Cross-Boundary Disruptors (XBD) in US Healthcare: Will Henry Ford of Heart Surgery from India and Ascension, US bring this disruption from their Cayman Health care city?

By Mike Mooney, Principal, Prime Capital

US Healthcare is a dinosaur: Healthcare costs are going through the roof at an unstoppable rate in the US – open heart surgeries can cost from 20k to 100k and so high is many other specialized procedures. The only known alternative now is medical tourism to developing countries like India, Mexico, Thailand, and Germany etc. Uninsured or less privileged often fly thousands of miles to these countries and take a chance, often with successful results. However, there are post treatment complications and follow up care after a non standardized procedure, which can bring stress and complications.

Is ACA a solution or a problem? Attempts to shake up health care industry in the US have often been a favorite political pastime or lobbyist playground. Thanks to Obama, Affordable Care Act (ACA) definitely has stirred up a national (global??) debate on making this multi-trillion dollar industry become more efficient and serve large uninsured population of this great nation. ACA certainly is a first big industry disruptor, no doubt about that.

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Cross Border Disruption (XBD) Framework for US Healthcare: Regulatory steps have often provided the framework, but the real innovations have driven down the cost, making the services affordable to masses and in the process have become industry disruptors. In a pioneering research study at Stanford published in 2007, Robert A. Burgelman and Andrew S. Grove present “what kind of company could become a cross-boundary disruptor in the US healthcare industry to help overcome its long-standing stasis, using a preliminary conceptual framework”.

XBD Hypothesis for US Healthcare: Using Apple’s success in music industry as a XBD, the researchers present an interesting hypothesis, which “captures the key dynamics of industry transformation through XBD…”, with the following picture:

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So, few key take-away from the hypothesis:

  1. Entry of XBD companies triggers further defensive reaction in incumbents
  2. Fast adaptors emerge with competitive advantages in new environment
  3. Changes continue and lead to new industry structure

What do we see from the Cayman Health City experiment of Narayana Health and Ascension?

  1. Narayana & Ascension are two strong, large healthcare players, known for innovation: Narayana Health has revolutionized healthcare in India with a unique business model of low cost, high quality, very standardized procedures, and economies of scale delivered at 23 hospitals in 14 cities across India with 6200 beds. Starting with cardiac care, Narayana has extended its services to Neurosciences, Oncology/cancer care, Orthopedics, Gastroenterology – medical and surgical, Nephrology and urology, Obstetrics and gynecology, and Organ transplant. 

Narayana is already disrupting the health care industry in India impacting several large incumbents like Apollo and attract global clientele for their services provided at an affordable rate.

Ascension Health is the largest non-profit healthcare in the US, with $15.5B revenue in 2011, with 77 hospitals at 1900 locations in 23 states and DC. Both have partnered in setting up a healthcare city in Cayman Islands, about an hour of flying from US with a proposed capex of $2B over a 15 year time span, mainly catering to local population and also to US clientele.

  1. Multi-Specialty Care at affordable cost: First Phase of $50M invested with 140 bed health care facilities will have accreditation by Joint Commission International (JCI) and this multi-specialty hospital will provide services not widely available in the region such as open-heart/bypass surgery, angioplasty, heart-valve replacement, cancer treatment, bone-marrow transplant, nuclear medicine, organ transplant and orthopedics. 

Dr Devi Shetty, the chief of Narayana Health expects the cost of health care services from the Cayman Hospital to be cheaper by 30% – 40% to US ; over a period of time, he expects the costs to go down even further. With an hour away, if this experiment succeeds, flow of patients from Ascension Health systems itself will keep the Cayman Hospital busy and fully occupied into foreseeable future.

With an easy commute, and affordable high quality health care, Cayman hospital experiment promises to revolutionize medical care closer to US shores.

  1. Common singular objective to keep costs down and quality up: Highly standardized procedures, favorable regulatory environment, experienced doctors and medical staff recruited internationally/sourced from Narayana existing facilities and technical guidance from US based doctors and leaders from Ascension Health, Cayman model promises to bring the best of both the partners with a common singular objective of providing low cost high quality health care from a near shore facility. Both partners have successful track record of delivering affordable health care documented by renowned institutions (Harvard Case study).So, this experiment should succeed. 
  1. Narayana has set the bar very high and performed better than the best hospitals of US: With $2000 for open heart surgery, with process innovation at the core, Narayana has been performing surgeries that are better than the world’s best hospitals. 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.

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.

With over 6M Americans expected to travel overseas for medical treatment (Deloitte estimates), for affordable medical care (a), with many US insurance plans permitting treatment abroad (b) and with many million Americans becoming eligible for medical insurance following ACA (c), we need urgent near shore affordable health care alternatives. Cayman Healthcare facility is one shining light that shows a lot of promise for such vast majority of vulnerable sections of Americans, who will need affordable medical care.

Clearly, success of this model will impact US healthcare significantly; we expect fast adapters with a base either at near shore locations to US or from within US will emerge taking advantage of changes driven by this model. Hopefully US healthcare industry will emerge stronger, more efficient, with process innovation, economies of scale, standardized procedures comparable to the best in the world, bringing affordable care for millions in the next decade.

References:

  1. Would you go to the Cayman Islands for heart surgery? India’s “Henry Ford of Heart Surgery” brings his model closer to the U.S. By Nicholas Nehamas (http://www.latitudenews.com/story/would-you-go-to-the-cayman-islands-for-heart-surgery/)
  2. Cross-Boundary Disruptors: Powerful Inter-Industry Entrepreneurial Change Agents

Research by: Robert A. Burgelman, Andrew S. Grove- Published: 2007 (http://csi.gsb.stanford.edu/Cross-Boundary%20Disruptors%3A%20Powerful%20Inter-Industry%20Entrepreneurial%20Change%20Agents)

  1. The Henry Ford of Heart Surgery- In India, a Factory Model for Hospitals Is Cutting Costs and Yielding Profits By Geeta Anand ((http://online.wsj.com/news/articles/SB125875892887958111?mod=slideshow_overlay_mod&mg=reno64- wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB125875892887958111.html%3Fmod%3Dslideshow_overlay_mod)

Indian Stock Market Observations and Street View (Courtesy: ET now)

By G Chockkalingam, Investment Strategist, Prime Capital

In this interview to a national business TV in India, Chockkalingam, a leading Investment Strategist, talks about investing in mid-cap IT stocks and avoiding government owned banks – both played out in a big way subsequently. To quote:

Indian Market is behaving irrationally based on the assumption that there are only monetary problems. But there are five sets of structural problems:

1. Monetary problem…. European stability, high interest rate cycle in India

2. Fiscal problem…worsening fiscal deficits of Indian Government

3. Deceleration of industry… no signs of improvement

4. Indian Banking sector NPA…. Growing beyond tolerance levels

5. Effect of uncertainties from Fed, Elections and two bills passed in India like Food security and possible India’s rating downgrades by International rating agencies like Moody’s and S&P.

There are no answers for these problems. Pricing in the market is not based on fundamentals now. It is still time to be defensive given all these problems.

Banking sector: Reallocate your portfolio, book profits or marginal loss in this rally. Private sector banks are better Vs Government owned bank stocks.  Reduce your exposure and allocation banking sector

IT sector: Investor should stay invested in IT stocks, most defensive approach. Book profits in large IT stocks and invest in mid cap IT stocks.