of 71.1%,
thus translating into EBITDA of INR 3,045 mn in FY19 i.e. an EBITDA margin of
10.6%
 Consolidated net debt of INR 7,127 mn as on 31st March 2019, reflecting net debt to
equity ratio of 0.66 (Out of which, debt worth US$ 54.3 mn is foreign currency
denominated)
 Major revenue comes from Bengaluru and Kolkata, 40% and 29% respectively.
 Western region 14%, Northern region 6%, Southern and Eastern Peripheral 6% 7 5%
respectively.
 Operational beds on 1st May 2018 was 6,126 and on 1st May 2019 was 6,173.

They are evolving as a Multi-speciality Healthcare provider which is shown in the

following chart;
Angioplasty 15K+ (1.23x increase)
Angiograms 38K+ (1.08x increase)
CABG 8K+ (1.28x increase)
Valve Repair 850+(1.85x increase)
72% of them are In-Patients and 28% are Out-Patients.

NEW FRONTIERS IN CATH LAB INTERVENTIONS:

 Interventional Fontan Completion: Our hospital in Bengaluru performed a hybrid
treatment modality that reduces the number of surgeries required from 3 to 1 to treat
congenital heart diseases. We are the first in the country to perform such procedure.
 Leadless Pacemaker: Leadless Pacemaker has been the newest invention in this area
and still a novel procedure in India. These tiny machines are inserted directly into the
heart, unlike regular pacemakers implanted just below the skin on the chest. Three
such implantations have been done till date.
GROWTH:
 A 225-bed hospital in the year 2000, is today a 7,155 capacity-bed multi-specialty
healthcare services chain that provides superior tertiary healthcare at affordable costs.
Headquartered in Bengaluru and has a network of 23 hospitals (multi-speciality and
super-speciality healthcare facilities) with 7 heart centres (super- speciality units)
across 18 locations in India and 1 multi-speciality hospital in Cayman Island.
 30+ Specialities, 16,690 full-time employees and Associates including 3,644 doctors.
 NH performs a high number of procedures (about eight times more than other Indian
hospitals) to decrease the cost.

Why He Won: For setting up a 7,000+ bed multi-specialty hospital chain across India that
provides world-class treatment based on a cross-subsidised model.
His Trigger: Providing healthcare to the poor. Most Indians cannot afford tertiary and
specialty health care. One of the biggest reasons for them falling below the poverty line is an
illness in the family. And taking care of children as 13-15 out of 1000 children are born with
CHD (congenial heart disease).
His Mission: To create multi-specialty ‘health city’ with a 100-acre campus. As a first step, it
was building a 780-bed cardiac hospital with 30 operation theatres capable of delivering 75
heart surgeries per day. The Health City project will have other specialty hospitals and
training institutions and was targeted to have 5,000 hospital where every health need can be
provided at an affordable price.
His Action Plan: Build expertise in specialties other than cardiac and cancer care; expand to
more cities; use technology to cut costs, improve outcomes.
Flow diagram depicting the processing of a poor patient at NH

NH constantly works to DRIVE DOWN UNIT COSTS. There were a few major factors
that allowed NH to run leaner than its private counterparts:
 ECONOMIES OF SCALE: Fixed salaries paid for surgeries to doctors instead of
paying per surgery which helps in cutting down the cost per surgery.
o The bulk of the cost in healthcare is R&D cost; actual manufacturing cost is
very small. With higher volumes, the vendors can cover their costs.
o It uses its infrastructure for 12 to 14 hours a day.

