Why Dr. Devi Shetty Thinks It Isn't Wrong To Charge Rich Patients More


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H/T @Gautam__Baid for sharing this video interview of Dr. Devi Shetty.

Dr. Devi Shetty’s reasoning is extremely sound on why he thinks it is not wrong to charge rich patients more. Notice how Shetty talks about how this isn’t a zero-sum game and that everyone must work together to prevent deaths. This interview is a good supplement to the case study we provided on Dr. Devi Shetty in our book Standing on the Shoulders of Giants.

Below is the transcript (emphasis is ours).

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Dr. Devi Shetty: You see when you are looking at the complexity of the problems of the country, which is as big as India, everything works on cross subsidy. If you look at electricity, farmers pay very little for electricity charges, house rates pay a little bit more, industries pay five rupees per unit, and shopping malls and movie theaters pay eight rupees, ten rupees per unit.

 

The cost of production of electricity is the same. And MRPs to same, but the cost of sale varies depend on who is paying. So, if you remove the concept of cross subsidy in healthcare, essentially what will happen is, poor people end up paying more and the rich people end up paying less.

 

How our business model works in India, as a private healthcare provider, we just want 40% of the people to pay as a premium price for occupying single rooms with all the luxuries, we want them to pay the premium. In the process, today, most private hospitals in Karnataka State offer 20% of the services to the government patients and charge only 30-40% of what it costs to do the operation. They write off 60%.

 

Recently, IM Bangalore, with the instruction from the government, did a study on how much it costs for a joint replacement, for a heart operation, or a brain operation. They came up with a figure that the government is paying only 30% of what it costs to do the surgeries. Who's paying for the rest 60%? Hospitals don't print money. We charge a premium for the rich people and subsidize the poor people. That is only way a country like India can offer affordable healthcare to the masses.

 

Now if that concept is broken, we have no problem, the government can fix any price, but then it should be paying for what it actually costs, which they're not doing.

 

Speaker 1: Okay. Let me pose this into two buckets. One is the model that Narayana Hrudayalaya might have, and well known that you probably do what you just mentioned, which is charge a premium to rich patients and service a lot of poor patients at almost negligible costs as well. But that need not necessarily be the practice that hospitals across the board follow, wherein this whole popular sentiment comes in that why charge an exorbitant price to the maximum retail price at the hospital counters. Let it be at a much lower price than what it is being done right now.

 

Dr. Devi Shetty: There are 800 hospitals, big and small hospitals, in State of Karnataka, offering services to these poor people. You're drawing conclusions based on few anecdotal stories happening in Delhi, Bombay, or somewhere else. That is not India. Don't generalize looking at the healthcare. More than 90% of the hospital do exactly what NH does. We take care of the poor. It you don't take care of the poor, we have no customers. Essentially, majority of the hospital cross subsidize the poor people by charging more to the rich people for the service we are offering.

 

It is not that we don't offer the services. They stay in a single room with all the personalized services, different type of food, everything is done in priority, but they are to pay. You can't charge them on their bed charges alone. There are multiple ways we used to charge them before. Now, we have to shift all those charges to the services instead of collecting a percentage in whatever implants and other things what we use. We have absolutely no problem. We will do exactly what the government wants to do, but they should understand the consequences. That's all.

 

Speaker 1: Okay. Fair call. Let me ask you, since you are also a listed stock, and we're talking about on a business news platform, if indeed there are more price caps announced. I'm not privy to any such move. I'm not making any kind of conclusion out here as well as to what is right or what is wrong, Dr. Shetty, but if indeed there is a cap that comes in on more devices, does this impact the business model of a player like Narayana Hrudayalaya?

 

Dr. Devi Shetty: First of all, you have to understand that the government is not the irresponsible organization. They're aware more than 80% of the secondary care, more than 90% of the tertiary care today happens in private hospitals. They're aware of this. They were reacting to the public sentiment. As the government, they have to react, and we have given them enough fodder to attack us and they were posed to attack us. I'm not disputing that, but the time has come for us to sit together and start discussing about how do we go forward. That is going to happen.

 

Don't think that the government does everything the way they want without really having consideration of the consequences. You must realize that Indians today, one day they can decide not to use mobile phone. Fine. Nobody's going to die if you don't use mobile phone or a new car, but when you develop a burst appendix or a heart attack, you can't say that, "I'm not going to hospital." How many government hospitals can offer services? The vacancy for a specialist in a government hospital is 80%. Nothing, no procedure gets done in a government hospital. This fact is known to them.

