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DA 2: Review the following news item to motivate your discussion.News Item: The Henry Ford of Heart SurgeryFor our discussion, I am including below links to two articles. The first one is an article in Wall Street Journal titled The Henry Ford of Heart Surgery and the second is an editorial related to it. These offer insights on how an doctor in India is sustainably performing state-of-the-art open heart surgeries, a complex procedure, at high volume assembly line mode but with low costs, something considered hard to accomplish in the product-process matrix framework. Provide your opinion on what you learned from it in context of implications for operations management in healthcare industry.The Henry Ford of Heart Surgery (clicking this link will download the article as a PDF file)Editorial High Volume Efficient (clicking this link will download the article as a PDF file)In addition to contributing to discussion, you are expected to reply to at least one of your classmates. Note that you must post your discussion blog before you will be able to see other students’ replies.This question have to submit 350+worlds, and reply one of the student(150+worlds). Total 500+worlds.CTA 2: Hotel Monaco Chicago – Value Creation.A link to a short video about Hotel Monaco Chicago is included herewith. This hotel provides a unique set of services to meet its target market. Located in downtown Chicago, Hotel Monaco is recognized as a boutique hotel. It provides a unique atmosphere and a unique set of services.Play media comment.Video: Hotel MonacoWrite well-thought out answers to the questions below:Describe the characteristics of Hotel Monaco. What is its target market? How does Hotel Monaco Chicago differentiate itself in that market?How does Hotel Monaco’s small size support its strategy? Could a larger hotel do the same thing?What has Hotel Monaco Chicago done to meet business travelers’ needs? How does Hotel Monaco differentiate its treatment of weekend travelers from its treatment of business travelers?Given any business’s desire to minimize non-value-adding activities, which of the activities of Hotel Monaco would you evaluate for possibly not adding value?***This is question have to submit 650+worlds.
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HEALTH INDUSTRY
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November 25, 2009
The Henry Ford of Heart Surgery
In India, a Factory Model for Hospitals Is Cutting Costs and Yielding Profits
By G EET A ANAND
BANGALORE — Hair tucked into a surgical cap, eyes hidden behind thick-framed magnifying
glasses, Devi Shetty leans over the sawed open chest of an 11-year-old boy, using bright blue
thread to sew an artificial aorta onto his stopped heart.
As Dr. Shetty pulls the thread tight with scissors, an assistant reads aloud a proposed agreement
for him to build a new hospital in the Cayman Islands that would primarily serve Americans in
search of lower-cost medical care. The agreement is inked a few days later, pending approval of
the Cayman parliament.
Tending to India’s Health-Care
System
Ryan Lobo for The Wall Street Journal
Dr. Shetty prepares for surgery.
More photos and interactive graphics
Dr. Shetty, who entered the limelight in the early
1990s as Mother Teresa’s cardiac surgeon, offers
cutting-edge medical care in India at a fraction of what
it costs elsewhere in the world. His flagship heart
hospital charges $2,000, on average, for open-heart
surgery, compared with hospitals in the U.S. that are
paid between $20,000 and $100,000, depending on
the complexity of the surgery.
The approach has transformed health care in India
through a simple premise that works in other
industries: economies of scale. By driving huge
volumes, even of procedures as sophisticated, delicate
and dangerous as heart surgery, Dr. Shetty has
managed to drive down the cost of health care in his
nation of one billion.
His model offers insights for countries worldwide that are struggling with soaring medical costs,
including the U.S. as it debates major health-care overhaul.
“Japanese companies reinvented the process of making cars. That’s what we’re doing in health
care,” Dr. Shetty says. “What health care needs is process innovation, not product innovation.”
At his flagship, 1,000-bed Narayana Hrudayalaya Hospital, surgeons operate at a capacity
virtually unheard of in the U.S., where the average hospital has 160 beds, according to the
American Hospital Association.
Narayana’s 42 cardiac surgeons performed 3,174 cardiac bypass surgeries in 2008, more than
double the 1,367 the Cleveland Clinic, a U.S. leader, did in the same year. His surgeons operated
on 2,777 pediatric patients, more than double the 1,026 surgeries performed at Children’s
Hospital Boston.
Next door to Narayana, Dr. Shetty built a 1,400-bed cancer hospital and a 300-bed eye hospital,
which share the same laboratories and blood bank as the heart institute. His family-owned
business group, Narayana Hrudayalaya Private Ltd., reports a 7.7% profit after taxes, or slightly
above the 6.9% average for a U.S. hospital, according to American Hospital Association data.