 VOLUME: Increased number of shifts and higher number of specialised doctor,

operation theatre is utilised for longer hours contributing to high volumes.
A high volume of procedures is the basis of NH’s cost reductions, mostly attained with a high
level of capacity utilization and staff productivity. Larger volumes of open-heart surgeries
and catheterization procedures everyday allowed the medical team to decrease the cost of
each surgery. Facility use was increased through a shift system wherein the operation theatres
worked longer hours. This enabled the hospital to provide more care to more patients. This
was not the case in hospitals in countries such as the UK where elective surgeries were
performed only during the day shift with the operating theatre effectively utilized for only
about six hours.
  PROCUREMENT: NH did not store consumables and got suppliers to deliver them
JIT. There were problems and the measure was reversed, and an in-house store set up.
o The hospital has set up a central buying unit and standardised purchase of
consumables and devices.
o Almost 95% of the inventory is standardised across all the hospitals. Just 5%
is left to the local hospital to buy.
o Close to 80% of all the purchases are through the CBU.
o This has cut the inventory cost by 35-40% and ensured quality.
High volumes of patients and procedures enabled NH to have stronger purchasing power for
their medical supplies. An interesting aspect to its purchasing practice was to eliminate long-
term contracts and to bargain with suppliers every week. This also brought down their
inventory carrying costs and reduced scope for opportunistic behaviour by suppliers. NH had
brought down its prices by almost 35 percent since it started procurement. It did not purchase
much medical equipment, opting instead to lease; NH paid only for the reagents needed for
the equipment. The high volumes allowed the suppliers to make enough of a profit to enter
into such partnerships.
 INNOVATION: e.g., ECG machines from US$750 to less than US$300 and its own
company write the software to read the data from the machine.
NH also constantly works on technological innovations to bring down costs. In one instance,
it brought down the cost of ECG (Electro Cardio Grams) machines from US$750 to less than
$300. NH unbundled the software and hardware costs of the ECG machine and had its own
software company write the software to read the data from the machine into a PC. NH gave
this software for free to anyone that wanted to use it and didn’t charge any licensing fee. In
another instance, NH collaborated with Texas Instruments (TI) to develop a digital X-Ray
plate based on a product that was going off-patent in 2004. The original product cost was a
whopping US$82,000 and the product NH and TI developed on this expired patent was only
US$300. NH did not plan to profit exclusively from this innovation as Dr. Shetty was quoted
in a magazine article: “We will give these to government hospitals. They save on film and
won’t need a radiologist.”
 PARTNERSHIPS: e.g., Major partnership with Biocon Foundation which sells drugs
20 to 30 percent cheaper to its members and ISRO for Telemedicine.
Partnerships included the one with Texas Instruments for technology that will bring down
cost of patient monitoring (under development), as well as a partnership with government for
health insurance schemes (e.g. Yashasvini case).
In partnership with Biocon Foundation and a private company called ICICI Lombard Ltd, NH
launched an insurance scheme in 2004 to cater to low-income patients. The scheme was
known as “Arogya Raksha,” and it required individuals to pay Rs 15 (approximately US$3)
per month, and the individual was insured for 1,650 types of surgeries.
Biocon Foundation set up a generic drug shop where it sold drugs 20 to 30 percent cheaper to
their members.
 HUMAN CAPITAL MANAGEMENT: e.g., Staff retention and Recruitment and
training of the same for various programmes by specialists.
Staff retention and recruitment was a major challenge for NH. It used continuous training
programmes to promote specialists and other medical staff from within its staff pool to keep
costs down, while providing a growth path for its staff. Nursing had an especially high
turnover rate. Training programs were developed to try to retain nurses. Intensive training
with critical-care experience aside NH also started a nursing college to ensure constant
supply of qualified nurses at relatively lower costs. Financial help in the form of loans from
banks and government subsidies encouraged people from poorer communities and remote
areas to study and train to be nurses. NH, on its part, assured them job opportunities. The
training in cardiac nursing was intensive and included six months in the critical care unit at
NH. The hospital did recognize that their nurses were in good demand both in India and
abroad and viewed it as an opportunity for nurses that left to make higher salaries overseas. It
adopted a policy of paying higher wages for a core group of nurses to retain them and filling
up the remaining need by a continuous flow of incoming batches from its own training
institution.
All of the cost minimization strategies were designed to facilitate improved access to cardiac
care for the poor. NH also developed innovative ways to do this.
 Other cost cutting techniques are:
o Use pre-fabricated building materials. (factory-made components or units that
are transported and assembled on-site to form the complete building)
o Build for natural ventilation (than air conditioning).
o Create replicable systems and procedures (SOPs).
o It hires some equipments on pay per use basis, this lowers capital costs.
o Great emphasis on maintaining the equipment for extending its life.
o Even the buildings are designed to keep the costs low. E.g., NH’s Mysuru
hospital was designed and built at Rs. 18 lakh per bed, when the thumb rule
cost of a similar hospital is Rs. 50 lakh to 1 crore a bed.

