Tehran's new testament

IN HIS BLUE cotton scrub suit, sitting at a cluttered desk in his office and juggling several conversations, Dr. Naresh Trehan looks decidedly un-messianic. But he represents hope to the anxious relatives of a heart patient from Amritsar, Punjab, who keep pressing him for answers. Still, Trehan responds placidly, with a mix of medical advice and reassurance. While many successful people his age look forward to filling their days with siestas, golf and grandchildren, Trehan clearly revels in work. Indeed, he recently embarked on his big dream: to make world-class medical care affordable in India. It’s taking shape at a 43-acre campus in Gurgaon, near Delhi. Trehan’s institution, called Medanta The Medicity, houses not only a 1,250-bed hospital, but also research facilities and a medical and nursing school. He envisions it as a “Cleveland or Harvard clinic of the East”.

Cleveland Clinic, based in Cleveland, Ohio, is a nonprofit multispeciality academic medical centre that integrates clinical and hospital care with research and education. “Medanta will be different, but conceptually it will be like that,” he says. But what will it take to build the Cleveland Clinic of the East? Three things, says Trehan: a facility with world-class technology; a team that’s benchmarked against the best in the world; and all this at affordable prices.

Trehan, as Medanta’s chairman and managing director, is taking his biggest risk yet: turning entrepreneur at age 64 to create an ambitious health care model—treatment, teaching and research in 20 specialities, all under one roof—that’s never been tested in the country, by the private sector, at any rate. The closest there is (and there is only one) is the government-owned All India Institute of Medical Sciences, Delhi. Though corporate hospital chains have grown in the past decade or so, nothing’s been conceived on such a scale.

At stake for Trehan: his reputation and a chunk of his personal fortune. “It’s a mad business model,” he says, playing the iconoclast. “People were going, ‘1,250 beds! Have you gone crazy? It can’t be done.’ People are still spelling doom. But the fact is: It’s a model. We’ve thought it through.”

In a country where doctors are mostly dour professionals who lack charisma, Trehan is quite the man about town. Along with journalist wife Madhu (sister of publisher Aroon Purie), Trehan is a regular at swish parties in Delhi, where he’s often mobbed.

Beneath his easy charm lies a proven ability to combine medical expertise with business acumen. The Trehan story began in the late 1980s when a chance encounter with H.P. Nanda, founder of the Escorts group, led to the creation of the Escorts Heart Institute. “When I built the institute in 1988, there wasn’t a single free-standing heart institute in the world,” he says, slowing down for emphasis. People told him he was crazy. “They said, ‘Where on earth will you get 150 patients?’ Local doctors said, ‘Outsource 20 beds, we’ll fill them up. Naresh, you cannot do this on your own’.”

They were wrong: Not only did Trehan successfully steer the institute for 19 years, he also blazed the trail for state-of-the-art specialised care in India.

Trehan’s reputation was so formidable that when he was unceremoniously sacked in 2007 by Fortis Healthcare, which had bought out Escorts Heart, over differences with its managing director Shivinder Mohan Singh, Fortis’ stock fell by more than 4%—while Apollo Hospitals’ spiked amid speculation that Trehan would join them. (He did, and remained there for over two years.) Moreover, about 100 doctors left Fortis in solidarity with Trehan. When asked about the episode, Singh is reluctant to talk of past events. “We had different sets of problems there” is all he’s willing to say.

Apollo Hospitals’ managing director Preetha Reddy, no lightweight herself, is not so reticent. She freely admits that her former employee-turned-rival is a class act. “Dr. Trehan is dedicated to his patients and it’s reflected in his circle of influence. What Apollo gained from his two-year stint here was the legacy of his way of working.”

THIS TIME THINGS are different. Unlike at Escorts Heart and Apollo, Trehan is putting his own money on the line. The cost of building Medanta is Rs 1,000 crore. About half this money has been raised through debt. Of the remainder, Trehan and his associates put in 54.84%, Punj Lloyd (a Delhi-based infrastructure company) 17.2%, and Avenue Capital (a New York-based investment firm) accounts for the rest.

Medanta is huge in contrast to Apollo, whose 8,000 beds spread over 50 hospitals average out to 160 beds per institution. Max Healthcare, another chain of private hospitals, has about 800 beds spread across eight hospitals. Trehan is aware that he is taking a contrarian bet by concentrating his resources in a single location, at a time when leading hospital chains are derisking their business by spreading out geographically.

But he’s confident his gamble will pay off. Medanta opened its doors in late 2009, and now has 450 beds. This is likely to go up to 650 by the end of the year. If all goes according to plan, Medanta will be fully operational at 1,250 beds by the first quarter of 2011.

Hospitals have high fixed costs—land, operating theatres, life saving equipment, etc. Spreading these expenses over a larger number of beds (and hence, patients) allows for better economies of scale. “If I do 100 operations, my cost will be high. But if I do 200, it will be halved. You can’t build a 200-bed hospital with Rs 300 crore worth of technology, and say, ‘I will charge less’.” Ideally, he would like Medanta to house 1,800 beds.

