Saturday, April 24, 2010

Innovation and Health Care

One of the subthemes in this Economist report on innovation in emerging markets is its championing of cheapness, and I felt its sections on health care were particularly interesting:
the device that has captured the heart of the centre’s boss, Ashish Shah, is much less fancy: a hand-held electrocardiogram (ECG) called the Mac 400. The device is a masterpiece of simplification. The multiple buttons on conventional ECGs have been reduced to just four. The bulky printer has been replaced by one of those tiny gadgets used in portable ticket machines. The whole thing is small enough to fit into a small backpack and can run on batteries as well as on the mains. This miracle of compression sells for $800, instead of $2,000 for a conventional ECG, and has reduced the cost of an ECG test to just $1 per patient.

And this:
The third way to cut costs is to apply mass-production techniques in new and unexpected areas such as health care. Devi Shetty is India’s most celebrated heart surgeon, having performed the country’s first neonatal heart surgery on a nine-day-old baby, and numbered Mother Teresa among his patients. Yet his most important contribution to medicine is not his surgical skill but his determination to make this huge industry more efficient by applying Henry Ford’s management principles. He believes that a combination of economies of scale and specialisation can radically reduce the cost of heart surgery. His flagship Narayana Hrudayalaya Hospital in the “Electronics City” district of Bangalore, not far from GE, Infosys and Wipro, has 1,000 beds (against an average of 160 beds in American heart hospitals), and Dr Shetty and his team of 40-odd cardiologists perform about 600 operations a week.

The sheer number of patients allows surgeons to acquire world-class expertise in particular operations, and the generous backup facilities allow them to concentrate on their speciality rather than wasting their time on administration. Dr Shetty has performed more than 15,000 heart operations and other members of his team more than 10,000. The hospital charges an average of $2,000 for open-heart surgery, compared with $20,000-100,000 in America, but its success rates are as good as in the best American hospitals.

Dr Shetty has devoted much of his energy to boosting his customer base, largely for humanitarian reasons but also because he believes that higher volumes lead to better quality. He has established video and internet links with hospitals in India, Africa and Malaysia so that his surgeons can give expert advice to less experienced colleagues. He also sends “clinics on wheels” to nearby rural hospitals to test for heart disease. He has created a health-insurance scheme, working with various local self-help groups, that covers 2.5m people for a premium of about 11 cents a month each. About a third of the hospital’s patients are now enrolled in the scheme. A sliding scale of fees is used for operations so that richer customers subsidise poorer ones. The entire enterprise is surprisingly profitable given how many poor people it treats. Dr Shetty’s family-owned hospital group reports a 7.7% profit after taxes, compared with an average of 6.9% in American private hospitals.

Now, the question I have after this is: why not here? Don’t focus so much on the specific examples here, though I think they may have promise, but on the general theory: why can’t we have dramatically cheaper medical devices? That’s been a theme for me for a while, and to me it is utterly intuitive that improvements to technology ought to produce lower costs in medical devices…and it appears that GE agrees: improvements in technology can produce lower costs, for other countries. Our incentives are just too screwed up, though.

The second excerpt is considerably more radical, but it’s an idea that Clayton Christiensen has written about in The Innovator’s Prescription: that many of the value-added services in medicine don’t necessarily require experts. You don’t need a dentist to clean your teeth, to choose one minor example. Why can’t more medical procedures be like LASIK eye surgery? These are the questions we should be asking ourselves as we embark on changing health care for the better.

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