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Double Vision:

Making Eye Care Accessible


through Cross-Subsidization

04/2015-6124
This case was written by Ridhima Aggarwal, The Salmon and Rameau Research Programme Manager with the
Healthcare Management Initiative, under the supervision of Stephen E. Chick, Novartis Chaired Professor of
Healthcare Management and Professor of Technology and Operations Management, both at INSEAD. It is intended to
be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an
administrative situation.
Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at
cases.insead.edu.
Copyright 2015 INSEAD
COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, REPRODUCED OR DISTRIBUTED IN
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Sankara Eye Care had expanded at rapid pace between 2002 and 2014, growing from a single
hospital performing 30,000 surgical interventions to nine community hospitals performing
150,000 interventions annually. Continued expansion was forecast with the aim of scaling to
20 community hospitals by 2020, a goal Sankara referred to as Vision 20/20 by 2020.
Services were offered through a hybrid financing model, whereby 20% of its patients
subsidized care for the other 80%, generally the rural poor.

Over the past decade, driven by its mission to perform half a million free surgeries per year
through a financially sustainable model, Sankara had implemented significant transformations
new processes and procedures, standardization, rebranding, and accountability to improve
productivity and keep costs down across all aspects of the value chain. Changes to the
leadership structure were followed by revised performance evaluation tools such as the
balanced score card, combined with key performance indicators. With two new locations
scheduled for launch in 2016, achieving the goal of 20 locations by 2020 meant that Sankara
had to move from opening one new hospital every three years to two new hospitals annually,
and all this had to be done while preserving its lean operating model.

Visual Impairment1
In 2013, 285 million people world-wide were visually impaired, including 39 million cases of
blindness and 246 million suffering from poor vision. Of the 39 million, 15% (6 million) were
from Africa, 2.7 million (7%) from Europe, 23 million (67%) from Asia, 3.2 million (8%)
from the Americas, and 5 million (12.5%) from the Eastern Mediterranean.2 82% of the blind
were over 50 years of age. While age-related macular degeneration (AMD), glaucoma and
diabetic retinopathy were the leading causes of blindness in developed countries, in the rest of
the world cataract (47%) was the major cause. Except for AMD, most of these conditions
were considered avoidable.

Cataracts

Sankara offered treatment for eye problems ranging from cataracts to ocular oncology and
LASIK (laser vision correction). Cataracts, which accounted for 90% of surgical procedures,
are due to the blurring of the lens in the eye. In a normal eye, the lens focuses light or an
image on the retina, which triggers a nerve signal to the brain. In cases of cataracts, the lens
becomes cloudy and transmits a blurred image to the retina. Surgery is performed to replace
the opaque lens with an artificial transparent plastic intraocular lens (IOL) when vision loss
interferes with daily activities such as watching television, driving and reading. Clinical
intervention is recommended for patients with mature cataracts or early-stage cataracts when
traditional approaches (new glasses, brighter lighting, anti-glare sunglasses or magnifying
glasses) are not effective. It is a commonly performed procedure under local anesthesia. Over
90% of patients reported improved vision post-surgery.3

1 World Health Organization, www.who.int.


2 According to the WHO, Eastern Mediterranean refers to Bahrain, Cyprus, Iran (Islamic Republic of),
Jordan, Kuwait, Lebanon, Libyan Arab Jamahiriya, Oman, Qatar, Saudi Arabia, Syrian Arab Republic,
Tunisia, and United Arab Emirates.
3 National Eye Institute, U.S. Department of Health and Human Services. Cataract, what you should know.
NIH 03-201. Available at http://www.nei.nih.gov/health/cataract/webcataract.pdf.

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Different types of surgery could be performed to remove cataracts: (i) phacoemulsification or
phaco, (ii) small incision cataract surgery (SICS), and (iii) extracapsular cataract extraction
(ECCE). While all three are extracapsular procedures, each varies in the method of
administration and recovery time. In phaco, a small incision (2.8-3.2 mm) is made on the edge
of the cornea to insert a tiny probe that emits high frequency ultrasound waves to break up the
lens into small pieces, which are removed using suction.4 SICS is a manual extracapsular
procedure that requires a 6-7mm incision in the sclera. ECCE involves a longer incision
(10mm) in the cornea to remove the cloudy lens in one piece, which is replaced with an IOL
to help focus light onto the retina.

Most surgeries, particularly in high-income countries, involved the more expensive phaco
method, necessitating specific training and costly equipment, although instruments could be
reused. It took 15-30 minutes to complete and patients experienced an immediate
improvement in vision following the procedure. SICS was more cost-effective, involving
simpler instruments and a faster learning curve than phaco. It took less time to complete (8-10
minutes) and patients experienced immediate improvement. ECCE required one hour to
administer the procedure and recovery took 6-8 weeks. Sankara performed all three
procedures, with SICS being most commonly used.

India

With 1.2 billion people, India was the second most populous country in the world after China.
It had 7.8 million blind people (20% of cases world-wide), of which 67% were cataract cases,
19.7% refractive error, 5.8% glaucoma and 0.9% corneal blindness. In India the prevalence of
blindness was 1%,5 compared with between 0.15 and 0.25% in Europe and around 1.5% in
Africa and Asia). 30% of the population received free care through NGOs (non-
governmental) and voluntary organizations, while the remainder went through private and
public channels. 86% of healthcare expenditure was financed out-of-pocket, and less than
15% of Indians were covered by state-sponsored or commercial insurance. Country-wide,
blindness caused an estimated $1.8 billion in economic losses annually.6

Sankara Eye Care


History

Dr R.V. Ramani (Dr Ramani), son of a well-known physician from the city of Coimbatore (in
the state of Tamil Nadu), along with his wife Dr Radha Ramani (Dr Mrs Ramani), ran a
successful medical practice in the early 1970s. Inspired by the generosity of his father and the
will to do good and do more, Dr Ramani was presented with an opportunity when a local
temple was looking to set up a health centre to treat the rural poor.

