Lead Story

Big heart, better mind

Narayana Healthcare is racing ahead in its quest to make healthcare more accessible and affordable

As I sit chatting with Dr Devi Shetty in his largish cabin on the first floor of Narayana Health City in Bengaluru, I can barely keep my eyes off him. Not because he is the most charming doctor I have met till date but because what he is saying is very refreshing compared with the oft-repeated sob story of government apathy and shortage of skills you hear from chieftains of healthcare companies. In the course of our 90-minute conversation, Dr Shetty draws my attention to a painting hung right behind his seat. It looks like some sort of modern art — to a novice like me, it could easily pass off as an MF Hussain classic, but no, it’s not. “It is painted by an elephant,” Dr Shetty says with some degree of assertion. He bought the painting from the Elephant Nature Park in Thailand, where every elephant is trained to make one particular painting. “You can watch the elephant paint and then buy the piece. We are surely more intelligent than elephants. So, can’t we get some girls from the villages and train them to hand over a surgical instrument  to a doctor for a hernia operation?” he asks. “It’s possible.”

Those are not empty words — Narayana Healthcare (NH) is walking the talk. One example of this is the fact that NH is working with the Healthcare Sector Skills Council, a joint initiative of the CII, NSDC and healthcare providers, to train more than 2,000 school dropouts in healthcare vocational education programs. Not just that, NH has developed 24 new job roles — all of which are aimed at school dropouts — in collaboration with the council. NH is doing its part in building medical infrastructure, both physical and manpower related,
as it grows. 

It’s not a joke — in less than 15 years, Dr Shetty’s NH has grown furiously from zilch to 31 hospitals, with about 5,850 beds (extendable to 7,500 beds in no time) under its management across 19 cities. Currently, the biggest hospital chain in the country Apollo Hospitals has 9,091 beds across 54 locations under its fold, with annual revenue of ₹4,406 crore. Fortis Healthcare has 4,600 beds across 54 locations with annual revenue of ₹4,930 crore. What’s stupendous about NH’s growth is that it is powered by a savvy financial model and an eagle eye on costs, thus making its services affordable. 

Dr Shetty’s mission of affordability and accessibility was driven by a unique and thoughtful approach that encompassed cutting down costs dramatically through improvisation in procedures and consumables, roping in the government to create a micro insurance scheme that drew in the poor, and tying up with a host of generous donors who volunteered to pay the bills for poor patients, and most importantly, managing a mix of rich and poor patients.

Patients who can afford to pay, pay full price and those who can’t pay are helped through donors and everyone in between to get some sort of a discount. Overall, about 20% of the patients at NH at any point in time are poor and covered through micro insurance schemes, 20% supported by donors and 60% are paying patients. NH offers discounts to bridge the gaps, if any, in the patients’ contribution, including those who are insured, and it is the paying patients who actually allow NH to offer these discounts. How much discount NH offers in a month is a function of how many paying patients it gets, managed dynamically on a daily basis. Currently, NH shaves off 15% of its top line in discounts.

As NH grows in size and scale, Dr Shetty has set himself a target of 30,000 beds over the next seven to 10 years. That’s an audacious target and comes with some serious challenges. Neither is charity scalable (although it is finally picking up in India — Dr Shetty says that earlier, if you were good, you would not be able to make a lot of money but the big change in the past few years is that ‘good people’ are making money and supporting good causes, including healthcare) nor can cost savings continue endlessly — the easy methods have already been cracked. Dr Shetty realises what got him here won’t get him to where he wants to reach ultimately — unless he looks beyond. 

Which is why NH is re-focusing its energies in two directions. One, embracing technology to rein in greater efficiencies that will, in turn, not just bridge the access divide but also drive costs down further. Two, alternating its growth path from a purely organic growth model to one that will seize any opportunity to scale up.   

Getting smart

In March this year, NH inaugurated a 2,200 sq ft clinic in Mysuru which will be the first smart clinic in the country. The idea is to free patients (and office staff) of “paperwork.” It is a paperless clinic, where everything, right from registration to prescription, is done electronically. At the inauguration, Dr Shetty was addressing a group of doctors. “As technology makes inroads into healthcare delivery, doctors are going to become like travel agents. Patients will no longer come to us, we’ve got to reach out to them,” he declared. 