 The continuous lowering of Average Length of Stay has reduced in-patient occupancy
numbers and thus less pressure to keep adding beds. With better systems to enable
optimal usage of manpower and equipment, they can serve more patients with the
same infrastructure.
NH Average Length of Stay has decreased from 4.3 days in FY 2015-16 to 3.9 in FY
2018-19, while the number of discharges increased from 1.9 lakh to 2.6 lakh. This
proves their focus on clinical quality allows to do more with less.

Was NH successful?
 Its operation strategy of delivering the highest quality of service at the lowest cost
consistent with that quality, has been implemented successfully.
 Its success also lies in the fact that none of its competitors have managed to replicate
the model at NH and their surgery price are almost double compared to that of NH.
 The Assembly-Line approach to cardiac surgeries and long hours put in by doctors
everyday results in bringing down the cost per operation related to doctors.
 NH’s surgery prices are very close to the break−even prices associated with those
respective surgeries.
  NH even offers free surgeries and subsidies on surgeries for the economically
backward through the profit it gets and also through the Narayana Hrudayalaya Trust.
 Even while offering Surgery procedures at such low prices NH has managed has
always managed to earn profits and deliver high quality service to its patients from
diverse economic backgrounds.
 It is also paying all its doctors and staff quite decently despite the low prices it
charges.
 The Narayana Hrudayalaya model of operation has managed to ensure sustainable
development and benefit for all the people involved.
 Reaching out to the masses without compromising on the quality and has managed to
achieve that.

How?
 The huge success of Narayana Hrudayalaya (NH) can be attributed to the efficiency
and innovation in its processes. It has been at the forefront of innovation in all its
practices.
 The operations drove the unit costs lower through a high level of capacity utilization
and productivity.
 The team leveraged their strong reputation in cardiac care to perform a high number
of cardiac surgeries daily.
 They made 8 times more surgeries in a day than an average Indian hospital would do.
It was even greater than the number of surgeries they do in a very good US hospital.
 The volume of procedures completed allowed the unit cost of surgery to be
significantly decreased.
 Also because of their huge volume of operations, they are in a good position to better
negotiate deals with their suppliers.
 They hire expensive machines on rent rather than buying them. Even the suppliers are
ready to lease them because they can get a good profit due to the huge volume.
 By not getting into long−term contracts, they are managing to keep the operations
flexible and also, they don’t have to be locked in to use a supplier who suddenly
becomes expensive.
 Keeping the administrative team lean.
 NH has also embraced new technology as a means to cut costs. (The hospital uses
digital X−Rays for which there would be no extra expenditure on X−Ray films).
 NH started using the cardio − diabetes products introduced by Biocon Ltd., which
were 80% cheaper than the market rate for similar medication.
 The doctors also worked for longer hours and performed more operations to further
cut down on the costs.
 NH always had a careful mix of paying and non-paying patients. They had never
refused a patient due to insufficiency of funds.
 The finance department also employed a unique− daily accounting system whereby
all revenue and costs for the day were accounted for. In this way, they were able to
gauge NH’s immediate ability to fund below−cost surgeries.
  By employing specialists in each field and performing high volumes of surgeries and
by leveraging the under− utilized common facilities.

1.) Specialist surgeon such as Dr. Devi Shetty are always short of time. Do you think
experts like him would be able to spare enough time for providing diagnosis
advice to distant patients through ‘Telemedicine’ in a sustainable manner for a
long time?
NH has managed to reach out the rural poor by the way of Telemedicine. CCU’s were set up
across India, equipped with all required tools, which linked to NH or the RTI (Rabindranath
Tagore Institute), depending on proximity. The CCU’s were handled by trained technical
staff to operate the equipments. S.N. Informatics has developed a software by which the ECG
images could be scanned and transmitted via a web connection.
The CCU (Coronary Care Unit) service was provided free of cost, while the cost of setting up
a CCU was funded by AHF (Asia Heart Foundation), as were the staff salaries and operation
costs.
It has taken ISRO’s help in transmitting quality video signals more reliably.

