In 2008, we explored the emergence of private heart hospitals in India whose outcomes rivaled those of top U.S. hospitals (low infection and readmission rates for coronary artery bypass grafting [CABG], angioplasties, and other cutting-edge procedures) at between 1/10 and 1/20 of the cost. We described how Indian hospital leaders exhibited a near-obsessive drive to offer the highest quality services at the lowest possible price. We concluded that even though India is far from a model of social justice in health care, American hospitals could learn a great deal from the organizational focus and structure of their Indian counterparts. We additionally wanted to challenge the preconceived notion in policy discussions that high health care costs were a consequence of high quality and that patients and providers could not economize without diminishing the clinical quality of care.
Nearly a decade later, we see few changes in the strategic operations or organizational strategy of U.S. hospitals. Meanwhile, Indian hospitals are expanding throughout the world, including on the U.S. doorstep, in the Cayman Islands. Why have hospital markets in India and the United States continued to diverge?
Our lessons from India still resonate. Given ongoing cost struggles in the United States, it is more important than ever to understand why U.S. hospitals have failed to provide high quality care at affordable prices. We highlight three key differences that signal changes that U.S. business and policymakers must address to match the benefits achieved abroad.
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Three Key Differences: Business Strategy, Regulation, and Payment Complexity
1. Business Strategy: In India, the majority of people pay for private health care entirely out of pocket with very limited budgets. In this competitive environment, Indian heart hospitals must compete vigorously for scarce consumer dollars, driving leaders to scrutinize each element of their operations for opportunities to conserve costs. The competition for consumers is evidenced in the Indian hospitals’ focus on brand differentiation: their two leading heart hospitals, Fortis and Apollo, compete with each other the way Ford and Toyota compete for U.S. auto consumers. These hospitals also offer optional comforts in an effort to price discriminate (as Ford and Toyota charge more for cars with leather seats), with fewer ancillary amenities available for those with fewer resources. Along with the emergence of low-cost hospitals that have a mission to serve the poor, such as Narayana Health and Aravind Eye Hospitals, the Indian market reflects an overarching strategy to provide life-saving services at price points that are affordable to patients across the market.
U.S. hospitals, in contrast, have oriented their business strategy toward obtaining market leverage and exerting monopoly power in setting prices. The U.S. health care market is characterized by payers and providers maneuvering to squeeze each other financially. The most recent wave of reforms — the spread of Accountable Care Organizations — has too often merely enshrined hospital monopolies in local markets. In addition, because this leverage is accumulated to extract higher prices from insurers, not patients, providers give little thought to what consumers actually can afford. A business strategy geared toward expanding and leveraging market power in an effort to raise prices is antithetical to one that focuses on providing value to consumers.
2. Regulatory environment: One signature ingredient to Indian hospitals’ success is their ability to utilize and train unskilled personnel for key roles, a practice that innovation scholars call “de-skilling” or “right-skilling.” Women from rural villages with only rudimentary education, for example, are trained to use sophisticated equipment and manage the delivery of medical services, such as administering dialysis. Meanwhile, physicians practice at the top of their license, playing key strategic and supervisory roles, passing down knowledge and tasks to lesser-trained individuals wherever possible. Such de-skilling is a hallmark of organizational innovation. Clayton Christensen describes an evolution of business models in which the accumulation of knowledge and experience allows organizations to codify knowledge so less experienced individuals can perform tasks that previously required personnel with advanced training.
American laws prohibit U.S. hospitals from pursuing many of these de-skilling strategies. Rather than focusing on technical proficiency and quality of service, U.S. regulations codify task staffing requirements, often linked to specific educational attainment. For example, each state maintains complicated occupational licensure regimes that delimit which categories of personnel can perform which tasks. (Consider the debates over nurse practitioners writing prescriptions and the role of nurse anesthetists.) Any health care worker with responsibility for a particular task must obtain specific degrees from accredited educational institutions, pass tests administered by professional societies, and satisfy continuing educational requirements. These regulatory regimes are particularly resistant to innovators because they are maintained by the professional societies that profit from the status quo. The costliness of these licensure regimes has prompted efforts by federal agencies to limit the stranglehold that professional societies have on local marketplaces by applying antitrust law to activities of these boards. India’s heart hospitals offer a small window into how costly these regulatory regimes really are.