The beauty is that here, India has an opportunity to lead the change across the world. Normally, in terms of medical care, one would imagine that the US is the best and the safest. But data show that even there, medical error (not negligence) causes at least one in 200 deaths. “If you compare the risks, getting admitted to an American hospital is 10 times riskier than sky diving,” says Dr Shetty. 

That’s not surprising because the medical services industry has resisted process and protocol-driven approach for the longest time. It’s quite unlike the financial or retail sector, or for that matter any large industry, where technology has played a huge role in bringing in efficiencies. And today, without technological support, many industries will simply collapse. “Unlike other sectors, in a hospital set-up, if the IT support is pulled off, nothing will stop except for billing,” says Shetty. 

Whether it is India or America, the problem is — by and large — the same. Every doctor likes to work in his own style even if it is in a large hospital set-up, with the least technological support, integration and standardised protocol. 

Viren Shetty, Dr Shetty’s eldest son and senior vice-president, strategy and planning, draws an interesting analogy. “When we board a plane, we never ask who the pilot is and how experienced he is. That’s because in aviation, there is an established protocol; there is the checklist, software and automation to take care of safety. On the contrary, with drivers, we are always worried because you depend on the driver alone,” he says. The importance of protocols can’t be over-emphasised in making healthcare delivery safer and cheaper for patients. Dr Shetty says, “It’s technology that will really bring about this change in the future and alter the entire landscape.” And that’s where his imagination is shaping the creation of a better system. 

All this while, these technological innovations were done randomly by anyone and everyone in the system, though for process-innovation there is a committed team. But now, the hospital is creating an Innovation Café, where there will be a proper IP (intellectual property) policy so the innovator also monetarily benefits from his innovation. Ideas will be incubated and seed funded and there will be advisors to assist on the research. “We are talking to various institutions such as MIT to see how we can bring in their platform/expertise to incubate ideas and foster innovation,” says Ravi Natarajan, who quit a lucrative career in investment banking with Royal Bank of Scotland to join NH two years ago as the head of corporate relations and CSR. 

Some big strides have already been taken. All intensive care units (ICUs) of NH in Bengaluru are equipped with iPads loaded with a software called iCare, developed for NH by Cognizant Technologies. This is how it works: when a patient comes to the ICU, all the patient data is accessible on the iPad. The software is intelligent, so when a patient has a blood pressure recording of 50, the system will indicate it is low. The iPad will automatically send alerts to the doctor on duty if there are any abnormal recordings. The nurse attending to the patient may not quite know why the BP is low, so iCare has a drop-down option, which shows reasons why the BP may be low, which may lead to another drop down for the next level of reasoning.

The software then gives action points, for example, if any samples for further investigation have to be given. The lab reports are loaded directly on the iPad and based on the report, the software might show suggestions for further action, say, the patient needs a sodium bicarbonate injection. The iPad will even suggest what dosage needs to be injected, pending clearance from the doctors. The moment the doctor calls or comes to attend, everything is ready for clearance. All possibilities of errors are minimised. “Two large hospital chains in the US looked at this system in NH’s Cayman Islands hospital, and wanted something similar created for them,” says Dr Shetty, with a sparkle in his eyes.

That makes perfect sense. If you look at the top US EMRs, they were created some 20 years ago, with no intelligence built into them. It’s only paper converted into digital records. And the process is so complex that it seems doctors have to go through some 76 hours of training to use that. “The EMR does not serve any purpose if it is just a digital version of paper. We want the records to tell us something, hold our hand when we are going to make a mistake, reduce our effort, and standardise the protocol and process,” says Dr Shetty.

Soon, tablets will be installed in ICUs across all NH hospitals. “It’s hardly a cost, with these devices now costing less than ₹10,000 a piece,” says Natarajan. 

Apart from medical errors, one of the biggest problems in hospitals is communication between doctors. Patients may often have multiple problems – heart, kidneys, endocrine, etc. Doctors don’t talk to each other, and that often ends up compromising patient management. Among NH’s many small innovations is an app called Bol – with two touches you can send voice messages to anyone else in the system. “Touch the app, get all favourite numbers, speak for a minute and the message is gone automatically. It’s really efficient – one minute of voice takes 25 minutes to type. And you can speak no matter where you are,” says Dr Shetty. Even better, Bol will be the interface for patient interaction post discharge from the hospital. “We want to load these apps on the patients’ phones when they go home, so that they can send a message at their convenience and doctors can respond to them at their convenience. It’s not intrusive,” he says. 

