2/08/2007

Opportunities in Doing One Thing Well

The angst continues to build over the ballooning cost of medical care in the United States. Thanks to a toxic combination of perverse legal incentives, crippling legal restrictions, and inefficient use of medical resources, health care costs have been consistently growing 2% faster than inflation for decades. (It is noteworthy that both health care and education—the other sector where prices have been rising, not falling, as time goes by—are heavily influenced by government interventions.) Aside from the inherent problems caused by rising costs, the health care issue has generated calls for the government to expand its intervention yet again.

Before we embark down that dreary road, trodden by the soles of so many others whose present misery we are apparently so keen to share, it is worth noting circumstances where medical care has gotten much cheaper and has improved in quality.

In C. K. Prahalad's book, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, he lays out steps necessary for companies to effectively build a market among those who earn less than $2 a day. One of these is that companies must find "quantum jumps in price performance," reducing prices for a product not by half but by 30-100 times! He cites several examples; one of these is an Indian medical services company called Aravind Eye Care.

Aravind Eye Care specializes in a single procedure: cataract operations with inter-ocular lens. This surgery typically costs $2500 to $3000 in the United States or Europe. But Aravind charges between $50 and $300 depending on complications—when it charges at all; 40% of its patients receive their surgeries free. Yet their average cost per patient is less than $25, allowing them to make a healthy profit.

How can they get the cost of a $3000 procedure down so low? To do it, the founder of Aravind, Dr. Venkataswamy, standardized every step of the process and strove for consistency and efficiency. Their hospital facilities are designed specifically for eye care, and located in central areas, including the main hospital in Madurai; patients are screened in their villages and then transported in via an efficient system of buses. Each doctor is supported by two teams of technicians who have been trained only to do eye care; in this way, a doctor can go through 50 surgeries per day. Because they are so carefully trained and because every aspect of the procedure is systematized, "Aravind boasts of an outcome rate that is among the best in the world."

Nothing about this system is fundamentally shocking—or it should not be, at any rate. The inspiration for it was McDonald's, which can take a group of low-skilled employees and turn out hamburgers and french fries of uniform quality for very little cost, simply because the process has been so deeply understood and optimized.

Hospitals, on the other hand, have traditionally tried to do everything. For good reason; in most of human history, people could hardly have had the luxury of specializing, not when there might be a single hospital within days of travel. Even when specialists arose, they were turned to when the traditional medical system came up short. Specialists in the United States are premium assets, and command premium prices because of it. The very idea that a specialist should be cheaper than a traditional hospital is a non-sequitor.

Yet now that travel is so easy and cheap, the reasons underpinning this system have largely vanished. Indeed, Aravind has an agreement with the British National Health Service: Britons needing eye surgery can fly to India, be put up in a hotel for a few days, go to Aravind, and fly back, all for much less money than it would take to have the surgery done domestically.

It seems to me that this sort of deep specialization should be possible for more procedures than eye surgeries. For example, one of the most common surgeries is performed on the knee, especially for those 85 and older. One imagines that this surgery will only become more common as the population ages. As it stands now, that surgery is very expensive; but what if someone were to analyze each step of the procedure, develop a streamlined process, and reduce the cost to, say, 10% of the current level? What if this procedure were carried out in a bare handful of facilities—perhaps five in the United States, placed so that you need travel only an hour by plane to get to them? And what if by having so few facilities, you could extract every efficiency and improvement possible to make the process easier, safer, and cheaper?

Now imagine if such a fundamental change in the status quo were achieved in nearly all of the most expensive procedures in medicine. Would we still have a looming problem with the cost of health care? I doubt it.

Can it be done? If they could do it in India, they can do it here. What is needed is a doctor or group of doctors with entrepreneurial drive and vision to take the first step. Perhaps Dr. Venkataswamy can give a seminar to get the process started.

1 comment:

Eric said...

This particular idea of yours is somewhat of a non-sequitor.