Sankara Eye Care began as a 100 sq. ft. primary care clinic called Shri Kanchi Kamakoti
Medical Centre in 1977. Dr Ramani volunteered his time to coordinate the effort, recruit

4 The procedure was similar to microincision cataract surgery (MICS), but involving an even smaller incision
of 1.8-2.2mm.
5 2006-07; National Programme for Control of Blindness (NPCB), Ministry of Health & Family Welfare,
Government of India.
6 Estimated in 2000; data provided by Sankara Eye Care.

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physician friends and colleagues to donate their time and provide free care to the underserved
population of Coimbatore. Patients were charged 50 paise (or half a rupee) for medicines, so
the centre was not viewed as another free government hospital (which was perceived to
deliver low quality care). Dr Ramani opened a bank account with 10 cents (in 1984 USD),7
which continues to exist today. Through increased volunteer time and donations, the care
model was replicated across nine centres in partnership with various industrial establishments.
The initial team of ten physicians developed into a highly trained and diverse group of 75
doctors who treated 1,000 patients per day.

Following government efforts to expand primary care for the general population in the early
1980s, Dr Ramani and the team decided to abandon general practice and focus on eye care for
two reasons: (1) there was a significant need for free eye care in India; and (2) treatment made
an immediate and notable difference to peoples lives. He was seeking resources for
expansion when his neighbour donated over five acres of land in a remote part of Coimbatore.
Dr Ramani raised additional funds to build the first hospital there. When asked about his
commitment to the cause, he recounted the following story:

In 1996, we treated a 3-year old boy who was permanently blind in one eye, and
had a 2% chance of regaining vision in the other. We kept him at the hospital for
three months until we found a suitable eye. Following surgery, we went to check
up on him and saw him sitting quietly in his bed as he moved his hand up and
down in front of his eye for ten minutes; he had seen light and movement for the
first time since he was born.

The first Sankara Eye Hospital, a 500-bed facility, was established in 1984. It was registered
as a public charitable trust, while operations were carried out as Sankara Eye Care Institutions
(SECI). Treatment for the following conditions was offered primarily on a free basis:
cataracts, refractive errors, glaucoma, corneal blindness, posterior segment disorders, laser
vision correction, diabetic retinopathy, paediatric ophthalmology, and an eye bank (see
below and Exhibit 1).

By the late 1980s, Sankara was struggling to meet the demand for eye transplants. On
average, it received one pair of eyes per month, and the time lag between
death/transport/transplant as well as inadequate information on the quality of the eye posed
significant challenges. The hospital relied on Sri Lanka (an island state off the southeast coast
of India) for eye donations, as did much of India at the time. Over 70% of Sri Lankans were
influenced by Buddhism, which regards donations to save another life as a noble gift;
commonly held misconceptions about organ donations in India resulted in a relatively low
number of eye donations domestically. This motivated the founders to open an eye bank in-
house; by 2014 Sankara was receiving one pair of eyes a day.

The hospital also executed large-scale preventive screening programmes for families on low
incomes. Community outreach was conducted as part of the Gift of Vision programme,
launched in 1990, to help identify patients suffering from poor vision in rural villages. Local
women and young people were hired to survey the population to detect patients with vision
problems. Other programmes soon followed, including Rainbow in 1992 to screen and treat

7 In 2014, $1 USD was worth 60 Rupees.

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curable visual defects among school children aged 5-18, and a diabetic retinopathy
programme in 2007 to reach patients in villages and help get their diabetes under control.

Initial Growth and the Situation in 2014

Sankara used a hybrid revenue model to subsidize care for the non-paying or free patients,
most of whom were from rural locations. Leadership was keen to keep services completely
free on the non-paying side because even a small charge, they felt, would exclude the poorer
segments of the population. It was particularly difficult for rural women to access care and
55% of non-paying patients at Sankara were women. Differential pricing was applied to
surgery for paying patients with respect to amenities, such as the type of IOL and
accommodation. While the cross-subsidy model was not new in the healthcare sector in India,
Dr Ramani emphasized: Sankaras 80/20 hybrid model was possibly the highest leverage
cross-subsidy model in community eye care worldwide.

The operational model included three different categories: integrated, community, and
city hospitals. The integrated model, adopted in the founding years, catered to paying as
well as non-paying patients (the latter through community eye care). Over time Sankara
evolved into a split model in some states, where city hospitals served more affluent patients
on a paid basis and community hospitals looked after the rural poor at no cost. The dual
strategy was perceived to allow each type of hospital to better target the community it served,
and reduced the capital costs (e.g. of land and construction) for setting up community
hospitals (see Exhibit 2). By 2014, nine integrated or community hospitals and five city
hospitals were in operation, though city hospitals were regarded as a means to achieving self-
sufficiency; 11 more community hospitals were needed to fulfil the 2020 vision. (See
Exhibit 3)

Competition was robust and included private single-specialty providers engaged in


community eye care, premium multi-specialty hospitals, small eye care clinics, and local
NGOs. The different players offered a combination of community eye care, rehabilitation,8
research, and educational training programmes. Aravind Eye Care, based on a similar hybrid
model, offered a range of services from eyeglasses to tertiary care along a spectrum from free
to full pay across southern India. Some of its entities were for-profit and some were not
directly owned by Aravind. In 2012-13, Aravind performed 90,000 free surgeries. Another
eye care provider, Sankara Nethralya (SN), had locations across Chennai and Calcutta and
focused on research, education and training. Community eye care services were mainly
limited to walk-in patients; 16,653 free surgeries were performed there in 2012-13. LV Prasad
Eye Institute (LVPEI), in southern India, had a multi-tiered model focused on providing care
at different levels from primary to tertiary, in rural areas, along with a strong focus on
research and rehabilitation. Approximately half of all surgeries (39,358) were performed at no
cost to patients in 2012-13.