At the Narayana Hrudayalaya Hospital in
Bangalore, Dr. Devi Shetty and his fellow
cardiologists perform about 600 operations a
week. They’re making heart surgery affordable to
some of the poorest people in India. WSJ’s Geeta
Anand reports.
The group is fueling its expansion plans through
private equity, having raised $90 million last year. The
money is funding four more “health cities” under
construction around India. Over the next five years,
Dr. Shetty’s company plans to take the number of total
hospital beds to 30,000 from about 3,000, which
would make it by far the largest private-hospital group
in India.
At that volume, he says, he would be able to cut costs
significantly more by bypassing medical equipment
sellers and buying directly from suppliers.
Then there are the Cayman Islands, where he plans to
build and run a 2,000-bed general hospital an hour’s plane ride from Miami. Procedures, both
elective and necessary, will be priced at least 50% lower than what they cost in the U.S., says Dr.
Shetty, who hopes to draw Americans who are uninsured or need surgery their plans don’t cover.
By next year, six million Americans are expected to travel to other countries in search of
affordable medical care, up from the 750,000 who did so in 2007, according to a report by
Deloitte LLP. A handful of U.S. insurance plans now give people the choice to be treated in other
countries.
Some in India question whether Dr. Shetty is taking his high volume model too far, risking
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,” says Amit Varma, a
physician who serves as president of health-care initiatives for Religare Enterprises Ltd., a
publicly listed financial services group in Delhi. Religare is part of a conglomerate that also owns
Fortis Healthcare Ltd., a rival hospital chain.
“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,” Dr.
Varma says.
But Jack Lewin, chief executive of the American College of Cardiology, who visited Dr. Shetty’s
hospital earlier this year as a guest lecturer, says Dr. Shetty has done just the opposite — used
high volumes to improve quality. For one thing, some studies show quality rises at hospitals that
perform more surgeries for the simple reason that doctors are getting more experience. And at
Narayana, says Dr. Lewin, the large number of patients allows individual doctors to focus on one
or two specific types of cardiac surgeries.
In smaller U.S. and Indian hospitals, he says, there aren’t enough patients for one surgeon to
focus exclusively on one type of heart procedure.
Narayana surgeon Colin John, for example, has performed nearly 4,000 complex pediatric
procedures known as Tetralogy of Fallot in his 30-year career. The procedure repairs four
different heart abnormalities at once. Many surgeons in other countries would never reach that
number of any type of cardiac surgery in their lifetimes.
Dr. Shetty’s success rates appear to be as good as those of many hospitals abroad. Narayana
Hrudayalaya reports a 1.4% mortality rate within 30 days of coronary artery bypass graft
surgery, one of the most common procedures, compared with an average of 1.9% in the U.S. in
2008, according to data gathered by the Chicago-based Society of Thoracic Surgeons.
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 riskadjusted mortality rate. India’s National Accreditation Board for Hospitals & Healthcare
Providers asks hospitals to provide their mortality rates for surgery, without risk adjustment.
Dr. Lewin believes 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.
Dr. Shetty, 54 years old, is a lanky and chatty man. He grew up in Mangalore, another south
Indian city, the eighth of nine children. Doctors were gods in the Shetty household, swooping in
to save his restaurateur father who suffered from chronic diabetes and fell into diabetic comas
several times in the young boy’s life.
He had already resolved to be a doctor when his fifth-grade teacher told the class that a South
African surgeon had just performed the world’s first heart transplant. In that moment, Dr.
Shetty says he decided to become a heart surgeon.
After graduating from medical college in India, Dr. Shetty trained in cardiac surgery at Guy’s
Hospital in London, one of Europe’s top medical facilities. He had been operating there for six
years when the Birla family, leading industrialists in India, decided to start a heart hospital in
Calcutta. Dr. Shetty was brought in as the first director.
On returning to India in 1989, Dr. Shetty performed the first neonatal heart surgery in the
country on a 9-day-old baby. He also confronted the reality that almost none of the patients who
came to him could pay the $2,400 cost of open-heart surgery.
“When I told patients the cost, they would disappear. They literally didn’t even ask about
lowering the price,” he says.
During that time, Mother Teresa had a heart attack, and Dr. Shetty was called to operate on her.
From then on, he served as her personal physician. Two pictures of Mother Teresa still adorn
the white walls of Dr. Shetty’s office, one with white type saying, “Hands that serve are more
sacred than lips that pray.”