Another interesting development is an infection-control lab that NH is setting up at its Bengaluru centre. A small team will work on this project for the next three years, conducting molecular studies to figure out the different causes of infections in the hospital and how to detect them at source, so outbreak can be arrested early. This will help the hospital put in place infection-control measures.

Remote access

Dr Shetty pulls out his Nexus phone — “You know, we are the diabetic capital of the world. Around three months ago, we took a decision that within five years, 50% of our consultation should be online.” He shows me a flier that all the patients at the hospital get — it has a phone number on which they can call for consultation. Then, he turns to his phone and shows me the picture of a mother with a little girl — Poonam is a work-from-home diabetes specialist. She takes down the patient history on a little notepad and takes photographs of the page. Often, patients from villages can’t read the name of the medicine they are taking, so they send pictures of the drugs to Poonam through WhatsApp. Then, she also asks for the picture of the patient to know how he/she looks – heavy or bloated, for instance. Dr Shetty tells me Poonam puts in long hours of work from home, and talks to a few hundred patients every day. 

All tele-consultations are done with prior appointments and are charged at the same rate as offline appointments. The real benefit is for patients from remote areas, where access to specialists is a problem and if they were to make physical trips, the total cost would be much more. “Today, in any medical college, 60% of the students are girls. They take time off frequently – marriage, babies and so on. Online consultations are a great way to utilise them,” Dr Shetty says. “Earlier, you never knew you could order chicken and fish online, but you do that now. Ditto for healthcare. Patients with diabetes or hypertension don’t need to visit a doctor, neither do children falling sick with a common cold and cough,” he adds.

Today, NH offers the biggest telemedicine service in the country. Way back in 2002-03, NH managed to get a satellite link from the Indian Space Research Organisation to connect to a network of district medical centres for cardiology consultations (tele-ECG) as it started focusing on underprivileged patients. Now, it has tie-ups with some 600 general practitioners (GPs) in smaller districts. The GP sends across the electrocardiogram (ECG) digitally, which is studied by the cardiology team. The report is mailed back along with the ECG to the GP, who then refers back patients in case they need any intervention. “We get about 700 ECGs per day, and the diagnosis takes less than a minute for our doctors,” says Natarajan. Patients can also send in their encrypted records online for opinions and consultations.

Dr Shetty calls out for his iPad. He now shows me a picture of Hirre Math, a paraplegic who used to be a pharmacist, who went through a heart surgery and monitors his warfarin dosage himself. People who have an artificial heart in their body usually are on warfarin, which is to prevent blood clots. So, if you take a high dose, your blood won’t clot and you could die due to brain haemorrhage. Patients need to keep taking blood reports and monitor the dosage of warfarin. There are thousands of patients with artificial hearts in the country, and it can be really painful, especially for poor patients in rural areas, to go through the rigmarole of going to a big town to get the blood report and then consult a cardiac specialist who will charge a high fee. Add to that the loss of wage for the day and cost of travel, and it all becomes quite expensive. After his surgery, Math wanted a job. Dr Shetty looked at his expertise in monitoring his own dosage of warfarin and suggested he does it for other patients. NH then worked with Stanford University to develop an algorithm for warfarin dosage. The medicine, of course, is prescribed by the doctor, but a pharmacist can always tell you what the dosage should be for a certain INR (international normalised ratio, it indicates the tendency of blood to clot) level. Now, Math manages the INR levels of a few thousand patients. Everyday, he gets 300-400 calls and messages. “His investment is only a mobile phone and all this comes at a negligible cost to the hospital. The monthly expense is not more than ₹50,000, but Math is able to save a few hundred lives,” says Dr Shetty.  