As the largest community eye care provider with a national footprint, however, Sankaras
primary focus was care delivery, with 150,558 free surgeries performed in 2012-13. Other
major eye care providers such as Sri Sadguru Seva Sangh Trust (SSST) performed fewer than
100,000 surgeries annually across India. (See Exhibit 4)

8 Supporting people with permanent visual impairment to acquire daily living skills and other activities.

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By the end of 2013, Sankara hospitals had screened 370,000 adults and 450,000 children, and
performed over 1,014,728 surgeries, about 80% of which were free to patients (see Exhibit 5).
Dr Mrs Ramani led Sankaras training programme and was instrumental in preserving the
organizations culture among employees (particularly new hires) as expansion continued
across India.

Over the years, Sankara had been invited by governments and various institutions in
Cambodia, Nepal, the Seychelles and Nigeria to help them replicate its sustainable business
models for community eye care, particularly to provide clinical training for phaco and the
development of human resources. In 2014, Sankara, along with an academic partner, began
discussions to enter a two-year partnership with Botswanas Ministry of Health to train
physicians in the SICS method to alleviate the backlog of patients requiring eye care services.

Community Outreach and Eye Camps for Non-Paying Patients


Since its launch, Sankara insisted that non-paying patients be identified through community
outreach (e.g. eye camps) rather than a walk-in model. Lack of awareness and resources to
travel to hospitals were identified as the most significant barriers to access among the
underserved population. Some organizations (prior to Sankara) had performed surgery
directly at camps, making it difficult to monitor quality, and the Indian government had
subsequently banned surgery in the field. In this way Sankara could control the volume of
non-paying patients to ensure they were operating at the desired capacity.

Non-paying patients were referred to hospitals primarily through eye camps, which were
routinely conducted on weekends across the various states. Teams of nine camp organizers
(two ophthalmologists, lab and general technicians, a camp organizer, and a driver) travelled
in buses two to three times per week to multiple sites within a 180 mile radius of hospital
locations. Camps were often held in village schools, and the same sites were reused when
possible. The team worked with cosponsors and local organizers on the logistics. Outreach
activities began approximately eight weeks prior, with visits from field workers to families in
villages for initial screening. Each surveyed family member with vision problems was given a
yellow referral card, which they were asked to bring to eye camps for further examination by
doctors.

For example, of 10,000 people selected for screening from multiple campsites, approximately
500 would be given referral cards over the eight-week period based on average incidence.
Doctors and vision care technicians then assessed the 500 patients at camps, and 150-200
would be further examined for blood pressure and general surgical fitness. These patients
were then selected for surgery and brought to the base hospital for treatment. News about eye
camps was conveyed through public announcements, wall posters and pamphlets a week prior
to camp day in order to spread the word. Walk-in patients from neighbouring villages who
were not covered by household surveys were directly screened at the camp. (See Exhibit 6)

Sankara made a continuous effort to ensure that camp operations ran smoothly, particularly
since patients faced long queues to register via a manual paper-based process. An external
firm worked (on a pro bono basis) to develop automated tablet-based registration software to
ease the bottleneck. The software was piloted in July 2014 at some camp locations in

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Coimbatore, and camp organizers used hand-held tablets for the first time to register patients,
but further iterations were needed to perfect the software.

Patient Flow

Every alternate day from Sunday to Thursday of each week, non-paying patients from rural
villages were brought in Sankara buses from campsites to base hospitals for supplementary
screening, testing and surgery. Upon arrival, pre-printed case sheets and ID cards with bar
codes were handed to patients during registration. Prior to 2011 camp attendees waited for
hours while these documents were manually prepared after people arrived at the hospital.
After registering, patients were moved to common wards, each accommodating 50 or more,
on the third floor of the wing at the Coimbatore hospital.

The next morning the patients were taken to the second floor for more detailed screenings,
including refraction and lab tests. With multiple stations set-up, patients ID cards were
scanned as they completed each step to document their progress. Those deemed fit were
moved to the first floor for pre-surgery preparation, followed by the operating theatre (OT) for
cataract surgery (see Exhibit 7). The OT was set up as an assembly line to accommodate eight
to ten patients at any given point in time. Two patients were assigned to each of the five
operating stations with a fixed microscope that shifted left or right to treat a patient having a
left eye operated next to a patient with right eye marked for operation. Seven to eight
procedures were performed per hour. Immediately after the surgery, patients were taken to
shared recovery rooms on the third floor for postoperative care. Upon discharge on the third
day, they were given progress reports and driven back in buses to their villages. A review
camp was conducted one month after surgery in the same location as the previous camp to
assess post-operative vision. When patients failed to turn up as planned, field workers
contacted them over the phone or conducted follow-up visits at patients homes to examine
their visual acuity post-surgery. At six months, a socioeconomic development assessment was
completed for a sample set of patients to continue tracking their progress and integration into
the workforce.

Walk-in patients were treated strictly as paying patients to eliminate the need for an economic
assessment of their financial status on arrival. Paying patients made up approximately 20% of
the patient population across all Sankara locations. The care pathway was similar to that of
non-paying patients (see Exhibit 8), though they were housed in a separate wing of the
hospital with different amenities, including the choice of IOL implants, private or semi-
private rooms (shared with one other patient in cases of a subsidized surgery package), food
service, and smaller OTs designed for individual patients. Each integrated hospital was laid
out in an H-form, where paying/non-paying patients were in separate wings.

Cross-Subsidization and Cost Management


The founding hospital in Coimbatore had been in operation for 14 years, running successfully,
with the vast majority of patients non-paying. When Sankara had first opened its doors in the
1980s, a government subsidy of approximately $10 per free surgery from the National
Program for Control of Blindness (NPCB) was sufficient to cover the costs of non-paying
patients, so the hospital made no attempt to solicit paying patients as revenue generation from
this channel was not a priority at the time.

