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Calling his strategy “the Wal-Martization of health care,” Dr. Shetty and his team leveraged their strong reputation in cardiac care to perform a high number of procedures. NH performed approximately 19 OHS and 25 catheterization procedures a day, almost eight times the average at other Indian hospitals (see Exhibit 8 for volumes of procedures performed at NH and Exhibit 9 for comparative figures for hospitals in the U.S.). The volume of procedures completed allowed the unit cost of surgery to be significantly decreased. Dr. Shetty explained:

While other hospitals may run two blood tests on a machine each day, we run 500 tests a day—so our unit cost for each test is lower. And this works with all our processes. Also, because of our volumes, we are able to negotiate better deals with our suppliers. Instead of buying expensive machines [like other hospitals], we pay the supplier a monthly rent for parking their machines here—and then we pay them for reagents that we buy to run the machines . . . and they are willing to do this because our demand for the reagents is high enough to make up the profits for them.

Careful dealing with suppliers also helped maintain low costs. “We don’t sign long-term contracts,” explained Dr. Nitish Shetty, the medical superintendent who headed the hospital’s administrative affairs. “We negotiate every purchase because prices in India are very flexible and we don’t want to be locked in to use a supplier who suddenly becomes expensive.” By keeping the administrative team lean, NH also avoided the usual problem of corruption that plagued other corporate hospitals where suppliers had to bribe administrative staff to reach the purchasing manager, thus pushing prices higher.

While the Calcutta hospital and NH had separate purchasing departments (the two hospitals were owned by different entities), there was enough communication between the two departments to increase their bargaining power. The hospitals enjoyed 30%–35% discounts on medical supplies, the largest cost component, since they (together with two smaller units also owned under the banner of AHF) [6] made up approximately 10% of the cardiac-care market in India. (See Exhibits 10 and 11 for the latest balance sheet and income statement of NH.)

In addition, NH embraced new technology as another way to reduce costs. Instead of performing chest X-rays with film that cost Rs. 50 and required processing, the hospital used digital X-rays that did not incur recurrent costs. The hospital had also implemented comprehensive hospital management software for its operations, which helped maintain minimum inventory and allowed quicker processing of tests—such advances were said to have increased the hospital’s efficiency, which in turn drove overall costs lower.

“The irony of health care in India is that while this country boasts world-class pharmaceutical companies that manufacture drugs for the developed world [e.g., Ranbaxy Laboratories Ltd; Dr. Reddy’s Lab Ltd., listed on the NYSE; and CIPLA], [7] the access of the Indian population to medicine is severely limited by high prices,” lamented Dr. Shetty. Approximately 10% of health-care costs in India were attributed to prescription drugs, compared with 11% in the U.S. “An Indian over the age of 60 [the retirement age in the country] could spend Rs. 2,000–3,000 a month on medicines alone, and this is a large sum for most,” added Dr. Shetty. At NH, the prescription drugs made up approximately 8%–10% of the cost of cardiac surgery.

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