Though Math is a great example of how medical staff can make a significant contribution with very little cost and some training, a lack of skills is at the heart of the problem in scaling up healthcare. Today, hospitals have 10% beds for critical care versus 90% for wards. Dr Shetty says this ratio will reverse in less than 10 years, and what is done in wards will actually be done at homes with the help of technology. One of the biggest challenges when that happens will be the shortage of nurses trained for critical care. The flip side of that will be that a few million nurses will have no jobs. The question, then, is on how to train these nurses and make them productive. NH is currently working with the Karnataka Knowledge Commission, under the Karnataka government, to develop a facility that will allow training through simulators. The idea is to simulate everything that happens in an ICU — using mannequins that simulate patients on a ventilator and support drugs. “There are about 110 tasks that nurses do, and these can be simulated. We are creating this part. If pilots can be taught how to fly fighter planes on simulators, why can’t we teach nurses?” 

If nurses will largely focus on critical care, the relatives of patients will be the primary caregivers, and they need to be educated as well. Often, that’s a fairly unnerving experience for caregivers. Normally, after a patient has undergone surgery and is recuperating in the ward, the spouse is not encouraged to even touch the patient in the initial days. And then suddenly, on the day of discharge, the caregiver is given a bag full of medicines and told to take care of the patient. Understandably, the caregiver is clueless. To resolve this, a couple of Stanford interns developed a four-hour audio-visual programme called Care Companion that prepares spouses as the primary caregivers for the patient at the ward. The module teaches them the importance of giving medicine on time, the potential side effects, maintaining input-output balance, wound dressing, and so on. Four months ago, the British Parliamentary Commission declared Care Companion as the best patient empowerment tool. “In those developed ageing countries, taking care of elderly people at home is very expensive, but if the companion can be trained, the cost of care will go down significantly,” says Dr Shetty.  

Strategic handshakes

Along with taking small and big strides in technology, Dr Shetty and his team are carefully crafting a bricks-and-mortar expansion plan that will take NH into another orbit altogether. Driven by several different financial models, the plan is aggressive with inorganic growth being an important driver. It’s a big change that started about two years ago. Last November, NH acquired Westbank Hospital in Howrah with 390 beds, across two units, for ₹150 crore. Earlier, in March 2014, NH had acquired two hospitals of Jubilant Life Sciences — one each in Barasat and Berhampore in West Bengal. 

It’s not hard to see why acquisitions make sense for a player such as NH. The hospital business is becoming increasingly complex with a huge amount of administrative effort involved. That’s where larger organisations have a chance to leverage their backbone and run the hospital efficiently — a lot of costs are shared. “It’s easy for us to plug and play with any new hospital we acquire,” says Ashutosh Raghuvanshi, group CEO. NH has built a modular system with its key functions such as financial and human resources in a cloud-based IT system. This means that as long as there is connectivity and trained staff, scaling up will be easy and come at no major costs. That’s also why NH is adopting a cluster-based approach so several hospitals in a cluster can share infrastructure such as administration, back office, supply chain and so on. Currently, the east and south are important clusters. 

NH at present has a portfolio of hospitals wherein some are fully owned and others where it is only a service provider. Broadly, NH’s major facilities in Bengaluru, Kolkata and Jaipur are fully owned. For the past three years though, NH began to pursue partners pitching in with land and building with NH managing the show. It is shaking hands with diverse partners — state governments, charity organisations, religious institutions, real estate developers pursuing pure commercial interest or standalone hospitals that may be looking for someone to manage the hospital. “We are flexible. The aspirations and desires of different partners are different. And if we have a cookie-cutter approach, we will be limiting our growth,” says Raghuvanshi. 

Thanks to NH’s brand image, it’s becoming easier for it to attract partnerships from charity-minded institutions. In December 2011, NH partnered with the Society for Rehabilitation of Crippled Children (SRCC) to set up a children’s hospital in Mumbai’s Haji Ali area. While the land had been offered by SRCC in return for an annuity to support the society’s other programmes, in May 2013, a bunch of Mumbai-based donors raised roughly ₹35 crore to fund the construction of the 115-bed unit coming up in phase 1.

NH is funding the equipment and the business model here is to have a third of the beds for premium paying patients, a third that breaks even to accommodate partly paying patients and the rest reserved for patients who can’t afford to pay, who are subsidised by the premium paying patients. “Some segments of healthcare are simply not viable in a totally for-profit model and the children’s hospital is one of them. Doctor [Shetty] has come up with a great business model here,” says CEO of PE firm Bain Capital, Amit Chandra, who also donated ₹5 crore in his personal capacity towards the construction of this hospital.   

