Freemium Medical Care? Indian Hospital Shows That A Charitable Hospital Can Still Make A Profit

from the premiums dept

Aaron DeOliveira points us to an interesting documentary (and related series of articles) about a hospital in Bangalore, India called Narayana Hrudayalaya, which is providing top notch medical services to all comers and still making a profit in doing so. The trick appears to be a variation on the basic concepts of the “freemium” model (where you pay for higher levels of value) along with a price differentiation mechanism within the hospital. That is, the hospital puts people into different payment buckets based on their ability to pay — such that it refuses no one, even if they can’t pay at all. But, it also makes some of its profits by offering extra amenities at a premium. The medical care is the same for all, but other things cost extra:

At the Narayana, approximately 40 per cent of patients pay a reasonable price for their treatment, a small percentage – those who “want the frills of executive rooms” – pay a premium, a majority pays less than the market rate and 10 to 20 per cent pay virtually nothing. For the latter category, the hospital’s charitable wing raises money to help compensate for the material costs of their treatment.

In any other hospital, those who could not afford to pay their medical bills would simply be sent away until they came up with the cash, but at the Narayana the hospital’s charity wing helps them to find the money.

So, again, it appears that it’s a “small” number who are paying those extras, but those really do help make the hospital profitable and allow it to continue on its overall mission.

Of course, the cynical might suggest that the hospital could be even more profitable if it only catered to those super wealthy who want the extras. But that’s not necessarily the case. From the description in the article, the scale of the hospital operation here actually helps to keep costs low. So they actually get benefits of the economies of scale by running a large hospital which treats all-comers. That allows them to keep their actual marginal expenses lower than others, and then by offering premiums for those who can afford it, they’re able to produce a profit. Interesting stuff…

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Comments on “Freemium Medical Care? Indian Hospital Shows That A Charitable Hospital Can Still Make A Profit”

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Anonymous Coward says:

Ron Paul talked about, I believe during the presidential debates, the idea that charitable hospitals would take care of the sick people for free. In fact, even now, they often still do, though they are often overcrowded and so service is slow. But back in the olden days people were more taken care of than now (is what he seems to have suggested) by these charitable hospitals and that over regulation makes this process more expensive and difficult to implement. Not sure how much I agree or disagree with him here, and I’m rehashing what he said from memory so don’t quote me, but just throwing it out there for others to consider.

Someguy says:

Reusable business models

Sounds like they’ve learned something from budget airlines: charge a marginal fee for some and climb to profitability through add ons. Hopefully the model doesn’t destroy the experience like it has on Ryanair, where they would love to charge you to use the toilet. Imagine arriving at the hospital for an emergency surgery and they ask you if you would like to upgrade to anesthetic….

In health care terms, India is a fascinating place. They combine a lack of health care professionals with minimal financial resources for the majority. This means that the western model will never succeed and is forcing them to be more creative with how they provision health care. Assembly line style surgeries and lower cost health care professionals such as PAs, Nurse Practitioners, midwives etc. are being put to very effective use. The fact that highly skilled/trained doctors are only used for the most complicated procedures is dramatically driving down costs (I’m an avid Economist reader, so I probably sound like a parrot to many). However, they have two major advantages over most of the western world, three actually: no omnipowerful doctors lobby; limited legacy systems that resist technological innovation; and a minimal history of liability claims. This last one is particularly interesting as it causes hospitals and doctors to do a sober cost benefit analysis of different procedures and equipment, without worrying about being sued for not using the device with all of the useless bells and whistles.

The Mighty Buzzard (profile) says:

This is the way US insurance used to work

Way I see it, we have two main problems with health care in the US.

  • Judges allow suits for a bazillion dollars against Doctors/Hospitals to go forward any time someone doesn’t get the desired result.
  • Insurance companies aren’t interested in going back to lower payouts if it means lower premiums.

The first is essentially doing to health care exactly what the patent trolls are doing to innovation. Crippling it with lawsuits that enrich lawyers and force providers to treat in more expensive ways to avoid lawsuits rather than to cure patients. Every health care provider in the nation, from corporate to individual doctors, should expect to be sued multiple times per year. They’re all required to carry unholy amounts of malpractice insurance.

As for the second, insurance companies are simply unwilling to give up their monopoly on the entire health care industry. They’ve now managed to enshrine into law that every person and company involved in either giving or receiving health care must carry insurance to pay for it.

We’ve let trial lawyers write the fact that doctors are human and make mistakes into case law as willful negligence. We’ve let insurance companies become the only ones who are legally allowed to pay to either give or receive medical care. And we’ve allowed them both to acquire the second and first most powerful lobbies in Washington, respectively.

