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...

Filed Under: hospital, india, medical care, narayana