Dr. Shetty set about pursuing a heart hospital big enough to make a difference in a country
where most of the people needing heart surgery can’t afford it. His father-in-law, the owner of a
large construction company, agreed to build and finance a heart hospital in his wife’s hometown
of Bangalore.
In 2001, the white-washed, red-roofed Narayana Hrudayalaya Hospital opened on 25 acres that
had been a marshland around a cement factory.
A lobby with seating for hundreds is
encircled by dozens of offices for
surgeons to consult with patients. A
giant statue of a many-headed deity -representing gods in the Hindu
pantheon — stands in the center of the
lobby.
In a second-floor operating room one
October morning, Dr. Shetty finished
sewing a new aorta onto the heart of
his 11-year-old patient. The process
provided an example of how he
slashes costs. Four years ago, the
sutures would have been bought from
a Johnson & Johnson subsidiary.
Today they are made by a Mumbai
company, Centennial Surgical Suture
Ltd.
Four years ago, Dr. Shetty scrutinized
his annual bill for sutures — then
$100,000 and rising by about 5% each year. He made the switch to cheaper sutures by
Centennial, cutting his expenditures in half to $50,000.
“In health care you can’t do one big thing and reduce the price,” Dr. Shetty says. “We have to do
1,000 small things.”
He says he would also like to find lower-cost versions of his priciest medical equipment. But the
Chinese makers that have brought good quality, cheaper machines to market don’t yet have
enough local service centers to ensure regular maintenance.
So he is still buying equipment from General Electric Co. He pays $60,000 for echocardiography
machines, which use sound waves to create a moving image of the heart, and $750,000 for
cardiac catheterization labs, which produce images of blood flow in the arteries and allow
surgeons to clear some blockages using stents and other devices.
V. Raja, head of GE’s health-care business in India, declined to comment on specific pricing, but
says Dr. Shetty drives a hard bargain and wrestles some savings because he is such a big
customer. Between Narayana Hrudayalaya and another hospital he runs in Calcutta, Dr. Shetty’s
group performs 12% of India’s cardiac surgeries, Mr. Raja says.
Dr. Shetty also gets more use out of each machine by using some of them 15 to 20 times a day, at
least five times more than the typical U.S. hospital.
Cardiac surgeons at Dr. Shetty’s hospitals are paid the going rate in India, between $110,000 and
$240,000 annually, depending on experience, says Viren Shetty, a director of the hospital group
and one of Dr. Shetty’s sons.
Dr. Shetty was paid almost $500,000 last year, according to the group’s audited financial
statements.
Here, too, Dr. Shetty finds additional savings on the per-patient cost. His surgeons perform two
or three procedures a day, six days a week. They typically work 60 to 70 hours a week, they say.
Residents work the same number of hours.
In comparison, surgeons in the U.S. typically perform one or two surgeries a day, five days a
week, operating fewer than 60 hours.
Dr. Shetty says doctor fatigue isn’t an issue at his hospital, and in general, his surgeons take
breaks after three or four hours in surgery. The morning after Dr. Shetty operated on 11-yearold Mahesh Parashivappa, the boy sat in bed in the pediatric intensive care unit, a white bandage
on his bare chest.
Virtually all of the 80 beds in the unit were full. K. Parashivappa, the boy’s father, a sugarcane
worker from a village eight hours away, held a cup of water to his son’s lips. He says he’s known
his son needed surgery since he was born with a congenital heart defect. The boy has never been
able to run and play cricket like other children, hobbled by chronic shortness of breath and
weakness.
Mr. Parashivappa says he can’t himself pay for the surgery, but it is covered by a farmers’
insurance plan that Dr. Shetty began several years ago in partnership with the state of
Karnataka, which includes Bangalore.
Nearly one third of the hospital’s patients are enrolled in this insurance plan, which costs $3 a
year per person and reimburses the hospital $1,200 for each cardiac surgery.
That is about $300 below the hospital’s break-even cost of $1,500 per surgery.
The hospital makes up the difference by charging $2,400 to the 40% of its patients in the general
ward who aren’t enrolled in the plan. An additional 30% who opt for private or semi-private
rooms pay as much as $5,000.
The father, in an untucked brown shirt, raised both hands to offer the traditional Indian
greeting, “Namaste,” to Dr. Shetty as the hospital head stopped by his son’s bed. “Thank you for
giving my son his life back.”