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By the late 1990s, however, inflation along with real estate prices had risen rapidly, whereas
government subsidies only increased at a minimal rate. In 1998, Sankara Eye Foundation
(SEF) was established in California, U.S., to raise funds to support its mission in India. Board
member Sundar Radhakrishnan, CEO of VARStreet Inc. and founder-director of Mastek
Limited, based in the US, recalled:

When I first visited the Sankara hospital in Coimbatore in 1997 I was quite
impressed. Everyone from the driver to senior managers to the top-level
management was aware of the mission and the target number of surgeries for the
year. The level of alignment was similar to what I had seen at Microsoft when I
interacted with them.

Fundraising efforts in the US proved successful, but volunteers at SEF had bigger ambitions
as the incidence of avoidable blindness extended far beyond Coimbatore to much of India. By
2013, SEF was raising an average of $3.5 million annually, mostly used to support capital and
operational deficits of Sankara hospitals. Now, 25 years after launch, SEF and its volunteers
pressed Sankara to spread the movement to other states and cities.

In 2000, Sundar and the SEF team worked on a business plan. When they had run the
financials, they found that each new hospital would be operationally self-sufficient in five
years if 10-15% of surgeries were funded by patients. The goal was to perform 25,000 free
surgeries per year across all locations: at 12%, 3,000 paid surgeries were deemed adequate to
support the goal.

Dr Ramani, however, did not immediately embrace the idea of expanding operations. He had
a number of reservations. Furthermore, the Coimbatore location was performing well, and he
was inclined to continue managing that operation. Around the same time, he had the
opportunity to visit the SEF team in the US to meet the board and volunteers. In addition to
hearing their arguments that expansion was feasible and attainable, he was reinvigorated by
the passion and drive of the volunteers. He came to see that while running a dual model
paying and non-paying had its challenges, if executed appropriately it could be very
rewarding.

Vision 20/20 by 2020 was adopted in 2002. SEF received a string of donations from natives
of the Indian state of Andhra Pradesh, who wanted to see a Sankara hospital in their state. The
city of Guntur was chosen as the first pilot location for expansion. Geographical accessibility
(for paying patients) and visibility from highways were key considerations in choosing the
location for the new site.

The cross-subsidy model was operationalized in Guntur based on calculations that self-
sufficiency was attainable if the hospital accepted a portion as paying patients. The plan was
that each new community hospital would be supported (to cover operational deficits) for a
five-year period, after which they were expected to be self-sustainable. The idea of having a
formal paying section at the Guntur hospital meant significant changes to the Sankaras
formative charity model.

Dr Ramani believed Sankara should remain a free hospital and that establishing a formal
paying section would be detrimental to its image. SEF built a case to show him and the team
in India that a formal paid patient segment was important to attain self-sufficiency, and allow

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Sankara to widen its reach to more rural poor through growth and expansion. An integrated
hospital for both paying and non-paying segments was inaugurated in Guntur in 2004. By the
time this second hospital became operational, a target of 20% paid surgeries was deemed
more appropriate for attaining financial stability (see Exhibit 9).

The organizations core objectives resurfaced at internal brainstorming sessions. Sundar and
other senior members contemplated whether they were wedded to the 25,000 free surgeries
target or sustainability at any cost (potentially a lower number of free surgeries). It was
decided that they would not limit the number of free surgeries relative to the amount of funds
available, but instead maximize community work rather than artificially reaching
sustainability. For example, if 1,000 paid surgeries were performed, Sankara decided not to
limit their free surgeries to 4,000. The organization would continue to perform free surgeries
and if the hospitals were not self-sufficient in the first few years, that was acceptable in the
near-term and donations could be used to cover the costs (See Exhibit 10).

Organizational Redesign and Expansion


If Sankara built one hospital every five years, funding was required to cover capital needs (not
operational deficits), but one hospital was being scaled every two-and-half years and funding
for operational deficits was maintained at a manageable level. Volunteers continued to raise
funds and new donors from Gujrat and Punjab were keen for Sankara to open hospitals in
their respective states. Vision 20/20 by 2020 was no longer a slogan; it had become an
operations strategy. The immediate need for eye care in the two states was not as high as
some other states, but a decision was made to expand nonetheless, largely driven by donor
interest. Dr Ramani engaged in discussions but did not immediately commit, believing that
simply having the funds did not make growth a necessity.

Approximately once a year the SEF board met with Sankaras management team in India to
discuss strategy and future plans. A total of six community hospitals had been launched by
2008, including the cities of Anand (state of Gujarat), Shimoga (Punjab) and Bangalore
(Karnataka). At this point a majority of senior management believed that Sankara was
scalable and that vision 20/20 was attainable; it took eight years to buy into the strategy,
however.

The three hospitals were under construction simultaneously, and SEF was unable ramp up the
necessary funding required for completion of the buildings, which led to significant cash flow
problems. As a result, Sankara decided to borrow funds to avoid delays in construction.
Following this, the group adopted a new policy whereby construction of future hospitals
would only begin after 70% of the costs were secured. The team also soon learnt that location
of hospitals was a key factor contributing to the success of the paying segment of the
population. The 200-bed integrated hospital in Anand, located 10kms from the city centre in
the village of Mogar, struggled to meet revenue targets one year after opening. Patient surveys
revealed that inaccessibility and inconvenience were the biggest barriers.

With six hospitals in operation, issues of accountability quickly became apparent. In late 2007
and early 2008, C. N. Srivatsan, another SEF board member and former consultant (based in
India), felt that the organization had grown substantially larger and new solutions were
needed to improve processes. Following the launch of the three hospitals, he introduced new

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protocols in 2009 including evaluation tools such as the balanced score card (BSC) for
monitoring performance and subsequent key performance indicators (KPIs), monitored on a
daily basis for each of the five departments9 (see Exhibit 11). He recalled:

I was the most unpopular guy on the team because I looked at things from an
operational efficiency standpoint. I wanted to introduce new processes. KPIs and
BSCs led to a numbers of positive changes within the organization.