3. Payment system complexity: India is largely a cash pay market without third-party payment, which means that hospitals collect payments from patients much like hotels collect payments from visitors. The contrasting multi-payer environment in the United States has evolved to have many layers of overlapping and divergent payment models and rules. This complexity drives enormous overhead costs in back office functions, EMR systems, and clinical time devoted to documentation for billing and compliance purposes. While a 400-bed Indian hospital may have fewer than 20 people on its entire management team, U.S. hospital systems have constructed entire office buildings to house their billing and administrative teams.
Efforts to measure the cost of administering the U.S. health system have estimated that payment and collection services alone consume 18% of health care costs, compared with 2–3% for credit card transaction costs. In 2006, primary care physicians in the United States spent $82,975 per year on administrative costs, compared with only $22,205 in Canada. Organizational innovation in the U.S. health sector will undoubtedly require simplifying administrative and payment systems. More research is desperately needed to both understand the underlying sources of this complexity as it has evolved in the U.S. marketplace (in contrast with other multi-payer health insurance markets, such as Switzerland, which has much lower administrative costs) and to develop disruptive solutions to correct this aspect of the market.
It is disheartening that debates in the United States over health care reform ignore the most salient lessons from abroad. The debate we should have is not how to shift costs among government, employers, and individuals in the current system, but how to reduce the cost of that system to make health care services affordable. Health care spending in the United States has increased by 47% since we wrote our article and has climbed from 16.3% of GDP to a projected 18.2% of GDP this year. As the population ages, these trends toward increased health care spending are projected to continue. As Warren Buffet argued when he called medical costs “the tapeworm of American economic competitiveness,” the future of the U.S. economy rides on the nation’s ability to curtail health care spending.
U.S. hospitals could have taken action to drive costs down in the decade past. But when businesses or industries are profitable, they are refractory to change in the absence of significant market pressure. The result of this organizational inertia is the political turmoil over health care costs we now see, yet much of the national debate fails to address the lessons we learned from low-cost Indian health care solutions.
Nothing particularly complex or mysterious underlies the enormous Indian success in making health care more affordable. The problem in the United States lies in stubborn barriers that protect American hospitals from having to follow suit. We have highlighted three areas — business strategy, legal environment, and payment structure — that represent opportunities to move beyond partisan debate and to develop actionable solutions. By focusing strategy on creating value instead of acquiring market leverage and monopoly, by loosening regulation to permit creative innovation within organizations and markets, and by addressing the sources of administrative complexity, we can enable American health care providers to address what is becoming our most intractable national economic problem.
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S Reddy, MD
Private health care system is a story of partial success in India; did well in certain fields like ophthalmology. I wish the authors focus on how the lower/middle income groups in India are going bankrupt for the high cost of services at these private hospitals, particularly for kidney and heart diseases and for cancer. There are lot more pathetic stories and authors by painting a rosy picture on the private hospitals in India provide only one side of the story.
May 25, 2017 at 3:55 pm
sharon kleefield
Very interesting article, but the health care system in India is much more complex than described, albeit the advancement of those in the private sector. Disparities and access are major problems. Many patients can't afford to seek care until they are very sick because they can't afford it. Management training and nursing training is weak and should be a focus for improvement. In many hospitals the nurses are not integrated into care and are too often saddled with too many patients with diverse problems without support and needed training and development. Compared to the US, where nursing is strong and is a major support system for good patient care. Hospital management training is yet to be well developed in the Indian health care system. Also, it is difficult to find data that reflect the true outcomes of care. Having said all of this, there has been much progress in India and they are 'getting better at knowing how to get better'. Many hospitals now are accredited by NABH, a major step in quality improvement.
May 31, 2017 at 10:48 am
Marco Huesch
Couldn't agree more. Especially re the workforce deregulation and deskilling.
A neat historical perspective strengthens the authors' points.
India wasn't always this flexible and nimble regarding production.
For more than 4 decades the 'Licence Raj' system was in place and Soviet-style regulation of the labor and output markets was the hallmark.