Another big project is a hospital in Kakriyal, near Katra, Jammu and Kashmir, bankrolled by the Shri Vaishno Devi Shrine Board. The shrine is investing ₹250 crore to put up the infrastructure for the 240-bed tertiary care hospital with a state-of-the-art centre for cardiac, cancer and kidney care. NH will manage the hospital and take home the profits or bear the losses. As the facility is due to be operational in the third quarter of 2015, NH is speaking to the state government about developing some kind of micro insurance product. “As a company, we may not have been able to do it as there would have been a financial strain for a certain period but with this model, that strain goes away,” says Raghuvanshi.

Similarly, NH is putting up a cancer care centre in Mysuru that is part-funded by Infosys co-founder K Dinesh. “Dinesh and his wife told us they would give any amount of money to ensure that a state-of-the art cancer facility comes up in Mysuru,” says Dr Shetty. While the building is being put up by NH, Dinesh is funding a linear accelerator, an equipment used in cancer care that transmits high-energy x-rays to attack tumours in any part of the body and costs ₹7 crore. “That kind of price for equipment is so prohibitive that we couldn’t have offered that service if the capital cost was not funded. The donors agreed to fund it with some riders in terms of how the service must be priced,” says Kesavan Venugopalan, group CFO. 

On the contrary, there are also hospitals that NH is executing purely funded by investors for pure commercial considerations. “Investors usually expect returns in the range of 14-15 % IRR, but there are others who are willing to accept much lower returns at 8% or so. Whatever the return we offer, we don’t deviate from our business and pricing model,” says Venugopalan. “We have given up some projects because of a mismatch of expectations,” says Raghuvanshi.

Last April, NH commissioned an hospital in the Cayman Islands built in partnership with a $25 billion US-based private, not-for-profit healthcare network called Ascension. Currently, NH owns a 28% minority stake in the venture. While it is currently a 104-bed tertiary care hospital, over the next decade, it will expand to a 2,000-bed facility. 

“We built a hospital in the Cayman Islands because if healthcare has to change, the US has to change. We want to make this model work in that part of the world so they can see and experience it and hopefully bring about change,” says Dr Shetty. 

The tightrope walk 

Even as NH appears to be in a frenetic growth phase and seems set with its cash tied up for the next phase of expansion, a public offer is on cards within the next one year. JP Morgan and PineBridge, which funded its expansion by chipping in ₹400 crore in 2008, are likely to sell out. Earlier this year, CDC put in ₹300 crore. With a top line of ₹1,100 crore, Ebitda of ₹135 crore and a debt of ₹321 crore, NH may, at best, be priced around 20X Ebitda, going by the fact that Apollo Hospitals currently trades at close to 17X Ebitda. That might leave the exiting private equity investors with not much in returns especially given the beating the rupee has taken since they invested, but that’s also why there might be pressure building for aggressive pricing. 

On their part, though, Dr Shetty and team have clarity of purpose. “The valuation is not exactly our call and often is not based on profitability alone. On our part, we have not compromised in any way on our admissions or discounts to poor patients to bolster the return and that’s where our commitment lies,” says Venugopalan. That’s true — NH’s Ebitda margin stands at 12% currently and the highest in the past six years was in FY09, when the metric stood at 15.3%. That’s something NH is clear about for the future, too. “The mix of patients we will admit in our hospitals and the discounts we will offer will continue to be the same in the future, too, and not dictated by external forces,” he adds. 

The hospital business is, in any case, a very capital-intensive one, with Apollo, the best of the listed lot, still managing an Ebitda margin of only 16% and return on capital employed of 13%. NH has, however, been smart enough to build an asset-light model, with equipment leased on a pay-per-use model. The cost per bed for NH stands at ₹50-60 lakh for high-end hospitals and about ₹40 lakh for low-end hospitals because of sheer design innovations and efficient utilisation of space, as against ₹1.2 crore for government hospitals and about ₹1 crore for high-end private hospitals, according to Viren Shetty. That’s quite some savings, too, but its discounting eats away a bit of its savings. Venugopalan says NH’s hospitals that are in a steady state make an Ebitda of roughly 25 per cent, but its overall return on capital is nothing to write home about as it is still in a frenetic growth phase. In any case, the return profile will vary from pure players such as Apollo, as NH’s capital costs will be different because of its infrastructure being charity-funded in part (see: The hospital brigade).

