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Aravind Eye-Care System – McDonaldization of Eye-Care

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Developing a replicable model which delivers high-quality eye-care to India’s poor

“If Coca-Cola can sell billions of sodas and McDonald’s can sell billions of burger, why can’t Aravind sell millions of sight-restoring operations, and, eventually, the belief in human perfection?” – quipped Dr. Venkatawamy (endearingly known as Dr. V) in an interview to Fast Company. Dr. V had a vision – to restore the gift of sight to millions of poor blind people through the Aravind Eye-Care system (“Aravind”). Aravind’s business model is based on his vision to solve the blindness problem regardless of the patient’s ability to pay. Aravind has been able to successfully execute this business model over the last forty years to become the largest provider of eye-care services in the world.

Context

India is home to one-third of the world’s blind population with close to 200 million Indians needing eye-care. In 80% of the cases, blindness is caused by factors which can be corrected. Dr. V set out to address this problem of curable blindness and created an institution which performs 400,000 eye surgeries a year.

Business Model

Aravind has been able to develop a self-funding healthcare delivery model where it creates value for its entire customer base but captures the value only from a part of it. Aravind is able to provide free-of-cost or at cost, high-quality service for 50-60% of its patients who are poor or ‘non-paying’ by using the profits generated from the 40-50% of the paying patients. The hospital provides the same quality of service across both paying and non-paying patients and has consistently provided high-quality care for the last 39 years. The organization has been able to achieve this by focusing on the following strategic imperatives –

  • Singular Vision – Dr. V chose a specific vision for the company to focus on – eliminating blindness through cataract surgery
  • Hybrid Business Model – The hybrid model helps Aravind use the cash-flows from paying patients to cross-subsidize services for the needy. This model helped Aravind develop specialty services along with basic cataract surgery and care. The ability to develop high-end ophthalmic care also helped Aravind attract and retain qualified doctors.
  • High volume, high quality and low cost business model –  To provide perspective, the cost of cataract surgery at Aravind could be as low as US$50 while in the US, it is in the range of US$3,000.
  • Reaching out to the under-served – Given the highly fragmented nature of its customer base and due to the need for scale, Aravind has to generate demand through customer outreach programs.

The Aravind Business Model

Operating Model

The successful execution of the above business model is predicated on reducing fixed costs through scale and efficiency. For context, Aravind performs 60% of  volume of surgeries done by the UK health system but at one-hundredth the cost. Aravind has been able to accomplish this by focusing on the following operational innovations.

Productivity with quality – Aravind has developed standardized processes for key operations, so as to ensure consistent and efficient delivery.

  • OPD: Aravind serves 6,000 outpatients in the hospital and 1,500 patients in outreach camps every day. The process flow involves registration, vision test, preliminary exam, refraction, final exam, counseling and recommendation for surgery.
  • Surgeries: As seen in the Exhibit 1 below, the Aravind doctor performs >2,000 surgeries in a year compared to the Indian average of 400 and 150-200 for most Asian economies. This significantly higher productivity is obtained by adopting an assembly line approach to surgery. Each operating room has one surgeon in each room, but a minimum of two operating tables, multiple sets of equipment and multiple nursing teams to carry out key non-surgical tasks, such as preparing the patient and administering the anesthetic. This unique layout enables the surgeon to complete a surgery, turn around and start the surgery on the next patient who has been pre-prepared. This procedure enables the doctor to perform six to eight procedures per hour as opposed to usual norm of one surgery per hour. More pertinently, the high productivity does not come at the cost of quality and in fact the clinical outcomes are superior to the average in UK hospitals (See Exhibit 2 below).
    Aravind drives higher surgeon productivity through the assembly line process
    Exhibit 1: Aravind drives higher surgeon productivity through the assembly line process

     

    The Surgical Assembly Line
    The Surgical Assembly Line
Quality Exhibit v2
Exhibit 2: Aravind delivers quality superior to developed markets

Cross-training the work-force – To allow the doctors to focus on the most critical tasks of diagnosis and surgery, Aravind has a large staff of nurses and technicians. To further reduce costs, Aravind recruits and trains women from local communities and certifies them as technicians (these women make up 60% of Aravind’s workforce). The nurses and technicians are cross-trained so that they can perform multiple routine tasks.