Under the traditional system, patients were provided with food and accommodation, and they
often stayed at Sankara for four days. One of the KPIs was the length of patient stay/delay in
patient discharge from the hospital. As a result, staff were educated on the costs involved in
accommodating patients for each extra day post-surgery, turnaround times, and the impact on
taking on new patients, through a series of meetings and workshops. Inpatient stay was
subsequently reduced to two to three days, depending on patients travel time.

The leadership team reached another crossroads at this point with 14 more community
hospitals remaining to be built to fulfil the 2020 vision. Government subsidies and donations
were insufficient to cover deficits in the first five years of new hospitals. In order to continue
scaling and to meet annual targets for non-paying surgeries, Sankara had to rethink its
strategy.

Concerns were also looming that the Sankara brand would lose credibility if it was unable to
deliver on the big vision. At the same time, ramping up paying patient volume meant the
hospital needed to improve its marketing efforts while retaining its charity image. The group
laid out a new business plan, and, under the direction of Srivatsan, the senior team evaluated
the possibility of testing a split model, with city (for paying patients) and community hospitals
(non-paying patients) replacing the integrated model in some markets as a new strategy for
scaling up. This would allow Sankara to promote city hospitals to the wealthier segment of
the population independently of the community hospital.

The two hospitals under the split model were expected to jointly reach self-sufficiency in 18
months, whereas integrated hospitals took approximately five years. The aim was to target
marketing campaigns directly at the paid patient segment to improve revenues. Integrated
hospitals were located 10-15kms outside the city (to benefit from lower real estate costs) and
the location was often inconvenient for paying patients. Despite its potential, the board
resisted the idea of splitting up the joint integrated hospital, especially given Sankaras image
as a charity hospital (building a paying hospital in the city would hurt the core mission), as
well as having concerns over the duplication of resources.

Since the initial expansion had been so successful it was difficult for management to see the
need to change strategy for the future. Moving to the city hospital model had several
implications, particularly for funding and physician motivation. Sankara could not ask donors
to fund paying hospitals, so the leadership team had the idea of debt financing to cover costs
in the initial 18 months. Management was concerned that the split model would lead to inertia
city hospital physicians would refuse to work in community hospitals but physicians
showed a strong interest in working in both settings. Community hospitals offered patient
diversity and high volumes to hone their clinical skills; city hospitals were less demanding.

9 Technical, Business Development, Outreach, Human Resources, and Finance

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Sankara decided to test the dual city and community model with an embedded constraint the
hospitals had to be within 9-12 miles of each other so that doctors could rotate between the
two. There was a dual benefit involved: it allowed the group to focus on promoting the city
hospital so it could attain self-sufficiency earlier, while the community hospital location
(away from the city centre) meant lower capital costs. The approach did not impact access for
non-paying patients as they were recruited through outreach programmes and brought to
hospitals by Sankara for treatment. Physician salaries remained unchanged.

The first city hospital model was piloted in Coimbatore city centre (15kms from the
community hospital) in 2011, and attained self-sufficiency within 18 months.10 The initial
results seemed promising and an exclusively paying hospital in Mumbai (Maharashtra) was
inaugurated in December 2013, though it was not operational until April 2014 due to delays in
regulatory clearances.11

Initial reports from a third city hospital launched in Kanpur (Uttar Pradesh) in early 2014
brought new issues to the attention of Dr Ramani and the board. Doctors from the city
hospital were reluctant to attend the community hospital for several reasons including the
distance between the two. Patient volumes in the first few months were below target. While
management monitored progress in Kanpur, the Steering Council was already discussing its
strategy for future openings, particularly in states where land had already been acquired. One
option was move to a tower model with city and community hospitals on separate floors of
the same building, in a location closer to the city centre than community hospitals had
traditionally been. Some board members felt the dual-location model still made sense and that
more time was needed to make a thorough evaluation.

As Sankara ramped up expansion through the dual model, several initiatives were
implemented to support the increasing number of hospitals. Issues of governance became
more complex, leaving the central governing team Apex12 thinly stretched. Many of the
members viewed the management of strategy and execution by the same leaders as a
stumbling block. The Apex team was dissolved and split into two separate groups: a Steering
Council13 to develop strategy and a Leadership Council14 to manage operations alongside the
individual departments. The aim was to strengthen the governance framework and better align
management functions.

Between 2009 and 2014, the Sankara group expanded to eight additional locations, including
three community hospitals Rishikesh (Uttarakhand)15, Ludhiana (Punjab), and Kanpur
(Uttar Pradesh) (see Exhibit 3). A total of nine community hospitals were now in operation,
with six years remaining to fulfil the 2020 vision.

10 The founding (integrated) hospital located on the periphery of the city continued to also see paying patients.
11 Mumbai is the only location that has a city or paid hospital alone without a community hospital.
12 Comprised of ten members including Dr Ramini, Dr Mrs Ramini, and Srivatsan.
13 Comprised of four members including Srivatsan and Sundar, with responsibility of overseeing the
institutional performance as well as the Leadership Council.
14 Comprised of the Dr Ramini and Presidents of the six functions: Medical Administration, Quality,
Education & Training; Community Outreach and Information Systems; Finance, Accounts and
Procurement; Paying Patients (segment); Human Resources; and Projects (hospital expansion).
15 Not owned but fully managed by Sankara since 2010.

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Operational Strategy and Financing
Apart from surgery, revenue streams for paying patients included outpatient screenings and
optical and pharmacy sales, while government subsidies were the primary source of revenue
for the non-paying section. 60% of the total costs incurred were fixed, and approximately
80% of fixed costs were salaries and wages. Key drivers of variable costs for the paying
section were medicines, surgical and lab consumables, and IOLs. Additional variable costs on
the non-paying side included meals and transportation. The variable cost per surgery was
approximately $13. Operating at full or close to full capacity was therefore important to lower
the fixed cost per patient. Annual capacity at each hospital location ranged from
approximately 10,000 surgeries in Bangalore to 35,000 in Coimbatore (see Exhibit 5). Three
key sources of revenue for Sankara included paying patients (80%), government subsidies16
(10%) and other grants and donations (10%) (see Exhibit 9).