Can we all see now why we’re well and truly boned, no matter what we hear out of politicians around election time?

bentelemon says:

Re: This is the way US insurance used to work

many a study has shown that “defensive medicine,” i.e., fear of malpractice suits, is a very small fraction of health care expense. It is also undisputed that the great majority of medical errors (and there are plenty) never result in a malpratice claim. I’m pretty sure if there are unnecessary tests, etc., it is because it is profitable for the medical industry to perform them.

Torg (profile) says:

This is the way US insurance used to work

At least some of that is a result of how most doctors treat patients. A lot of the basic principles of RTB can be translated to Reasons Not To Sue, but instead most doctors think the better way to go is to hide behind waivers and to record everything they do for use in court. Depressingly few doctors do anything to make their customers not want to sue.

Anonymous Coward of Esteemed Trolling (profile) says:

problem ?

I see only one.
It is explained in my ongoing, educational trolling series.

How to troll an American : Lesson 2

Tell them how much their politicians sold them for.

JUST Lobbying in One year

::: Industry ::: Health ::: 2011 ::: Total spending :::

Pharmaceuticals/Health Products . . . . .$ 240,836,544
Hospitals/Nursing Homes . . . . . . . . . . .$ 100,259,231
Health Professionals . . . . . . . . . . . . . .$ 80,246,752
Health Services/HMOs . . . . . . . . . . . . $ 73,504,507
Misc Health . . . . . . . . . . . . . . . . . . . $ 10,406,737

Total for Health: $505,253,771

Sauce :

About $1.68 per person in the US.
I didn’t include revolving door or the billions in “”campaign contributions””
Will inflate it, to make American people feel good about their true value.

#note to self: Add Random number..( $1.82 ) to the $1.68 value of American person.

So Americans..
How much you pay for it is irrelevant.(they sold that as well)

problem ?

Don’t blame me , I didn’t sell you.

Anonymous Coward of Esteemed Trolling (profile) says:

Trolling the poor

” “99%”ers would be crying that they wanted the premium treatment at the non-premium price “

When the fire service put out a fire in a poor persons house, they should only give them the non-premium service, that only puts out the fire after the house is burnt down.

The fast lane on the freeway (premium service) should not be used by poor people with cheap ass cars traveling to minimum wage jobs.

When a poor person is murdered, give them the “non-premium” police service that doesn’t collect evidence.

Your Ideas work well at creating class warfare ( trolling the poor ). I like it !

Svante Jorgensen (profile) says:

Also gives experience

So they actually get benefits of the economies of scale by running a large hospital which treats all-comers. That allows them to keep their actual marginal expenses lower than others, and then by offering premiums for those who can afford it, they’re able to produce a profit. Interesting stuff…Additionally, and maybe even more important, by treating more people the doctors have more experience with a greater number of illnesses. Irregardless of the size of my wallet, I would prefer a hospital that had treated my kind of illness 50 times in the last year instead of 5. When it comes to doctors I think experience trumps fancy diplomas from fancy schools.

Anonymous Coward says:

I like that at least for once, when we’re talking about charging people according to their wealth, we aren’t making the rich pay more for the same services as the poor.

I had a psychologist who charged between $50-$150 an hour based on the patient’s wealth. He claimed $150 was the regular price and anything under was just a discount he generously gave to his poorest patients at the expense of his profits, but in effect he was just making the rich pay for the poor.

Long story short, I really like that this hospital provides something extra to those who pay the most instead of giving everyone the same service and pretending the rich are just paying the regular price and aren’t being milked for extra bucks so the poor can benefit.

I refused paying $150/hour to my psychologist (we negotiated for less in the end) but I’d be happy to pay more money in a hospital like that (not that I’d want to go to a hospital in an under-developed country, but I’d be happy to pay a little extra so poor people can benefit if I get a little extra myself in return)

Anonymous Coward of Esteemed Trolling (profile) says:

Re: Trolling the poor

Expanded not twisted.

The point, seeing that your view of the “99%ers” blinded you to it…
aka….(the others, not like you, them others, the enemy)

“Essential” is a different term.
In ALL the other developed countries , “essential” healthcare is free (via tax).
Essential as in needed , not “premium”, want “premium” service with hot nurses and gold taps in the bathroom ? go private.

But still……
I prefer your idea of “premium” for rich and “non-premium” for the poor, that way we can classify expensive cancer drugs as “premium”. If they were “essential” those pesky “99%ers” would get them, where is the lulz in that…amiright ?

The Mighty Buzzard (profile) says:

problem ?

That’s great, kid, don’t get cocky.

It’s part of the fundamental nature of government to betray its people for money. The US has fucked up health care and IP laws, Britain has freedom of speech only as long as it doesn’t inconvenience their government, Greece has bankrupted itself giving handouts in trade for votes, France is working on the same and has IP laws worse than the US.

Everyone has their own issues to deal with before they go talking shit about someone else’s.

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