Cost-cutting success by hospitals in India

An op-ed piece in The Washington Post takes the position that hospitals in India could show U.S. hospitals how to save money without cutting quality.

The authors of the editorial point to research they conducted that found that, while India’s healthcare system as a whole has many problems, some private hospitals provide quality healthcare at a fraction of U.S. prices. This holds true even when you adjust for salary differentials.

How do they do it? They have innovated in three ways:

  1. Hub-and-spoke design. Hub hospitals are located in major cities with spoke hospitals in rural areas. This strategy concentrates the best equipment and expertise within the hub, with telecommunication links that allow hub specialists to serve spoke patients remotely. By contrast, hospitals in the U.S. are uncoordinated, duplicating specialized care without enough volume in most of them to make procedures affordable. Even when hospitals consolidate, the motive is often to gain pricing power over insurance companies rather than to lower costs.
  1. Task shifting. Responsibility for routine tasks is transferred to lower-skilled workers. This leaves doctors free to focus on complicated medical procedures. Compare that with the U.S., where hospitals reduce costs by laying off support staff and shifting mundane tasks such as billing and transcription to doctors, who are overqualified for those duties.
  1. Frugality. Indian hospitals build facilities at a fraction of the cost spent in the U.S., replacing imported devices with local equivalents that cost much less or, for example, sterilizing and reusing clamps for open-heart surgery that are routinely discarded after one use in the U.S. Also, in contrast to the U.S. fee-for-service model, Indian hospitals often pay their doctors a fixed salary.

How realistic is it that U.S. hospitals will adopt the Indian model? “U.S. hospitals are constrained by regulations and norms unlike those in India,” say the authors of the editorial. “Nevertheless, some progressive U.S. hospitals are adopting some of the practices of our Indian exemplars, and more should follow their example.”

The editorial was written by Vijay Govindarajan, a professor of international business at Tuck School of Business, Dartmouth College, and Ravi Ramamurti, a professor at Northeastern University and director of its Center for Emerging Markets. They are co-authors of the article “Delivering World-Class Healthcare Affordably,” in the current issue of Harvard Business Review.