Economies of scale work at another level, too. Typically, it is cardiac, joint, and neurological ailments that bring in volumes. “The cash flow is stable for any hospital that has more than 80% occupancy in these specialisations,” says Rana Mehta, vice president, health care, at Technopak, a leading consulting firm. Medanta’s model could create a virtuous circle. High bed occupancy could help the hospital get better rates from suppliers, making it possible to offer cheaper care, which, in turn, would attract more patients. “I use the best joints for my patients, and because of the number of joints I replace, we can negotiate better with the vendor on costs,” says Dr. Ashok Rajgopal, chairman, Medanta Institute of Bone and Joint.

Advanced technology and minimally invasive surgery techniques also help cut costs. A patient pays less if he or she heals faster and spends fewer days in hospital. The institution saves, too. “If the average length of stay per patient goes down, it allows better bed utilisation and greater efficiency,” says Rohita Sharma, analyst, Enam Research.

Such ideas will allow Trehan to price Medanta 15-20% below the market. He is clear he is not here to serve only the elite.

A BIG PART of his vision of affordability is research and innovation that will one day marry traditional and modern medicine, to create a “new-era medicine”. Medanta will, of course, carry out research in modern medicine. “But we’ve also started research on traditional medicine—ayurveda, unani, etc.” The name itself is a fusion of West and East: the English ‘medical’ and the Sanskrit anta (end) are combined to mean the place where medical ailments end.

Modern medicine alone is not enough for India, says Trehan. “Even the U.S., with 300 million people and a $2.2 trillion (Rs 103 lakh crore) budget, cannot service all its people—50 million are out of the ambit of health services. If that is so, where is hope for us as a country?”

In a 2009 report, consultancy Ernst & Young and the Federation of Indian Chambers of Commerce and Industry noted that India bears 20% of the global disease burden, but has only 6% of the world’s hospital beds. Bed density (beds per 1,000 people) actually fell from 0.93 in 1995-96 to 0.86 in 2004-05. Most hospital beds (62%) are in the public sector, but most patients (60%) prefer to pay two or three times more and go to private hospitals, which have more specialists and better health care facilities. The report says that the need is not so much for primary health care (infant and maternal mortality, and the like) as for more specialised secondary and tertiary health care infrastructure, and for medical education. “The institutions that America, the U.K. and Europe depend on are ones such as Harvard, Mayo and Cleveland. These are the fountainheads of new knowledge. We don’t have institutions like those,” says Trehan.

He is not only trying to build a new kind of hospital, he also wants Medanta to remedy some endemic flaws in the Indian medical system. For instance, many doctors often receive commissions on patient referrals. “If somebody refers a patient to me and I do the operation, I’ve entered someone’s body although I didn’t need to. That’s criminal. There are very good doctors whom we’ve not taken on board because their ethics are terrible,” says Trehan.

Instead of paying doctors based on the number of procedures, Medanta will just pay them salaries—another departure from common practice, aimed at removing the incentive to perform unnecessary operations. Trehan is also trying to eliminate the practice of doctors receiving ‘gifts’. “Stent companies giving kickbacks—this is just the kind of thing we don’t want. I have told my doctors: ‘You’ll have to shed that expectation. We will pay you more to make up for your ‘loss’,” he says with a laugh.

The prospect of a squeaky-clean operation evidently isn’t daunting the best doctors: A large part of Medanta’s team, including department heads, is in place. “The team is a fantastic 11, or more like 16 now,” says Trehan. “There are 16 players in a cricket team, right?” Again, that affable laugh. “They are the best in the world and have reached the stage where they can go beyond themselves; they can teach and they can do research.”

There’s also the problem of private hospitals over-billing patients who have medical insurance. The problem reached the point where the four major public sector insurance companies withdrew cashless hospitalisation services. (As Fortune India went to press, insurers and large hospitals were trying to negotiate a uniform rate structure for cashless claims.) Trehan hopes that a transparent billing system will help tackle this problem.

IN RETROSPECT, it seems as though Trehan’s entire life has been a journey towards Medanta, right from his days as a medical student in Lucknow and his first meeting in 1969 with his future mentor, Dr. Frank Spencer, heart surgeon at New York University. Despite his long hair and drooping moustache (“I looked like a Mexican bandit!”), he was accepted as a resident. In the 1980s, when he was already well known as a heart surgeon, and when most of his compatriots there were happy to remain in America, Trehan returned home with the aim of providing world-class treatment in India. It was in 2003-04, while he was at Escorts Heart, that he conceived of Medanta. India had changed in the past decade, he points out: more channels than you could fit on a TV, no more queues for milk or a phone. But, he says, doctors were “still celebrating the standard I brought to India in 1988, when we were copying the West blindly, and proud of it.”

Trehan’s missionary zeal is evident when he speaks of Medanta’s business model, which seeks to free doctors from the pressure of generating profits. He is optimistic that some day, doctors will go back to following the ethical principles set out in the Hippocratic oath. “I guess society was the same then as now. If doctors would revisit the oath least once a month, if not every day, we will have a better medical system. It’s a boring message, but that’s what I want.”