Key Mechanisms That Define Health City Cayman Islands’ Value Innovation

Health City Cayman Islands (HCCI), less than three years old and located in the Caribbean just an hour’s flight south from Miami, is a 104-bed hospital outpost of Bangalore, India-headquartered Narayana Health (NH). HCCI has caught the attention of US health care professionals not just as a nearshore health care destination, but for having extremely high quality despite pricing that is a fraction of that in the US, as well as careful attention to the patient’s experience. HCCI is not only a competitor to traditional US health systems, it is potentially a radical disruptor. It’s model is so different that it could significantly change the standards by which health systems are judged.

HCCI’s performance is the culmination of a deep commitment to access, efficiency and excellence. NH’s Founder, Dr. Devi Shetty, began with a mission-driven awareness that health care is an essential need and must be affordable to be accessible. He then spearheaded an enterprise-wide focus on process optimization to deliver the best care possible at the lowest possible price. The results have been remarkable. Fifteen years ago, NH’s bundled costs for open heart surgery in India averaged about $2,000. Now they are about $1,400, or about 1% of average US cost. Interestingly, Dr. Shetty believes that better results are within reach and has set a five year target of $800 for those services.

HCCI’s pricing is not as low as the pricing NH charges in India, but services are typically one-half to one-quarter lower than in the US. For example, a Coronary Artery Bypass Graft (CABG) is currently priced at about $32,000, compared to a 2015 US average of $151,785. Hepatitis-C treatments under commercial coverage in the US currently average $75,000 vs. $19,000 at HCCI. The average 2016 US price for hip replacement is $39,299, while HCCI offers bundled pricing of $15,800. Dr. Shetty has set an ambitious goal of reducing all these prices by 50% in five years.

The lower pricing in the Cayman Islands is not attributable to its location. Even with the advantage of no income or property taxes, cost of living comparisons suggest that Cayman is 25%-40% more expensive than the US. So its capacity to deliver more efficient high quality care relies mainly on innovation. Here are some ways that HCCI has pressed its quality and cost advantages.

Lower Per Bed Hospital Construction Costs. HCCI’s initial 104 bed facility cost $46 million or about $442,000 per bed, including extra land for expansion, backup power generation, oxygen generation, landscaping and special equipment like water and wastewater treatment. This compares to more than $1.5 million per bed currently in the US.

Half or Less the Common Space as Most US Hospitals. Less common area constrains the movement of patients, equipment, supplies and HVAC circulation, lowering the potential for infections and readmissions, and streamlining per room operating costs. HCCI’s physical plant design team projected approximately 230,000 square feet (SF) of common area using conventional US space characteristics for its specialties and patient values. The final design came in at 107,000 SF of common area. For example:

  • Front desk and customer service areas are about one-third of US standard allotments.
  • Simplified, bundled billing reduces billing/collection space needs by 90%.
  • Physician offices are 100 SF, with common administrative and support service areas, reducing space requirements by 50%-70%.
  • Open concept administrative offices, which reduces space by 60-70%. Imaging is about one-third the space required by US codes.
  • An open intensive care unit design, which reduces space needs by 50%.
  • Smaller engineering and IT staffs, which require commensurately smaller work spaces.
  • Staff lounges that are smaller than US standards.

Significantly Lower Pharmaceutical and Supply Costs. HCCI sources drugs and other medical supplies from India for a small fraction – often less than one-tenth or less – US cost for the same items.

Equipment Costs are Approximately 30% Lower than in the US, with Comparable Quality. NH and HCCI use medical equipment that is CE-rated (Conformité Européenne), meaning “conforming to European standards.”

Bundled Pricing. Simplified billing, coding and accounting produces reduces administrative burden and costs, resulting in dramatically lower overhead, lower bad debt and other financial adjustments. At present, HCCI’s billing/accounting team consists of only 3 people. The bundled pricing and guarantee to cover any hospital acquired infections or complications that arise within 30 days of a procedures is a powerful financial incentive for HCCI to achieve high quality outcomes and low infection rates. Even with these incentives to avoid risks, HCCI takes on very complicated and high risk patients, which other hospitals often decline, due to the HCCI staff’s superior experience and technical skills of the HCCI staff.