For the non-paying community business, metrics around productivity and volume were key to
keeping costs under control. KPIs tracked productivity along the entire supply chain, e.g., the
number of people that visited camps, the number of bus trips to and from camp sites, whether
the buses were coming back full, counselling patients with cataracts reluctant to travel to
hospitals, and examining patients accurately so they would not be denied surgery upon arrival
at the hospital due to other health problems such as diabetes or high blood pressure.

On the paying side, one of the goals was to improve outpatient consultations (or footfall)
such as screening, pharmacy and optical services. In addition to inpatient surgeries (reflected
in the 80/20 ratio), footfall among upper middle-class paying patients was a key revenue
generator, and footfall volume was therefore an essential metric. Another important element
was the footfall conversion the percentage of walk-in patients eventually returning to
Sankara for further treatment and surgery. A 100% conversion of footfall meant that revenues
from outpatient consultations were eliminated and the hospital was perceived as a specialist
surgery centre.

The hospital thus made a significant effort to ensure that marketing was targeted at ensuring
good conversion but also generating adequate volume of footfalls. Its conversion rates were
similar to those of their competitors but still not at target. Recent marketing campaigns were
aimed at building longer-term relationships with people attending outpatient facilities, for
example, preventive care where people with diabetes were reminded to get yearly check-ups.

These campaigns were particularly geared toward cities such as Bangalore, a major
technology hub in India where a large portion of the workforce was aged 25-35, many newly
married with young children. When Sankara treated the children through their paediatric
programme it was an opportunity to build relationships with their parents, many of whom
potentially had parents with eye problems. In the early years of Sankara, marketing efforts
and public relations were not intrinsic capabilities.

Capital for new hospitals and operational deficits were primarily funded through donations
obtained by SEF, which accounted for 70% of all grant funding received by Sankara. In order

16 Over the years, government reimbursement increased from $10 to $16 per free surgery. Sankara received
approximately $810,000 per year, though this varied based on availability of funds and payments were most
often delayed.

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to scale up, existing hospitals were driven to financial self-sufficiency, while operating losses
(from new hospitals) were offset by grants. In financial year 2013-14, Sankaras income was
able to cover 90% of the expenses; the remaining 10% came from donations. In 2012-13,
16% was covered by donations. Capital costs for city hospitals were approximately half that
of integrated hospitals, in part due to the lack of beds needed in the former setting (see
Exhibit 2).

Three of the nine hospitals in operation were self-sufficient, and one more was expected to
attain self-sufficiency in 2015. Sankara also aimed to shed its dependency on donations
through newer models of financing and monetization of training programmes in the future.

Quality of Care and Patient Satisfaction


Staff at each hospital provided monthly reports on quality indicators such as surgical site
infection rates, incidences of adverse drug reactions and needle injuries, in order to monitor
the overall quality of care (see Exhibit 12).

The surgical success rate for cataracts performed using IOL transplantation on non-paying
patients at Sankara was 98.8%. In 2013-14, 91% of patients showed good vision acuity (6/6-
6/18) six months after surgery.17 In cases where there were intraoperative or postoperative
complications, these patients were tagged as must-review cases, and field workers were
required to take extra care in tracking their progress during the initial 30-day visit post-
surgery. Patient satisfaction improved from 85.4% in 2009 to 94% in 2013, partially attributed
to reduced wait times. Other parameters on the non-paying front included re-surgery rates and
delay in discharge due to logistics. The paying patient satisfaction rate was 97% in 2014.

Based on a third-party impact assessment, 95% of patients regained their independence post-
surgery and were able to perform basic tasks, 68% could do household chores such as
cooking, washing, and baby-sitting; over 64% returned to work within a few weeks of
surgery; 17% of patients reported an increase in income; and 96% of children attributed
improvement in academic performance to wearing glasses.

Looking to the Future


Eye care was the present and future for Sankara, and the hospital focused on promoting the
paying component in order to achieve financial self-sufficiency sooner and facilitate
expansion while steadily increasing the non-paying patient-base.

By 2014, Sankaras network consisted of nine community and five city hospitals in eight
states across south, west and north India. The dual city and community hospital model piloted
in Coimbatore was perceived as a success, location and ease-of-access being key factors. Six
additional community hospitals were planned for north, central and east India, including three
scheduled for 2016 (see Exhibit 13). The community hospital in Kanpur opened its doors in

17 Normal vision (measured at 6m) 6/6 to 6/18; Fair 6/18 to 6/60; Poor (measured at less than 6m) Less
than 6/60. From 5/60 onwards, patients are asked to count fingers in order to assess their visual acuity. 6/6
means at 6m, the patient could correctly identify a letter that a normal person sees at 6m. 6/60 means the
patient could only see at 6m what a normal patient sees at 60m.

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October 2014, and the dual model was adopted in Jodhpur (Rajasthan). Future expansion
targets included Indore (Madhya Pradesh) and Raipur (Chattisgarh) in 2017, where both the
incidence of blindness and poverty levels were high.

Worth an estimated $1 billion,18 Indias eye care market presented a significant growth
opportunity, particularly for single specialty institutions. With a network of nine community
hospitals, however, Sankara needed time to boost the paying component to have more
leverage to realize the 2020 vision. Cultural and language diversity across Indias 29 states
was another concern. Over the years the team had become increasingly aware of the vast
differences in poverty rates, social norms and physical infrastructure: success in one state did
not translate into success in other regions. Moreover, cultural differences during expansion to
the northern states had financial implications. Local sponsors of eye camps and other
activities in southern India more willingly supported the good cause (inspired by Sankaras
reputation); in the north, organisations tended to ask for financial compensation for those
same tasks.

