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Step 1: Low-cost providers 

Low-cost providers come in many shapes and sizes. The models they use to generate the required economies of scale are dictated by the size and nature of the markets they serve.

Whatever model is chosen, however, there is more to low-cost provision than merely keeping input costs as low as possible – it is much more about how resources are used.


We looked at the strategy in a number of providers and found the following common features:


  • A willingness to challenge accepted approaches
  • High-quality leaders with a strong vision
  • The development and rigorous application of a methodology by skilled professional management
  • Detailed attention to input costs – workforce, supplies, buildings and technology
  • Systematization, simplification and standardization of many aspects of services, processes and ways of working – including some limits to clinical autonomy
  • Making bold and imaginative use of technology
  • Learning, experimentation, continuous improvement and using feedback and information to support this
  • Providers who have chosen to focus on a narrow range of services or population.

Figure 1


In a number of cases there is a mix of provision for the poor and the better off. This allows high volumes that create efficiency. The case of Narayana Heart Hospital clearly stands out in this regard, where heart surgeries are offered to the population below the poverty line at a price that is subsidized by medical tourists and the better off, who pay above cost.

 

“Providers in India must now become more consumer-focused, more commercial and better able to develop models that respond to different levels of willingness to pay among the populations they serve.”

- Amit Mookim, Partner, KPMG in India

There is often deliberate cross-subsidization, careful targeting of the market and a focus on underserved populations. These strategies are very similar to those described by Clayton Christensen in other industries that have found their business models challenged and disrupted.


Four key areas where providers need to focus to succeed:


  1. Be clear about the patients to be served and the business model
  2. Have highly efficient processes based on standardization and flow
  3. Develop models for workforce, technology, buildings and logistics that drive quality and lower costs
  4. Create systems to manage this and drive continuous improvement


We now look at each of these areas in detail as they apply to the following components:


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Necessity: the mother of innovation

Necessity: the mother of innovation
Based on the expertise of 75 healthcare leaders, this report explores the challenges emerging health economies face in delivering high-quality, cost-effective care.
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