 

Essentially government is a responsible organization. They will do everything, taking all the stakeholders into confidence. I'm confident because I've been working with them for the last 20 years. A lot of positive things they have done to help the health sector.

 

Ira: Dr. Devi Shetty, good morning. This is Ira, joining in as well. Dr. Shetty if I my question is going to sound very simplistic. I don't cover the healthcare sector, but I cover the finance sector. I'm drawing a very broad comparison to the rhetoric we have seen many times in the past on something like interest rates that are charged to the rural people, through microfinance, etc.

 

The reason I'm doing that is, that too was a case of public uproar. The industry made similar arguments as to subsidizing and the charges of delivery, etc. Eventually, the solution that was found was somewhere in the middle, which was looking at margins that are charged for various services, in case as well. I'm wondering whether that is the middle part that both the medical fraternity and the government would be willing to look at. Not look at absolute price caps, perhaps, but look at margins that are okay to charge. Do you think, as you look for a solution, that is the route to go down, sir?

 

Dr. Devi Shetty: Definitely. There has to be a realistic MRP. We don't fix the MRP. Government has to fix a fair MRP, which is fair to the patients, which is fair to the manufacturers, and it is fair to us. Essentially, we will be hitting the middle part and life will go on with all the stakeholders being happy with whatever we want, because this is not a zero sum game. It's not like one person wins all.

 

I'll ask you one question. You all run discussions on businesses. Tell me, which is the largest industry in the world in money, in terms of money spent? It is the healthcare industry. Healthcare industry is at eight trillion dollar.

 

People think IT is big industry. It is hardly 3.5 trillion dollars. Oil and natural gas is two trillion dollar. Automobile is two trillion. They're nothing compared to us. We are the largest employment generator today in the world. You look at automobile industry. Everybody talks much about automobile industry. Look at the top automobile industry in the country, [inaudible 00:10:14] Suzuki. How many people they employ? With over 70,000 crore rupees, 66,000 crore rupees revenue, they hardly employ 13,500 people. I, as a chairman of Narayana Hrudayalaya, we have hardly 2,000, 2,000 odd crore rupees revenue, and we employ 15,000 people.

 

What is important for the country? It is the employment generation and healthcare of the people. We are the largest, and we are going to be the largest, employers. I don't think any government will be irresponsible enough to attack this industry. Whatever is happening, it is partly our fault. I'm not blaming the government. We have given them enough fodder to attack us. Fine. Whatever has happened has happened. Now, sanity will prevail from both sides. Hospital will not take advantage of our unique position, and there will be some middle part we all will learn to walk, because this country's only future for creating 300 million job is this industry. That is healthcare industry. I'm optimistic that every regulation governing the healthcare industry will change so that private enterprise will come forward and build three million new beds, what is required, to take care of the healthcare of this country.

 

Ira: That point is taken, Dr. Shetty. You're an important employment-generating industry. That point is taken. Unfortunately, you're not a discretionary industry. As a government, they perhaps have to keep in mind that healthcare is not a discretionary service. Given the state of our public healthcare, you need to be in a situation where the private healthcare is also playing along. I'm not saying that you are, or one hospital is, but you can't as a whole be seen as a profiteering industry, I presume.

 

Dr. Devi Shetty: You have access to all the listed companies' financials. Look at the margin created by healthcare industry. Compare them with any other industry. Honestly, do you think this industry's profiteering? This is the most complex industry in the world to run. In which industry, when you talk to your clients, you talk about the death? One of the consequence of our service is death. Which industry talks about it? We're dealing with human life. This is a complex industry and look at the margin what we create. Where is a profit? Where is profiteering?

 

Essentially, I'm not concerned about the big hospital groups like ours. We will survive. We will grow, but we don't want to grow at the expense of thousands of small hospitals in tier two cities, to die. That will be a disaster for the country. Today, bulk of the healthcare is not taken care by listed corporate entities. We don't even comprise 1% or 2% of the bed population of the country. It is the 60-bed, 50-bed nursing homes in tier two, tier three, cities who are actually offering the healthcare of the country. If the government insist on having a first-world regulatory structure, with a third-world infrastructure, they will die. In the process, we will get benefited, but we don't want that to happen. We want those people also to survive.