This Doctor Is Making Heart Surgery Accessible to the Poor by Embracing Mass Production
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Economies of Scale
If Dr. Shetty was going to lower the costs of surgery he was going to need to cut costs while also maximizing output. But in order to have the authority to make those types of administrative decisions, he was going to have to start his own hospital. So he did.
In Shetty’s hospital, the doctors respond to actual demand; if there are patients needing surgery, then they find a way to meet that demand.
In 2001, the Narayana Hrudayalaya Hospital opened its doors. Completely funded by private entities, the facility has over 1,000 beds. To understand how truly impressive this number is, in the United States, hospitals average around 160 beds for patients receiving heart surgery. This allowed the hospital to drastically multiply the number of surgeries that could be performed each day. It also drove costs down— way down.
As reported by Harvard Business School:
The purpose of the hospital was to offer healthcare for the masses… The interesting aspect of its business formula was its ability to offer such complex surgeries as CABG (popularly known as bypass surgery) for about $2,000, which was substantially less than other similarly equipped hospitals in India.“
To put this price perspective, the same surgery in the United States would cost a health care consumer around $75,345. This is because in many countries, like the United States, there are regulations that restrict the number of surgeries that can be performed by each surgeon. For this reason, most U.S. hospitals only perform about 32 heart surgeries per day. But capping the number of surgeries performed each day goes against market demand and serves to keep the cost of surgery high by controlling the supply.
In Shetty’s hospital, the doctors respond to actual demand; if there are patients needing surgery, then they find a way to meet that demand. On average, Shetty and his team of surgeons perform over 300 heart surgeries a day. In fact, in the course of his career Dr. Shetty has performed over 20,000 heart surgeries himself. That number is about six times more than the average American surgeon is expected to perform in their lifetime. And at only 62, Dr. Shetty has many surgeries yet to perform.
Commenting on his unique health care model, Shetty said:
Japanese companies reinvented the process of making cars. That's what we're doing in health care. What health care needs is process innovation, not product innovation."
But while many are applauding what Shetty has been able to accomplish, there are others who worry that Shetty’s increase in quantity might result in a decrease in 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," Indian physician Amit Varma said. He continued, "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.”
And while there is some validity to Varma’s fears, in Shetty’s case, the opposite seems to be the case. Narayana Hrudayalaya Hospital has a 1.4 percent mortality rate as compared to the 1.9 percent average in United States’ hospitals. But even these comparisons don’t tell the full story, as the Wall Street Journal points out:
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. 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.”
When asked how his surgeons are able to perform such high numbers of high-quality heart surgeries, Dr. Shetty says:
Practice makes perfect. There is learning by doing. The more times you do something, the better you get at it.”
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Originally Posted by Ron Paul
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