The hospital brigade

NH's return ratio is low as it is still in a growth phase

Although there are few detractors to Dr Shetty’s approach and accomplishment, a niggling doubt is will there arise conflict or dissonance when partnerships of different kinds,with different return expectations and investor profiles, are consolidated under a mother company. Especially when the company will be listed in public markets where the rules and expectations are what they are for all companies. Venugopalan also reiterates that when the float happens, NH will make public the agreements under each of the joint ventures, so investors know the return profile of various subsidiaries and the holding company, so there is no ambiguity in the minds of investors. 

Dr Shetty is categorical. “Charity is what people can afford. That is what is scalable. That is the reason we started off as a for-profit company. Our objective has been to make healthcare affordable for those who can’t afford, and grow profitably while doing so. We want to remain financially healthy enough to be able to scale up and attract more investors to grow.” Says Bain’s Chandra, “If you have to deliver quality products and services, you have to attract both talent and capital. If you restrict profits, or go the non-profit way, you will not be able to meet the end objective.” 

A less charitable description of Dr Shetty is that of a savvy businessman who identified how to capitalise on the huge opportunity in delivering healthcare to a virgin market, or where no market existed at all. Even if that were the case, Dr Shetty has been able to make an impact at the national level by creating pressure points with respect to pricing of various procedures, especially cardiac surgeries. Second, he has been able to build a credible voice, which has prompted the government to look at micro insurance and make healthcare inclusive. Third, he has ensured that the benefits of high-performance healthcare are made available to a larger section. None of this is a mean achievement. 

In about 10 years, when NH would have achieved 30,000 beds — of which 40% patients will be from less privileged backgrounds — it would add up to a lot. A bigger impact would have been made by the technology moves NH is investing in today. But Dr Shetty will have to strike a balance between what portion of those cost efficiencies go to bolster profitability, and how much goes to cut the bill for patients. Stock markets do not like companies that limit their earnings potential but NH will do better to communicate this clearly to the markets, so the primary edifice on which it has been built lasts and doesn’t wilt under pressure from stock markets. “Going public will surely bring in its own set of pressures. That’s where the role of Dr Shetty and his board is important in preserving the principles of the institution and ensuring it is widely communicated and accepted. They have to be very clear and transparent with their objective,” says Chandra.

A healthy future

In most traditional industries — especially in one like healthcare — where tradition and experience really count for a lot, embracing change is not easy. Most of us end up extrapolating the future as an extension of the past, because of a sheer lack of imagination. For visionaries such as Dr Shetty, that’s not the way to think or look. “The future is a clean canvas; you can create it in whatever way you want,” he says. Dr Shetty’s vision of the future, about making healthcare accessible and affordable for all, may be a simple motto, it surely isn’t an easy one to execute. 

Dr Shetty and his team, though, are a motivated lot. That motivation stems from a deep sense of empathy. “I see some 60 to 80 patients every day. I often see a little baby, and tell the mother: your baby has a hole in its heart, if you have 80,000 rupees, you can have the kid, or else, you are going to lose the child. It’s a price tag we put on the kid’s life. This is what we do morning till evening — officially putting price tags on people’s lives,” he says. The problem with medical care, he says, is that it’s expensive, even in an affluent country such as America. And if we think we have to become a rich nation to afford medical care for our citizens, there is no guarantee that we will get there. “We have to tell ourselves that within the current level of affluence, we want all the people to have access,” he says. That’s where technology — and people with a good heart — can play a vital role. Says Raghuvanshi, “Dr Shetty often says, if you want to go somewhere, you’ve got to start moving. If you find hurdles on the way, you can always cross them. If you wait for the perfect weather, it’s never going to happen.” After all, if the Thai elephant park’s untrained wards can create works of art, there’s nothing stopping Dr Shetty and his able team from reaching their goals.