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The Making of a Business

Gauraav Thakar
Pranit Upadhyay
Indian Institute of Management
Rohtak
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ETHICS BEHIND THE ENTERPRISE
The profit oriented model of Dr. Ram Mathur and Dr. Sharma is NOT justified on
various levels.
I will apply, for the benefit of the sick, all measures [that] are required,
avoiding those twin traps of overtreatment and therapeutic nihilism.
I will remember that there is art to medicine as well as science, and that
warmth, sympathy, and understanding may outweigh the surgeon's knife or
the chemist's drug. - Hippocratic Oath

Ethically the consequences of the intensions of Dr. Ram Mathur and Dr. Sharma
are not justified. This violates the basic principles of ethics and all that the
medical profession stands for.
Principle of Beneficence: Obligation to promote the good of the patient is
basic. This includes all patients, privileged and under privileged
Principle of Justice as Fairness: Decisions must be fair, and withholding
treatment is not an option
Principle of Equity: Equity in terms of services provided
Principle of Do No Harm: Withholding critical and timely treatment can
endanger lives. It negates the purpose of health care

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ETHICS BEHIND THE ENTERPRISE
Quoting from the case
Dr. Mathur, although since his college days knew the power of doctors, was
now getting the practical experience. He could see how people were ready to
sell of their belongings to get their family members treated. Perhaps, medical
service was a place where price elasticity of demand was very low.

This human instinct as understood by Dr. Mathur is true, but it should
never become the underlying principle of operating a health care
establishment like a hospital

We are going to build the best medical facility in Delhi. We will change the
whole system of medical facilities in this city.

This vision cannot be realized if the masses including the middle class
cannot afford the facilities and services
Example: Medanta The Medicity: A multi-super specialty institutes located in
Gurgaon is for the elite. No doubt that the facilities they provide are world
class but since even the upper middle classes cannot easily afford to avail
these services, the landscape of NCR Health Care sector remains unchanged
4
ETHICS BEHIND THE ENTERPRISE
Dr. Ram Mathur and Dr. Sharma
want the best of equipment. They
want to create a world class facility.
They have major financial
constraints in terms of the initial
capital, set-up costs and operating
costs among other out flows
No economies of scale
A utilitarian approach may not be
viable financially
Sustainability is the key. Subsidized
or pro bono publico models suffer
on the long term viability front.
Social good is not a start stop
process, it must be a continuous
self-sustaining system
Ideally this sounds very good, but can this be implemented?
A sustainable model which identifies
the needy
Subsidized healthcare can be
provided to those identified
The program must be well
integrated into the Vision and
Mission of the Hospital and its
Management
Quality of services must be
maintained
Efficiency of services to reduce
operating costs
Constraints
Basis for Solution Framework
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Hospital Setup and Project Management
Vision and
Mission
Type/Size/ Structure/
Location of Hospital
Staff and
Equipment
Required
Permission /
Clearances
Required
Project Capital Planning. Cost-Benefit
Analysis. Break Even Analysis
Initial Setup Costs and Operating Costs
Details of Project Cost
Financing Pattern
Loan Repayment Schedule &
Interest Calculation
Projected Profit & Loss Statement
Working Capital Requirement
Projected Balance Sheet
Cash Flow Statement & IRR
DSCR in the base case & different
capacity models
Sensitivity Analysis
Hiring top notch doctors
Accreditations and Affiliations
Technical Aspects of Equipment
Policy and Procedures
Vendor Management
Intricate Details
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Hospital Setup and Project Management
Core Team
Dr. Sharma
Dr. Mathur
Dr. Aswini
Real Estate
and
Infrastructure
Medical Staff
Doctors,
Nurses, etc.
Mandatory
Government
Regulations &
Legal Aspects
Financial
Aspects
Working Policy
and
Procedures
Hospital Flows
Vendor
Management
Own or Lease of facility
Outsourcing to a real estate agent Identifying medical suppliers
Partnering with vendors for
equipment
IT partner for Hospital
Implementing best industry
practices
Optimization of Hospital Flows:
Admission Discharge Transfer,
Outpatient, Emergency
Hire an experienced lawyer
specialized in healthcare sector
Hiring best
doctors in the
respective
specialties
Hospital and
Medical
Community
affiliations
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Service Operations
What gets measured, gets managed. Peter Drucker

The following aspects of operations should be considered:
Material Management: Waste control and deposal, Resource optimization,
inventory management
Supply Chain Management: Vendor and supplier integration into value web
Process / Value Stream Mapping
De-bottlenecking flows: Patient wait time, operation theatre idle time, etc.
LEAN/6 Sigma
Define Measure Analyze Improve Control (DMAIC): For optimizing existing
processes
Define Measure Analyze Design Verify (DMADV): For optimal new processes
Other Aspects Include: Scalability, Flexibility, Expandability, Therapeutic
Environment, Cleanliness and Sanitation, Controlled Circulation, Aesthetics,
Security and Safety
The two major hospital flows have been designed in the subsequent slides
Outpatient Flow
Inpatient Flow
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Patient Inflow
Telephonic Appointment

Direct Walk-in

Registration Counter
(Registration, MRD Folder
Creation)
Medical Records
Insurance
Verification /
Billing
Consultation
Room
Medical
Record
Self Pay / Copay for
consultation
Service