Physician mobility between city and community hospitals, along with lower-than-expected
patient volumes at the city hospital in Kanpur were another concern. Management was split
on whether to continue the independent city and community build-out, explore the tower
model, or move in another direction. Sundar, the SEF board member, felt it was too early to
act on Kanpurs performance; the dual model intuitively made more sense as it offered
flexibility and was close to the target community. But as he prepared his case for the next
meeting of the Steering Council, he had to admit that further transformations and restructuring
of various aspects of the business were necessary for the next phase of expansion.

18 Burns, L.R. (Ed.). (2014). Indias Healthcare Industry: Innovation in Delivery, Financing, and
Manufacturing. New York: Cambridge University Press.

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Exhibit 1
Abbreviated List of Services at Sankara, by Location

1. Cataract and IOL clinic


2. Glaucoma services
3. Diabetic retinopathy
4. Ocular oncology
5. Cornea and refractive surgery
6. Vitreo retinal services
7. Paediatric ophthalmology
8. LASIK
9. Computer vision clinic
10. Contact lens clinic
11. Occuloplasty & aesthetics
12. Eye banking

Note: Medical Service implies that patients were only tested for a preliminary diagnosis at the location. Those requiring
treatment were sent to the closest Sankara base hospital.

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Exhibit 2
Costs Comparison for City and Community Hospitals in the City of Jodhpur

Note: Costs indicated above are as of 2013.

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Exhibit 3
Current Sankara Locations

No. No. of Paying Comprehen Preventive


Inauguration of paying section sive eye screening
State Location
Year free beds care
beds services
1 1977 Tamil Nadu Coimbatore 475 25
2 2004 Tamil Nadu Krishnankoil 200 12

Andhra
3 2004 Guntur 200 25
Pradesh
4 2008 Karnataka Bangalore 200 25
5 2008 Karnataka Shimoga 200 25
6 2008 Gujarat Anand 200 25
7 2010 Uttarakhand Rishikesh** 118 10
8 Andhra
2011 (Aug) Vijayawada* - 4
Pradesh
9 2011 (Dec) Tamil Nadu Coimbatore* - 11
10 2012 Punjab Ludhiana 80 20
11 2013 Gujarat Anand* - -
12 2013 Maharashtra Mumbai* - 14

Uttar
13 2014 (Jan) Kanpur* - 16
Pradesh

Uttar
14 2014 (Oct) Kanpur 200 2
Pradesh
*Exclusively paid city hospitals
** Not owned but fully managed by Sankara

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Exhibit 4
Competitive Landscape

Source: Sankara Eye Care

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Exhibit 5
Operational Performance: Numbers of Camps Hosted, Patients Screened and Surgeries Performed,
Non-Paying and Paying Patients, 2003-2014

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Exhibit 6
Community Outreach Camp Day in a City near Coimbatore Hospital
I. The camp is held at a local school.

II. Patients arrive at the camp site and wait to be registered.

III. A patient is examined for blood IV. Selected patients are brought to
pressure and general surgical the Sankara base hospital for
fitness. treatment.

Source: Case author

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Exhibit 7
Pathway from Screening Services to the Operating Theatre, Non-Paying Patients

I. Preoperative screening and diagnostics II. Operating theatre

III. Patients preparing for surgery IV. Recovery ward

Source: Case author

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Exhibit 8
Care Process Flow

I. Non-paying patients (Community outreach)

II. Paying patients

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Exhibit 9
Financials for Two Sankara Hospitals, USD$
I. Guntur

2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011-


2005 2006 2007 2008 2009 2010 2011 2012 2012-2013 2013-2014
Revenues - Paid Section

Number of Surgeries 575 980 1,420 2,274 2,586 3,128 3,934 4,954 6,618 7,757

Number of Outpatients 19,915 26,270 29,270 36,117 38,802 46,477 51,758 57,596 65,894 64,283

Outpatient Income 2,255,061 2,246,781 3,978,103 5,204,511 4,932,945 5,285,959 8,965,420 11,527,167 16,134,132 16,421,283

Surgery Income 3,901,970 6,911,141 10,228,365 16,725,990 22,039,792 34,180,180 44,255,119 61,398,892 85,973,073 106,792,056

Pharmacy contribution 227,065 370,573 438,783 649,838 1,298,507 1,541,985 1,763,817 1,860,524 2,746,820 2,698,621

Opticals contribution 211,366 519,389 996,365 1,322,260 1,540,417 1,974,090 2,072,582 2,540,582 2,288,420 2,926,277

Training and other income 101,213 234,585 15,000 60,000 234,388 827,349 625,555 622,464 443,694 521,374

Total 6,696,675 10,282,469 15,656,616 23,962,599 30,046,049 43,809,563 57,682,493 77,949,629 107,586,139 129,359,611

Revenues - Free Section

Number of Camps 59 64 61 67 110 145 150 138 103 93

Number of poor screened 23,149 26,581 21,353 24,771 55,811 53,082 51,701 21,431 50,276 45,221

Number of surgeries 7,202 9,990 10,625 12,089 20,799 21,997 25,527 27,543 27,379 23,661

DBCS Revenues - 2,613,950 4,572,975 3,097,651 4,502,242 13,507,680 10,883,875 18,082,625 6,277,550 9,958,275

Total Income 6,696,675 12,896,419 20,229,591 27,060,250 34,548,291 57,317,243 68,566,368 96,032,254 113,863,689 139,317,886

Variable Costs - Paid Section


Medicines, Surgical & Lab
consumables 651,845 883,374 1,400,084 1,851,424 2,925,022 2,924,623 3,733,886 6,246,896 9,328,002 10,970,660

IOL 618,150 1,188,486 1,775,596 3,493,939 5,081,154 5,140,024 5,896,928 7,778,666 10,049,344 12,406,402

Incentives - Doctors 3,650,944 6,477,035 6,426,099

Total 1,269,995 2,071,860 3,175,680 5,345,363 8,006,176 8,064,647 9,630,814 17,676,506 25,854,381 29,803,161

