An analyst’s eye on Cayman’s Health City

Mercury analysis of medical tourism effects 

For the last four years, tracking Cayman’s new Health City has been a favorite pre-occupation. Irresistible, the project combines several personal obsessions: innovation, health travel, international development and the first big test of whether a promising health care innovation can be replicated outside its original lab. 

If fortune favors the bold, then Cayman oddsmakers must be on the edge of their seats about the Health City. For them − I make that case that those who bet against the Health City and its benefits to the Cayman people will lose their wagers. We should all hope the same.
Narayana Health’s Cayman project in a global context

Devi Shetty, MD, founder of Narayana Health, emails me, “A health problem today is not really a health problem. It is an economic problem and we need to concentrate on becoming more efficient, reducing costs, and more than anything else, giving better results.”

I’m a dedicated watcher of health care innovation and am convinced the new Health City could lead the region in health care value creation. By that, I mean if the hospital’s innovations work as they have in other places, Cayman could create enough excess patient value that you’ll be able to sell the overflow to willing newcomers from everywhere.

In India, both rich and destitute line up for what Narayana Health knows how to do. Everyone gets the same surgical quality. Only the amenities, like room quality, differ. Getting our head’s around Cayman’s opportunity begins with understanding the Indian partner.

Narayana Health did not discover the value innovation for which it garnered acclaim. That honor goes to Shouldice Hospital, outside Ontario, Canada.  Narayana Health is the first to extend the Shouldice model to other types of surgeries, especially heart surgeries, and replicate the efforts in the Cayman Islands and a growing list of other locations.

At its headquarters in Bangalore, India, Narayana Health has a campus of single-disease, focus-hospitals that are the world’s largest medical tourism complex, by patient volume. In 2011, these hospitals performed about twelve percent of India’s heart surgeries. Focus hospitals are places that specialize in a few types of surgeries. Note: When it comes to surgery, you always want a super-specialist.

The results in Bangalore tell the story. At 2011 exchange rates, the prevailing price of major heart surgery in India was between US$5,000 and US$6,000. Narayana Health priced heart surgeries at between $2,500 and $3,000 while giving away approximately 40 percent of its surgeries at discounts off the standard rate through a combination of insurance, foundations, trusts and fee forgiveness. The Health Care Blue Book website gives comparable US insurance reimbursement rates of $57,439.

A March 21, 2013 Financial Times story quotes the “rack rate” for heart surgeries and recovery at Narayana Health at 75,000 rupees, or about $1,160.1

What is hype and what is reality?

Price differences of this magnitude cannot be explained away easily. Simplistic nods to India’s lower cost environment or mundane activities like group buying and longer surgeon hours would not create this magnitude of savings and quality improvements − or do justice to the genius of Shouldice and Narayana Health’s extraordinary patient value. So, what’s going on here? For that, we look eastward to Japan.

Why is Narayana Health’s approach different?

It turns out, medical cost savings are very closely linked to high quality. Narayana Health’s secret sauce comes from lean production based on the Toyota Production System (TPS), the granddaddy of comprehensive management philosophy and operational practice.

High volumes of anything reveal the counterintuitive nature of waste. Put simply – waste hides until a process runs at capacity. These realizations were a big part of the Japanese economic miracle after World War II.

Toyota categorizes operational savings three ways: inconsistency, burden and waste. It further breaks out waste into seven elements: Over-production, motion, waiting, conveyance/transportation, compensating/processing, inventory and mistakes. Most of us think of waste as unavoidable, but closer inspection shows that waste is destructive beyond just materials costs, especially in a medical context because people are involved.

The takeaway is a robust understanding of how high-volume surgeries paradoxically achieve value-innovated costs. Write this down: Consistent, repeatable quality saves money…which is the opposite of the meme that quality naturally costs more. 

Understanding distance medicine

Medical tourism requires complex planning because it sits at the confluence of larger, unrelated value chains: tourism and medicine. Each of the larger value chains has its own entrenched laws, customs and institutions, which can make change and innovation more difficult.

Health travel needs to link (and ideally integrate) to medicine and tourism, but it also needs a guiding strategy of its own for activities I call distance medicine. To make this work, Cayman Islands should commit to mapping as many transactional relationships as possible and a robust coordination function.

Failure to take these steps is an obvious place for medical tourism development to go wrong or not reach its cluster development potential.

Expected benefits

Mercury Advisory Group believes that both segments increase tourism spend intensity by a lot. These customers spend five to 12 times more in a destination, on average. Medical travelers stay about 12 days in the country to recover from surgery or other medical/dental procedures.

Understanding health travel segments

The Cayman hospital at launch serves one relatively small, low-volume segment of health travel for elective and non-emergency, planned surgeries. The surgical segment gets most of the attention, because it has bigger numbers and is where doctors themselves focus.

However, the other segment has much greater potential meaning to Cayman’s economy in the short-term, because of higher volumes and the importance to 70 percent of the workforce. To me, the real importance of this segment is the favorable halo the tentpole offering casts around the second segment.

The second segment serves unplanned, incidental procedures in a sort of “spot market” for medical services. If a service looks good, does what a patient needs and provides value…it draws customers. In other health travel countries dentistry, dermatology, integrative and cash services are just a different form of tourism product. If Cayman plans well, these spot services can become a fabric of diversified, responsible tourism services linked to new, higher-value jobs.

What can the business community do to help?

Cayman Islands needs to build a high-trust overall value proposal that includes health care procedures, specialized transportation, recovery and accommodation services. Many believe that health travel development is simply a marketing problem to be solved. That couldn’t be farther from the truth. Sure, you need to market your services but that comes after you create durable health travel products. Right now, my hope is that Cayman will think about mundane things like how in-segment hotels will handle medical waste, food allergies and emergency evacuation plans.

Medical tourism is not just a business opportunity for a group of clinics and hospitals. Medical tourism is a Cayman-wide opportunity of development for a wide range of SMEs: from transportation companies to tour operators, from hotels to restaurants. I hope Cayman will pour accelerant on the economic and social justice opportunities it has captured.


1 The rupee has declined against dollar significantly in the interim.