India threw off these self-imposed shackles... why can't we?
May 26, 2017 at 9:31 am
Napoleon Knight
This was a fascinating article and does highlight some significant differences between the systems. Shows what can be possible with a radical relook at current process
May 30, 2017 at 12:03 pm
Bill Merrill
They have single payer system and the payer is cash strapped. If the institutions and providers wish to survive they must count every penny and look for more than low hanging fruit such as dialysis done by 'trained' workers. We have too many interest groups that are quite comfortable. We need a mandate.
May 31, 2017 at 9:11 am
Jon Scwhartz
The problem with American hospitals is simple. Their care is geared towards keeping the regulators happy rather than the patient. Even if the hospitals want to improve care, it has to be done within the confines of what small groups of elitists in Washington (who are driven by politics and ideology) think is good for the patient not necessarily what IS good for the patient locally. Current care is reflective of these perverse incentives and collectivist philosophy. Our hospitals could learn more from Friedman and Sowell rather than other countries if only freedom where the goal, not equality.
May 31, 2017 at 11:14 am
Lynn Bentson
As a physician I am always appalled at the administrative costs we pay especially in billing and those darn PAs. This did not include the hours of pointless "12 point ROS" for poison oak, copying a detailed largely irrelevant family history for a NSCLC, and noting whether the patient with a GI bleed has clear tympanic membranes -- more points, "higher complexity."
Thank you for making this clear.
June 02, 2017 at 9:25 am
Chika Iguh
This is a fascinating article! I am currently reading a book by Elisabeth Rosenthal called "American Sickness," in which she explains much of what's described here. As a premedical student here in the U.S., I really do fear perpetuating a health care system which systematically fails the people it is purposed to serve.
June 05, 2017 at 3:54 pm
Deborah Gerber
I appear to be in the minority here but to say this article is talking about "apples vs oranges" is an understatement. Without writing a small book it is apparent that we have incredible layers of laws, regulations, certifications, etc. (not to mentions ridiculous layers of personnel) that surround every possible aspect of healthcare delivery. Our answer to all of this is more panels, committees, studies, etc. We seem to be focused on cost and process- what about substance? Too many hands on patients- too many opportunities for error- too often problems do not reach the physician until it is too late. Patients are at the mercy of the "personal diplomacy" mission- if a hospital patient happens to be "assigned" to a competent, caring nurse (or technician, etc.) they will likely have the best outcome possible but if they encounter a perhaps highly educated but lazy, unhappy, disgruntled nurse, technician, etc. they will very possibly have some problems. We could do far better by really hiring right and demanding that healthcare workers actually are compassionate and care that patients are "prisoners" of sorts- they would not choose to be in the hospital.
June 13, 2017 at 4:23 pm
Jan B Newman MD
India now has a big medical tourism market. For the price of one's deductible patients can travel to India, have a total hip replacement, have attentive nursing care, a vacation and good outcome and pay for a total hip for an impoverished patient. The same with hearts and neurological needs. Their focus is on the patient coming first. There are charity hospitals that treat only the poor recognizing they are contributing to society.
The regulatory burden in the US has done nothing to prevent harm. It has created it. The mandate for EMRs essentially without physician input has created a monster that greatly interferes with patient care. It has money in the pockets of EMR companies.
If any legislation needs to be done, it is to repeal these mandates and regulations. The whole EMR process needs to be redone. The current climate discourages private practice and creates a fiscal nightmare for small hospitals. Hospital employment of physicians makes them serve 2 masters and is detrimental to patient care. Pay for performance while well intended does not work if the patient cannot afford medication or is non-compliant. It generates a whole new bureaucracy.
Our system of medical care revolves around money and everyone has their hands in the tell. We need to return to the basics of the physician patient relationship and get all the mettling middlemen out of medicine.
There are things that can be done: 1) Establish national licensure. The cost of maintaining multiple state licenses is exorbitant. It is also costly for each state to have their own licensing bureaus. 2) Single payer system with chart auditing to prevent over payment and pick up nonindicated procedures and complications. 3) Make payer credentialing of licensed physicians and mandatory Board Certification and especially recertification for hospital privileges illegal. 4) Stop insurance company preapproval for medications and procedures.