A Training Session in progress
A Training Session in progress

In-house manufacturing – The intra-ocular lens used in the surgery used to make up a significant part of the fixed cost of the surgery at c.US$100. Aravind set up a manufacturing facility which makes intraocular lens called Aurolab in 1992. The price of the lens has been driven down to less than US$10 (90% reduction!).

Technology to aid outreach – To facilitate its community outreach programs, Aravind uses both eye camps and telemedicine driven vision centers to source patients for surgery in the main hospital. The vision centers are mobile diagnosis centers which employ tele-medicine so that doctors from the main hospital can evaluate and diagnose millions of patients at scale.  

The Outreach Program
The Outreach Program
Telemedicine
Tele-medicine

 

Future Outlook

The Aravind model has been partially replicated in more than 300 hospitals globally. However, Aravind believes that it has only covered the tip of the iceberg and that the impact that it can potentially have is much larger. Aravind plans to expand its reach to other parts of India and globally to other developing markets which have large impoverished population. The key source of differentiation for Aravind as compared to other low-cost healthcare players is that it has a strong Research division and it is constantly innovating – on product, process and eye-care delivery

Sources

  1. Driving down the cost of high-quality care: Lessons from the Aravind Eye Care System, Health International, Mckinsey Health Systems and Services Practice
  2. Making Sight Affordable – V. Kasturi Rangan and R.D. Thulasiraj
  3. Aravind Eye Health Care Operations – Angel Diaz Matalobos, Juan Pons, Stephen Pahls
  4. Financial Sustainability for high quality, large volume cataract surgery programs – Aravind Eye Hospitals & Postgraduate Institute of Ophthalmology
  5. http://opinionator.blogs.nytimes.com/2013/01/16/in-india-leading-a-hospital-franchise-with-vision/?_r=0
  6. https://www.bcgperspectives.com/content/articles/business_unit_strategy_innovation_business_model_innovation_ten_lessons_nonprofits/?chapter=3
  7. http://www.fastcompany.com/42111/perfect-vision-dr-v
  8. 2008 Gates Award Video – Aravind Eye Care System
  9. aravind.org

14 thoughts on “Aravind Eye-Care System – McDonaldization of Eye-Care

  1. This model reminds me of Dr. Shetty’s Narayana Hrudayalaya model in many ways. I’m assuming that the way to get the cost of the surgeries down from $3000 in the US to $50 for Aravind is made up of many factors and I think you hit on the key ones.

    Being able to perform 6-8 surgeries per hour is one key innovation in the operating model, it seems, and that would create analogs in cost of $3000 in the US vs. $300 for Aravind. That $300 plus the cost of the lens (bringing the average comparable cost up to $400) puts the figure on par with the average cost of a surgery in India, so I imagine the chief differences between the US average cost and Indian average cost are related to labor and capital costs. The assembly line process avoids process inefficiency to achieve the faster (6-8 surgeries/hour) model; outreach programs appear to accomplish the challenge to keep Aravind’s facilities filled so they have high utilization rates.

    1. Joe, thank you for your comment. You have hit the nail on the head with the comparison to Narayana Hrudayalaya. They both use operational efficiency like better throughput time, lower capital/consumable cost and labor arbitrage. As you pointed out the three cost improvement levers are
      1. Better throughput (=10x of other countries) – resulting in cost savings of up to US$2500
      2. Lower cost of lens – Cost savings of US$90
      3. Lower labor and capital cost – resulting in cost savings of US$300-400
      Even not considering the labor and capital cost arbitrage, there is significant cost improvements driven through process efficiency and lowering cost of consumables like lens.