Write to Geeta Anand at geeta.anand@wsj.com
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Author’s personal copy
Editorial
Lower Price High Volume Better Outcome Maximum Efficiency
Minimally Invasive: A Developing Model for Health
Care Delivery
M
inimally invasive arthroscopy is ideally suited
to efficient health care delivery. With highly
trained teams, it is possible to perform a high volume
of surgery while raising the quality of the work.
Henry Ford, the Detroit automobile magnate and
founder of the Ford Motor Company, is credited with
inventing the assembly line. In addition to efficient
production, Ford minimized errors by maximizing
uniformity (i.e., any color “as long as it was black”),
and mass-produced the reliable (i.e., good outcome)
and famous Model T Ford.
We all know that every patient is different, but we
also know there are many similarities in patients as
well. Caregivers who see high volumes should, theoretically, be better able to distinguish the shades of
grey. Surgeons may heed these lessons.
We read in the Wall Street Journal in November
20091 about an Indian cardiothoracic surgeon named
Devi Shetty from Bangalore. He first became known
as Mother Teresa’s cardiac surgeon. He offers cuttingedge surgery at a fraction of what it costs elsewhere in
the world. His average open-heart surgery costs
$2,000 where most everywhere else the charge is
$20,000 for the same work. His simple premise is
economies of scale. He states that “in health care you
can’t do one big thing and reduce the price. We have
to do 1,000 little things.” Dr. Shetty’s team of “42
cardiac surgeons performed 3,174 cardiac bypass surgeries in 2008, more than double the 1,367 the Cleveland Clinic, a US leader, did the same year.”
“Some in India question whether Dr. Shetty is taking his high-volume model too far, risking quality.”
Jack Lewin, chief executive of the American College
of Cardiology, who visited Dr. Shetty’s hospital says
© 2011 by the Arthroscopy Association of North America. All
rights reserved.
0749-8063/1187/$36.00
doi:10.1016/j.arthro.2011.02.005
“Dr. Shetty has done just the opposite— used high
volumes to improve quality. For one thing, some
studies show quality rises at hospitals that perform
more surgeries for the simple reason that doctors are
getting more experience . . . the large number of patients allows individual doctors to focus on one or two
specific types of cardiac surgeries.”
Worldwide, it seems that the cost of health care is
difficult for many to manage, similar to India. The cost
of health care has risen to a point where patients
without insurance cannot afford elective surgery and
can be financially ruined by emergency surgery.
To address this, the new law requiring all United
States citizens to have health insurance is projected to
increase health care costs due to a probable increase in
volume of utilization. Someone has to pay for this
increase in costs, and things will inevitably change.
What we have seen in other nations with universal
health care requirements for all citizens, whether socialized or private, is that health care delivery in most
of the nations of the world evolves in a direction of the
advent of two parallel systems: public and private.2
Private health care is generally expensive and, from a
business standpoint, the model is the luxury service
industry (imagine a very expensive restaurant or hotel)
where service (for a price) is uncrowded, unhurried,
and available with a short waiting period. Obviously,
due to cost, again like expensive restaurants or hotels,
access is only for those who can afford it and choose
to seek this luxury.
While this concierge model is present in the United
States to some extent today, it is very rare. It is most
common among primary care physicians and cashonly cosmetic plastic surgeons. For an American orthopaedic surgeon to achieve success using a cashonly model today, three variables must be addressed.
The surgeon must be very famous, must live in an
affluent area or specialize in affluent patients who are
willing to travel (e.g., professional athletes), and the
Arthroscopy: The Journal of Arthroscopic and Related Surgery, Vol 27, No 5 (May), 2011: pp 599-600
599
Author’s personal copy
600
EDITORIAL
number of potential patients must be reasonably large
because even affluent patients may choose not to pay
cash when less expensive, acceptable quality care is
available under universal health care (albeit less luxurious than that described above).
Most predict that when universal health care becomes mandatory in the United States, reimbursement
may decrease, surgeon desire for improved reimbursement will increase, service will go into backlog because of increased use (i.e., waiting lists), demand for
concierge care will increase, and two-tiered systems
of public and private sectors will develop.
But let’s not forget the third possibility. This is not
common around the world, but it is working for Dr.
Shetty in India, and has been the American way since
the time of Henry Ford. We think it is perfectly suited
to arthroscopic surgeons. Arthroscopic surgeons specialize in performing efficient surgery and efficient
rehabilitation, and achieving superb outcomes through
standardization. This allows high volume.
We think that this could be the secret to success for
many surgeon …
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