All this regulation and numerous masters is extremely costly and precludes good care.
August 06, 2017 at 12:00 pm
C. Franklin Church MD, Duke Med '63, HS 64-66
Check out: www.indushealth.com
August 17, 2017 at 9:48 am
Jeevanshu Dhawan
In India, most of the staff like doctors, nurses, and paramedical staff, in private hospitals, including Fortis and Apollo, are trained at highly subsidised government administered training institutions; furthermore, most of these hospitals are built on highly subsidised leased land from the government, thereby reducing the input as well daily operational costs, substantially when compared to any other country, for example, Apollo hospital in Delhi, India, has been built on a land on lease from Delhi government, for as low as INR 1 per annum. In the above article the authors have stressed on strict licensing regime in various states of the U.S.A, as one of the factors for higher costs. Here, I would like to kindly request the authors to study the effects of strict licensing regimes on the quality of healthcare, as well as, the overall services being provided by the care-givers. Because, in my opinion, in short term, Indian private hospitals might be cost effective owing to lax licensing regimes, and various other factors, but the litigation costs are increasing annually, as more and more patients are getting aware of their legal rights.
Dr. Jeevanshu Dhawan (M.S.) Delhi.
August 17, 2017 at 11:42 am
Dr Gollamudi
The authors have done well in highlighting the strengths of the private health care in India vis a vis the US system. Agreed your regulatory burden is very high. The authors seem to say that it costs 18% just to recover the costs from the payers. More than concentrating on the private sector in India, I would urge them to look in another area where some of the state governments in the south of India have covered the poorer sections with universal coverage albeit with some restrictions regarding coverage of diseases similar to the NHS in the UK where they fix the tariffs for each procedure and then the hospitals have to apply to these governments for accreditation to enable them to cover the population covered under this scheme (this itself is competitive). Here the patients gets admitted for a particular procedure gets worked up say for surgery and then permission is then applied for which after scrutiny by a doctor at the other end is granted following which the procedure is done. Payments are claimed after the patient discharge. The whole process including uploading of preop radiographs intraop photos / scopy videos and discharge summary is online and the payment is received within six weeks of this scrutiny. When this scheme was unveiled, I believe memeberso fosme American insurance cos came to see how this worked. It looks like there is lot of hesitancy in adopting such revolutionary processes. The hospitals gain with volume rather than margins on each individual patient.
August 18, 2017 at 11:00 am
Jon Kingsdale, Ph.D.
The focus in U.S. medical care on revenue maximization, rather than value (quality & cost), goes well beyond hospitals. But as a locus of resource-intensive care (and capita)l, this sector merits special attention. So, how to catalyze the kind of change the authors urge? What U.S. hospitals need is the sort of "swift kick in the pants" that Toyota, Honda, and Volkswagon gave GM, Ford & Chrysler decades ago. If efficient, effective hospitals in South Asia (India, Thailand, Taiwan, etc.) could attract enough U.S. patients to threaten our hospitals' profit centers (orthopedics, interventional cardiology, etc.), this might catalyze change in the U.S. (Expect the first response to be protectionism, such as the current legislated ban on Americans buying drugs abroad.)
However, making patients travel halfway round the globe to countries branded as "developing" in order to find value is unlikely to attract enough market share to threaten U.S. hospitals. Rather, we would need (many) close off-shore competitors, accessible to large patient populations by plane, as domestic centers of excellence are, and targeting U.S. hospitals' profit centers, such as orthopedics and interventional cardiology.
Therefore, I am intrigued by the article's reference to Indian hospitals expanding to the Caymans. I certainly hope that they target U.S. patients, and that health plans consider offering them as centers of excellence for our most "over-priced" procedures. This is our best hope for challenging the domestic oligopoly, and perhaps prompting a few high quality U.S. hospitals to seek cost reduction -- so long as the AHA does not join Pharma (and Trump) in winning a policy of "Buy (inflated) American."
And if a few U.S. hospitals demonstrate high quality and substantial cost-savings, that could prove contagious to their domestic competitors.
August 31, 2017 at 11:54 am