Monday, November 23, 2009

The Henry Ford of heart surgery

Health care economies of scale

The Wall Street Journal has an extremely interesting article about health care in India, where good old fashioned capitalism is raising quality, reducing costs and expanding access to the masses. The story profiles heart surgeon Devi Shetty, who is using mass production techniques to provide top-notch health care -- and drive profits:
Dr. Shetty, who entered the limelight in the early 1990s as Mother Teresa's cardiac surgeon, offers cutting-edge medical care in India at a fraction of what it costs elsewhere in the world. His flagship heart hospital charges $2,000, on average, for open-heart surgery, compared with hospitals in the U.S. that are paid between $20,000 and $100,000, depending on the complexity of the surgery.

The approach has transformed health care in India through a simple premise that works in other industries: economies of scale. By driving huge volumes, even of procedures as sophisticated, delicate and dangerous as heart surgery, Dr. Shetty has managed to drive down the cost of health care in his nation of one billion.

At his flagship, 1,000-bed Narayana Hrudayalaya Hospital, surgeons operate at a capacity virtually unheard of in the U.S., where the average hospital has 160 beds, according to the American Hospital Association.

...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.

Next door to Narayana, Dr. Shetty built a 1,400-bed cancer hospital and a 300-bed eye hospital, which share the same laboratories and blood bank as the heart institute. His family-owned business group, Narayana Hrudayalaya Private Ltd., reports a 7.7% profit after taxes, or slightly above the 6.9% average for a U.S. hospital, according to American Hospital Association data.
But the profits and low prices must come at the expense of quality, right? After all, greedy corporations care only about income, not the well being of their customers, n'est-ce pas? Well, not quite:
But Jack Lewin, chief executive of the American College of Cardiology, who visited Dr. Shetty's hospital earlier this year as a guest lecturer, says Dr. Shetty has done just the opposite -- used high volumes to improve quality. For one thing, some studies show quality rises at hospitals that perform more surgeries for the simple reason that doctors are getting more experience. And at Narayana, says Dr. Lewin, the large number of patients allows individual doctors to focus on one or two specific types of cardiac surgeries.

In smaller U.S. and Indian hospitals, he says, there aren't enough patients for one surgeon to focus exclusively on one type of heart procedure.

Narayana surgeon Colin John, for example, has performed nearly 4,000 complex pediatric procedures known as Tetralogy of Fallot in his 30-year career. The procedure repairs four different heart abnormalities at once. Many surgeons in other countries would never reach that number of any type of cardiac surgery in their lifetimes.

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.

It isn't possible truly to compare the mortality rates, says Dr. Shetty, because he doesn't adjust his mortality rate to reflect patients' ages and other illnesses, in what is known as a risk-adjusted mortality rate. India's National Accreditation Board for Hospitals & Healthcare Providers asks hospitals to provide their mortality rates for surgery, without risk adjustment.

Dr. Lewin believes Dr. Shetty's success rates would look even better if he adjusted for risk, because his patients often lack access to even basic health care and suffer from more advanced cardiac disease when they finally come in for surgery.
But surely he must be cutting corners somewhere. Perhaps he is using shoddy equipment?
[Shetty] says he would also like to find lower-cost versions of his priciest medical equipment. But the Chinese makers that have brought good quality, cheaper machines to market don't yet have enough local service centers to ensure regular maintenance.

So he is still buying equipment from General Electric Co. He pays $60,000 for echocardiography machines, which use sound waves to create a moving image of the heart, and $750,000 for cardiac catheterization labs, which produce images of blood flow in the arteries and allow surgeons to clear some blockages using stents and other devices.
OK, but maybe he is underpaying his doctors? After all, Marx and many leading Democrats teach us that capitalists are the enemies of labor. Except there's no evidence of that either:
Cardiac surgeons at Dr. Shetty's hospitals are paid the going rate in India, between $110,000 and $240,000 annually, depending on experience, says Viren Shetty, a director of the hospital group and one of Dr. Shetty's sons.
Read the whole article, which is fantastic. Also see this previous post on health care in India if you haven't already done so.

Some observations:
  • Claims that health care is intrinsically different from other products or services and must be addressed in a different manner are false. Yes, health care has some unique characteristics, as do all industries, but there is absolutely no reason that free market principles cannot be applied.
  • Those who employ slogans such as "People not profits" are spouting nonsense. Profits are what businesses derive from serving people.
  • Nothing currently on the table in terms of health care reform would encourage the kind of innovation profiled in this article.
  • Literally every single example of health care reform in the U.S. based on expanded government intervention has failed. In sharp contrast the free market invariably succeeds in reducing costs, improving quality and expanding access. This would suggest a certain course of action.

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