Ron Johnson, M.D., F.A.C.S., Chief Medical Officer of Satori World Medical 

The new Administration has placed high priority on healthcare reform, to lower costs and improve quality.  Maybe a recent article in Health Affairs (Lessons from India in Organizational Innovation:  A Tale of Two Heart Hospitals, Sept. 08) can help.  Authors from the Duke University schools of law, business and medicine describe how organizational innovation has made Indian heart hospitals a low cost, high quality success story.  Can the US do the same? 

The Indian market is different – with over a billion people and a large middle class, only 14% has health insurance, so Indian hospitals understand that their services have to meet the middle-class family budget.  Lower labor costs are important, but much of their success is due to developing and improving innovative organizational structures to provide care.

• Hospital Management Structure.  Many leading healthcare organizations in India are led by dynamic physician-executives, and there is much more collaboration between physicians and senior administrators than in the US.  Hospital management teams come with experience in the hotel industry to give a more focused customer/patient approach.
• Pricing.  Hospitals are competing on both price and quality – they have developed differential pricing, to target different income sectors and maintain volume and efficiency.  Fixed or capitated pricing is offered, to allow patients and payers to “shop” for procedures and compare prices.  This also shifts financial risk to the service providers, and makes them continually evaluate cost drivers and develop new, innovative approaches to care delivery.
• Drive for efficiency in supply and delivery chains.  The competitive market and fixed costs demand efficiency, increased production volumes, with reengineering service delivery models to maximize use of capital equipment.  Some develop and manufacture routine equipment to reduce costs.  There is considerable investment in information technology.
• Competing on quality, paying for mistakes.  Because Indian hospitals compete on both quality and price, hospital managers have instituted quality assurance and improvement as integral to the business models.  As one physician said, in this business model, “we can’t afford to have complications.”

Can US hospitals learn from these Indian successes, where quality care is provided at a fraction of the cost in the US?  There are barriers to this experimentation, entrepreneurialism and technological progress.

• Medicare and insurance payment policies.  The Medicare DRG payment system does not reward innovation or efficiency or price flexibility.  Private insurance does little to stimulate price competition.  Innovation – new procedures or delivery models – is discouraged.
• Legal Barriers.  The Stark Amendment, the Medicare Prescription Drug, Improvement, and Modernization Act, and other laws stifle physician ownership and investment in new facilities and discourage their involvement in corporate strategy – both beneficial in the Indian heart hospitals. 
• Tort standards.  Even the US medical malpractice system discourages innovation – the “community standard” often locks in expensive and conventional practices.

The Duke University authors conclude that “although most innovation-intensive industries have enjoyed a history of producing new generations of industry leaders, offering dramatic improvements in both capability and affordability, the US health sector has not.  The US health sector, however, may soon resemble other innovation-intensive industries in one important respect: it may find its industry leaders displaced by Indian offerings.  If dramatic cost differences persist between procedures performed in Indian and US hospitals, it might not be long before employers and insurers begin sending patients to India for treatment.”