  2. Conveniently named after you!
    You did a great job presenting the linkage between the operating and business models. What I found most interesting is the fact that they cross train their workforce. By doing so, the nurses are able to do more work tasks that would otherwise require a higher-cost doctor to perform. This is quite innovative. This section reminded me of the concept of cross-trained teams and how using such types of teams can help reduce cost, and increase speed and efficiency. I would be curious to learn if this model of low cost healthcare can be adopted in other countries that don’t have the same population scale as India.

    1. Thanks for your comment Amine. As you have pointed out, cross-training is an important component to reduce labor cost. By training women from rural communities, they also achieve the social mission of providing employment to the needy and hence exploiting the immense human capital resources in India.

      This model of low cost healthcare can be replicated in emerging countries which offer economies of scale and labor arbitrage. I will lay out the way Aravind ‘trains’ international hospital administrators. Aravind reaches out to international funding agencies to share the contacts of hospitals which they feel could benefit from the operational improvements. Following that, Aravind contacts these hospitals and invite administrators from these hospitals to visit the Aravind facilities. The administrators spend eight to ten days at the facility, Aravind teaches them the principles of the Aravind operational model and help them develop their own operational strategy based on their business model. Aravind’s press statements indicate that they have been able to help a few hospitals attain 3-4x improvement in throughput. Please refer the following article for more details. https://agenda.weforum.org/2015/08/eye-care-enterprise-vision/

  3. Great Post!

    Like Amine, I would be interested to hear more about their plans for scale both in terms of geography–expanding the eye hospital, or in terms of expanding to different surgery types. I would also be curious how much the leader has had to do with the program’s success thus far and if the eye hospital can survive without such a transformational leader. Finally, you mention their outreach to the rural poor, but to remain sustainable model also depends on being able to attract at least some wealthy patients–how is this being ensured?

    1. Thank you for your comment Natalie. Let me respond to each of your questions.

      1. Expanding Geographically – I will lay out the way Aravind ‘trains’ international hospital administrators. Aravind reaches out to international funding agencies to share the contacts of hospitals which they feel could benefit from the operational improvements. Following that, Aravind contacts these hospitals and invite administrators from these hospitals to visit the Aravind facilities. The administrators spend eight to ten days at the facility, Aravind teaches them the principles of the Aravind operational model and help them develop their own operational strategy based on their business model. Aravind’s press statements indicate that they have been able to help a few hospitals attain 3-4x improvement in throughput. Please refer the following article for more details. https://agenda.weforum.org/2015/08/eye-care-enterprise-vision/
      2. Expanding to other surgeries – Aravind has focused primarily on cataract surgery since this operating model fits this surgery type more. But more recently, Aravind has been able to start specialty clinics to address more specific eye conditions like glaucoma.
      3. Leader – Dr. V who started Aravind passed away in 2006 and the institution has been able to flourish for the last 9 years even after his demise. This is evidence to how Aravind has been able to institutionalize its systems, processes and operating model.
      4. Sustainable model to attract wealthy patients – Aravind has a strong R&D department which has been able to develop cutting edge technologies in eye-care. The high volume of patients and procedures also helps Aravind improve its capabilities in surgery. These factors with high-quality infrastructure (albeit low cost) attracts a good portion of paying patients which has seen secular growth over the last few years.

  4. Thanks for sharing this Aravind! I was excited to see Dr. Shetty’s low cost, high quality care model be replicated for eye care. I have a few follow-up questions:

    1) What is unique about India that makes the country so well suited to these types of models? Is it just having a large population of impoverished people? I’m wondering what conditions need to be in place for this model to work in other countries.
    2) How do paying customers feel, knowing that they are subsidizing care for people getting the same service for free? What metrics does the hospital have for assessing “willingness to pay” and capturing the maximum customer value possible?
    3) How well is the company doing financially? Is Dr. V as much of a profit businessman as Dr. Shetty, or is he more focused on maximizing the social benefit Aravind provides?
    4) Do you have ideas for other surgeries for which the Dr. V/Dr. Shetty model would be conducive?