W
a
i
t
i
n
g








A
r
e
a


Vitals /
Medical History
(Nurse)
P
Verify Eligibility
before telephonic
appointment
Eligibility
Verification
For
Established patient
Physical Examination
& Consultation
(Physician/ Nurse
Practitioner)
To Medical
Record
Consent for Self
Pay (In case of
Eligibility Denial)
Health Care Delivery Flow Outpatient
Service Operations Designing Process Flows
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Health Care Delivery Flow Outpatient (Cont.)
P Order Entry
Other Dept
Services
Radiology
Services
Lab
Services

Medical Record


Billing /
Claim submission
Processing
& Reporting
Orders
Follow-up
Appointment
Pharmacy
Dispense
Medications
Billing / Rx
Claim submission
P1
Eligibility / Coverage
Verification
To Medical
Record
Service Operations Designing Process Flows
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Health Care Delivery Flow Inpatient
P1
Admission/Bed
Allocation
Revisit
Counter
Billing
Counter
Consultation
Notes
Examine
Patient MR
Admission
Request
Financial
Information
Centre
Scheduling
Bed Reservation
Advance/
Billing Clearance
Medical Record
Examine Patient
Medical Record
IP Consultation
Consulting
Doctor
Lab Order
Prescribe
Drug/Diet
Blood Order Surgery
Operation
Theatre
Monitor Patient
Advice
Discharge
Discharge
Patient Discharge Summary
Billing
Service Operations Designing Process Flows
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The model we propose is a Health Management Organization (HMO) Model. The
concept of managed healthcare is in the evolving stages in India.


Proposed Model for Competitive Advantage
S
u
b
s
c
r
i
b
e
r
s

P
a
t
i
e
n
t
s

Patients are
enrolled under
different benefit
schemes
Insurance cost
reduces
There is no
deductible for the
patient
Ease of payment,
cashless facilities
in network
hospitals
P
a
y
e
r

I
n
s
u
r
a
n
c
e

Insurance players
get customers
Concept of Self
Funding Insurance
especially for
corporates is
lucrative business
Good healthcare =
Low Insurance cost
P
r
o
v
i
d
e
r

H
o
s
p
i
t
a
l
s

Makes expensive
world class
facilities available
to the middle class
Insurance
empowers
customers and
ensures regular
check-ups
Profitable for the
hospitals as
services are
provided as per
coverage and
benefits
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Proposed Model for Competitive Advantage
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Primary
Provider
Subscribers
Pharmacy Hospital (Secondary Provider)
Enrollee
Payer (Insurance Agencies)
Pro Bono
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Proposed Model for Competitive Advantage
This model enables the hospital to cater to the middle classes as well as the
rich who can afford the world class treatment
It is a win win situation for the Hospital Patients Insurance Companies
The entire value web is optimized. Competitors in the NCR region are not
modeled in this way i.e. The Hospital Insurance nexus is not leveraged
Patients are empowered as they can choose exactly what benefits and
coverage they want and pay the insurer accordingly
Patients subscribers have many distinct advantages over traditional hospitals:
Reduced risk as compared to conventional insurance
Reduced premiums
Reduced co-payments
No deductibles or annual maximums
The hospital can exploit an edge over its competitors on the following factors:
World class facilities and equipment with multi super specialty
Insurance coverage ensuring affordability in patients time of need
Self Funding schemes for corporates, hospice and palliative care model can
also give this hospital an edge.





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Financials
Assumptions
Number of Beds: 150
Average In patient stay: 4 days
Average daily out patients = 200
Uniform salary of interns,
residents, attending and
department heads
Salary assumed at 3 lacs per
month
Lab, claims, overheads, etc. have
not been factored
Set up cost and capital structure
will determine break even
Number and depth of specialties
will determine initial costs
Year 1

Number of
visits
Average
Sales
Inpatient 13688 35000 479080000
OutPatient 73000 700 51100000
Gross revenue 53,01,80,000
Allowance percentage 5
Net revenue 50,36,71,000

Salaries and wages -
Doctors 10,80,00,000
Salaries and wages - Staff 1,00,00,000
Malpractice insurance 1,00,00,000
Travel and education 10,00,000
General insurance 1,50,00,000
Subscriptions 5,00,000
Medical Supplies 12,00,00,000
Electricity 30,00,000
Water 2,00,000
Equipment rental 8,00,00,000
Building lease 5,00,00,000
Other operating expenses 1,03,779

Total operating expenses 39,78,03,779

Net profit (loss) 10,58,67,221

Gross margin (%) 21.0%
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References
What's the Secret?: To Providing a World-class Customer Experience, John Wiley & Sons, DiJulius,
John R., (2008)
Managing Services: Using Technology to Create Value, McGraw-Hill, Boston, Davis, Mark M. and
Janelle Heineke, (2003)
Service operations management: Improving service delivery, Robert Johnston and Graham Clark
Service management and operations, Cengiz Haksever, Barry Render and Roberta S. Russell
The management of service operations, J. Nevan Wright and Peter Race
Service operations Management: Strategy, design, and delivery, Christine Hope and Alan
Mhlemann
Successful service operations management, Richard Metters, Kathryn King-Metters and Madeleine
Pullman
MANAGING A MODERN HOSPITAL, 2E: edited by: A V Srinivasan, Corporate Planner-Indian
Network, Hyderabad
HOSPITAL MANAGEMENT: An Evaluation, A.K. Malhotra
Hospital Management, Dr S M Jha
The Rise And Fall Of HMOs: Jan Coombs
Then Why Does it Still Hurt? Jack Schroder (2000)

Process flow designs and models are original work.
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Thank you!!!