Variable Costs - Free Section


Medicines,Surgical & Lab
Consumbales 1,131,317 1,464,732 1,666,771 1,480,744 1,691,718 3,089,745 4,956,090 4,846,426 5,283,949 4,734,100

IOL 505,890 553,816 596,080 686,680 1,193,540 1,583,900 1,672,436 2,327,165 1,662,914 1,898,998

Spectacles 243,803 248,794 547,382 703,595 844,147 1,290,775 1,481,928 1,126,104

Cafeteria 763,943 851,522 1,141,977 1,415,562 2,103,479 2,295,708 2,628,612 3,116,773 2,737,033 3,507,792

Transportation 472,250 763,513 1,016,564 1,050,814 1,420,385 1,498,903 2,184,266 2,754,895 2,562,334 2,893,391

Incentives - Doctors 381,126

Total 2,873,400 3,633,583 4,665,195 4,882,594 6,956,504 9,171,851 12,285,551 14,336,034 13,728,158 14,541,511

Camp Expenses 31,950 63,716 88,176 84,619 37,188 83,274 56,670 118,144 168,811 78,485

Fixed Costs 9,509,336 11,620,476 15,991,464 20,491,441 21,419,974 28,679,489 38,341,438 53,757,206 60,442,190 67,847,046

Total expense 13,684,681 17,389,635 23,920,515 30,804,017 36,419,842 45,999,261 60,314,473 85,887,890 100,193,540 112,270,203

Surplus\Deficit (6,988,006) (4,493,216) (3,690,924) (3,743,767) (1,871,551) 11,317,982 8,251,895 10,144,364 13,670,149 27,047,683

Free Surgeries /Total Surgeries 93% 91% 88% 84% 89% 88% 87% 85% 81% 75%

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II. Bangalore

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014


Revenues - Paid Section
Number of Surgeries 967 1,871 2,827 3,567 4,784 5,490
Number of Outpatients 29,454 46,401 64,000 67,271 74,360 82,028
Outpatient Income 82,435 5,920,182 10,329,947 16,198,773 19,714,838 23,374,140 24,699,717
Surgery Income 16,023,319 32,499,475 51,070,600 73,182,702 96,083,369 113,096,150
Pharmacy contribution (9,157) 1,328,655 609,499 816,608 979,759 1,760,526 1,980,590
Opticals contribution 73,405 3,083,328 3,959,739 5,004,130 10,414,997 9,085,915 13,201,173
Training and other income - 853,519 653,406 897,714 932,934 945,985 1,058,737
Total 146,683 27,209,003 48,052,066 73,987,825 105,225,230 131,249,935 154,036,367
Revenues - Free Section
Number of Camps 221 239 249 256 259 227
Number of poor screened 25,186 34,367 36,637 43,655 52,336 41,195
Number of surgeries 7,286 10,552 13,156 16,302 19,740 19,351
DBCS Revenues - 1,043,000 4,996,970 4,728,980 7,358,375 8,302,699 16,071,500
Total Income 146,683 28,252,003 53,049,036 78,716,805 112,583,605 139,552,634 170,107,867

Variable Costs - Paid Section


Medicines, Surgical & Lab
consumables 3,276,106 5,269,581 4,832,838 7,920,714 10,595,005 15,427,716
IOL 2,771,167 5,565,848 8,306,981 11,741,962 14,181,126 17,570,730
Incentives - Doctors 3,032,494 4,072,000 3,140,001
Total - 6,047,273 10,835,429 13,139,819 22,695,170 28,848,131 36,138,447
Variable Costs - Free Section
Medicines,Surgical & Lab
Consumbales 1,195,823 1,434,788 2,197,609 3,592,700 4,219,884 6,632,597
IOL 499,681 448,695 734,574 1,071,705 1,562,399 1,461,462
Spectacles 316,358 615,148 588,638 1,140,693
Cafeteria 922,914 900,484 1,376,349 3,469,909 3,212,320 4,090,322
Transportation 1,183,070 1,299,873 1,778,759 2,792,738 3,745,327 4,355,590
Incentives - Doctors 837,467
Total - 3,801,488 4,083,840 6,403,649 11,542,200 13,328,568 18,518,131

Camp Expenses - 362,358 861,493 779,777 843,041 794,325 1,134,607

Fixed Costs 890,456 30,880,911 44,426,119 52,100,529 68,990,016 75,731,827 90,055,696


Total expense 890,456 41,092,030 60,206,881 72,423,774 104,070,427 118,702,851 145,846,881

Surplus\Deficit (743,773) (12,840,027) (7,157,845) 6,293,031 8,513,178 20,849,783 24,260,986

Free Surgeries / Total Surgeries 88% 85% 82% 82% 80% 78%

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Exhibit 10
Donations Collected and Disseminated by SEF, USD$ million

Year Donations for operations Donations for projects Total


(Capital construction)
2003-04 $1.59 - $1.59
2004-05 $1.25 - $1.25
2005-06 $0.60 $0.08 $0.68
2006-07 $0.76 $1.75 $2.51
2007-08 $1.03 $3.37 $4.40
2008-09 $1.37 $4.12 $5.49
2009-10 $1.28 $1.06 $2.34
2010-11 $1.53 $2.64 $4.17
2011-12 $1.77 $3.49 $5.26
2012-13 $2.37 $3.26 $5.63
2013-14 $2 $3.9 $5.9

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Exhibit 11
List of Major Key Performance Indicators (KPIs) for Monitoring

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Exhibit 12
Quality Indicators Reported Monthly by Each Hospital

Number of reporting errors (lab), re-dos (lab)


Percentage of adherence to safety precautions by employees working in diagnostic department
(lab)
Re-scheduling of procedures
Percentage of medication errors
Incidence of adverse drug reactions
Percentage of adverse anesthesia events
Surgical site infection rate
Incidence of falls
Out patient satisfaction index , Inpatient satisfaction index
Number of sentinel events, near misses
Incidence of needle stick injuries

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Exhibit 13
Current Sankara Locations across India

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