    1. Thank you for your thoughtful comments Amber. Please see my responses below for each of your questions.

      1. I think the reason why this works in India is because of the sheer size of the bottom of the pyramid. There is an extremely high population in the lower class and lower middle class who generate significant demand for low-cost, high quality products or services.
      2. I think the paying customers (who would have paid the same in any other hospital) would feel like a part of a larger cause by helping to cross-subsidize the needy patients. Based on my understanding, the hospital goes through income data etc. to verify that the patient actually is financially needy.
      3. Aravind is run as a non-profit with the focus on maximizing the social benefit
      4. I think this model can be replicated for any procedure which can be done at scale/high volume. This entails the procedure to treat a common condition and should be easy to replicate and standardize. Similar procedures could be heart surgeries, angioplasties, eye surgeries, knee/shoulder surgeries. I myself underwent a knee surgery in the same assembly line format. It was quite an experience!

  5. Aravind, great post. No wonder why you chose it. I loved the model. It is incredible how innovation of business model allied to a cost saving operating model can help healthcare delivery. The Aravind way of cross subsides among cost consuming and revenue generators is interesting idea. However, I am concerned if it is sustainable enough when you have more complicated i.e. costly healthcare procedures. It is well applied when there is predictability, which is the case of low risk procedures. However, with procedures with higher risk and more costly, worse outcomes are more frequent and predictability is low, what can lead to extremely high costs. Any thought on that? Best David

    1. Thank you for your comment David. You bring up a very pertinent point. As you have pointed out, Aravind focuses on a less complicated procedure to reduce complications. However, if you recollect from our very first case at HBS on Narayana Hrudayalaya, NH is an institution in India which has adopted a similar business and operating model for heart surgeries, which is a much more complicated procedure.

  6. Thanks so much for sharing Aravind! We actually profiled the Aravind Eye-Care System when I was at BCG because several consumer partners were so impressed by the business and its ability to demonstrate the concept of ‘Paisa Vasool:’ high quality, great value, a complete package that delivers value for money.

    Given how impressive their quality of care is (based on Exhibit 2), it seems probable that many wealthy individuals in India want to come to Aravind for their eye-related surgeries, not only for the price, but also for the high-quality care. Even compared to other high-quality health care institutions, Aravind performs very well on these quality metrics. How does Aravind turn away this population to ensure they maintain their 40-50% ratio? How do they determine who receives this care out of this wealthy population?

  7. Aravind Eye Care has a special place in my heart, not only for their impressive mission and impressive track record, but also because it was the first HBS case I ever read back in undergrad. Great choice.

    You do an excellent job laying out the parts of the operating model that have allowed Aravind to process many more surgeries at a lower cost than equivalent care providers in more developed countries. However, a key bottleneck in my mind, and this also came up in Narayana Hrudayalaya, is the poor’s access to Aravind’s facilities. You cover the tele-medicine and outreach programs well. But in my mind, in order for Aravind to truly accomplish his mission to eradicate blindness, I wish he kept some more of the value that he generates for his paying customers and invested more aggressively in getting out into rural areas with his surgeries. Now that he has a strong surgery operation that is sustainable, he must continue to strengthen accessibility in my mind.

    1. Thank you for your comment Brandon. You have raised a very valid concern in terms of access for the poor. Even though I have not explicitly mentioned in the post, it is pertinent to note that, Aravind transports the people who need surgery from the rural communities to the main hospital for the procedure. They take the patients to the hospital, as opposed to taking the hospital to the patients. However there are many challenges in taking the hospital to the poor. The chief one being issues of hygiene. It is impossible to maintain the quality clinical outcomes and no. of complications, given the risks of infection. Given this practical problem, Aravind chooses to reach out to the patients and bring them to the hospital.

  8. This is amazing! How does Aravind identify non-paying customers from its paying customers? And how does it prevent fraud (customers who should be paying but pretending to be low-income?) Is it a big concern, and why?

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