Pros of Telemedicine:
 More Convenient and Accessible Patient Care
 Healthcare Cost Savings
 Extended Specialist and Referring Physician Access
 Increased Patient Engagement
 Better Patient Care Quality

Cons of Telemedicine:
 Technical Training and Equipment
 Fewer In-Person Consultations

The challenge here is training the general practioners for the usage of telemedicine and also
for the expert consultation to the people living in the nooks and corners of the country.
Fewer in-person consultations is a con for other organisations but for NH it is an advantage
which makes sure that Dr. Shetty is involved only when it is needed, and patients get in
contact with the specialists only when it is necessary.
NH trains its doctors for the consultation purpose through telemedicine. Only when the
condition is critical and needs expert suggestion then Dr. Shetty is consulted.
Hence, The Telemedicine program is sustainable in long term.
2.) Is it a right operations strategy to get into short term contract with the suppliers
of the hospital?
 According to porter’s approach, they can negotiate better deals with suppliers because
they compose a powerful bargaining buyer due to their reputation, purchasing large
amounts of seller’s products and twining with another hospital.
 Because prices in India are flexible, they don’t sign long-term contract with their
supplier, negotiating each purchase to avoid expensive suppliers.
 Using new technology helped reducing cost like using digital x-ray that didn’t incur
recurrent cost.
 Getting contract with new pharmaceutical company, both are winners. NH gets better
prices, and suppliers will sell more due to NH reputation, so other hospitals will use
same products.
 They hire expensive machines on rent rather than buying them. Even the suppliers are
ready to lease them because they can get a good profit due to the huge volume.
 By not getting into long−term contracts, they are managing to keep the operations
flexible and also, they don’t have to be locked in to use a supplier who suddenly
becomes expensive.

3.) The Yashasvini insurance scheme is based upon the premise that the premium
collected from the member farmers would be used for funding the cost of
surgeries and OPD for sick patients. The other approach is the one followed by
NH in which the net revenues generated by paid-surgeries (mostly by affluent
people) is used for partially funding the below cost surgeries. According to you,
which model is better in taking care of the poor?
  Observations of Yashasvini Program: During the period where lot of corporate banks
and hospitals started offering health insurance policies that are mostly reachable to
common man in India, the cost and benefits associated with Yashasvini insurance
scheme tells us that it is a great boon to the common man. The same has been
reflected in terms the subscription volume.
Benefits:
 “Research by the NH team estimated that only 8% of the policyholders would require
medical procedures, thus the total funds collected was expected cover the cost of
treatment for those in need” this research revealed excellent opportunity associated
healthcare Insurance.
 Operations costs are greatly reduced by using the government resources like post
offices, for issuing membership card and colleting the monthly premium.
 Its association to government has made it more successful, since “People are more
willing to trust government agencies”.
 Government started contributing Rs 2.50 for every Rs 5 paid by the farmers, since it
became very popular in farmers and increased utilization of government resources.
 Utilization of government infrastructure has helped in cost reduction to a great extant,
since affordability is no longer an issue to the farmers.
 As it is evident from the first year data, 35,000 members received outpatient treatment
across the state. Majority of these members would have not received any treatment if
this scheme was not available to them.
 With all the above benefits, it is evident that Yashasvini scheme, is a great success, as
it improved the utilization of government resources and had healthcare affordable to
common man.

 Dr. Shetty has an established name in Karnataka for his work in cardiac care. Even
the other approach had similar benefits of serving larger section of people who
couldn’t afford the cost of the surgery, but it is treated as non-urgent in nature and
doctors are scheduled on the days, they are having surplus revenue from the paying
patients. Which is backed by a stringent accounting system which ensures the hospital
that it is able to pursue its social objective, while keeping itself viable in the long run.