Technology. HCCI benefits from technology advances at NH in Bangalore India. Dr. Devi Shetty points to the Indian IT technology giants Infosys and Wipro, also headquartered in Bangalore, noting that their quality goes up and their pricing goes down every year, and insisting that NH must do the same. An example, developed at NH but not yet fully utilized at HCCI, is the Cura tablet-based ICU information system that reduces data entry time by 70%, increasing the patient’s face time with nurses and doctors, reducing ICU and hospital lengths of stay. This approach reduces costs and the chances for infections, improves outcomes and, with dramatically better than conventional results, highly motivates the staff. Unlike what is common in the US, the majority of HCCI’s clinical staffs say they love their IT data entry process.

Streamlined IT Due to Bundling. NH and HCCI have developed customized, modularized and fully integrated software, maintained by an onsite staff of two and with IT costs that are a fraction of comparable US health systems. Some of this relative cost difference is due to HCCI’s bundled pricing for services. HCCI avoids the complexity of US hospital information technology, driven in part by the need to document the discrete elements of care episodes, to justify and maximize reimbursement.

Smart Operational Management. HCCI has automated and simplified systems, whenever possible, resulting in lower maintenance costs. For example:

The building is constructed using Insulating Concrete Forms (ICF), which create an R28 building seal, reducing air conditioning load, humidity, and the cost of electricity.

HCCI’s comprehensive Building Management System (BMS) provides real time information and regulates many of the hospital’s mechanical systems – e.g., generators, electrical, water supply, sewage, compressed air/vacuum, oxygen generation, air conditioning, air transfer, heating coils/water heaters – allowing efficiencies and a significant reduction in engineering staffing. HCCI’s engineering team is comprised of three people. A similarly sized US hospital would typically have six to eight staff on that team.

High efficiency air conditioning (AC) units reduce power consumption. The AC system is zoned so areas can be turned off when not in use, and patient rooms have separately controlled units that can be turned off when not in use.
Water is harvested from the roof and then recycled for non-potable uses.

HCCI’s supply protocols reduce the amount of waste per bed per day by approximately 50%. HCCI generates about 13 lbs. of waste per bed per day. US hospitals currently produce about 26 lbs. of waste per occupied bed per day,
Solid waste streams are reduced 60+%, which reduces disposal costs by approximately 50%. Plastic, aluminum, glass and cardboard are separated and recycled. Medical and bio waste are autoclaved and incinerated onsite, reducing the cost of disposal. All sewage is captured, recycled and used for irrigation, which reduces water usage by more than 25%.

Emphasis on Infection Control. Infection management is a priority, and is facilitated by design in common areas, patient rooms, the HVAC and equipment use protocols, resulting in better health outcomes and savings. The CDC reports that on any given day, 1 in 25 hospital patients comes down with an infection.

Lower Cost Per Salaried Surgeon. HCCI’s surgeons’ gross pay is about 60% of US rates, but because Cayman has no income or property taxes, their take-home pay is approximately equal to US rates. In addition, HCCI covers all insurances, including medical malpractice, and provides car, house and travel allowances. The result is that surgeons’ income is comparable to what they’d receive in the US while costing HCCI considerably less.

Higher Surgical Volumes Per Salaried Surgeon. Both NH and HCCI use salaried surgeons and have an approval process and other quality/safety measures to ensure that any surgeries are actually necessary. US surgeons typically perform 8-9 surgeries per week, and are usually paid per procedure. NH surgeons in India perform 15-20 cardiac surgeries per week. Higher volumes promote proficiency and more efficient use of expensive care settings.

Staff Coordination. About two-thirds of HCCI’s employees have previously worked together, often for years at NH where patient safety and efficiency are paramount, and surgical layouts and procedures are standardized. They know the layouts and work flows of well-planned surgical and follow-up processes. Nurses and other health professionals also follow NH protocols in the following areas:

Infection control.
Patient safety.
Case review.
Multispecialty cross-training.
Patient care standards.
Scheduling and work flows.
Use of health information technologies.

Adherence to these protocols dramatically increases both outcomes and efficiency, allowing clinicians to work at the top of their skill sets.

Medical Malpractice. The Cayman Islands has capped insurance claims related to non-economic losses in medical malpractice at US$620,000 per claim, dramatically reducing malpractice insurance costs. A US hospital the size of HCCI would typically pay about $10 million a year or $96,000 per bed per year for malpractice insurance. Assuming full utilization, HCCI pays about $270,000 or $2,600 per bed per year for malpractice insurance.

Patient Door-To-Door Travel Experience. HCCI delivers a superior destination customer experience by greeting customers at plane side and walking them through Immigration and Customs.

Natural Light. HCCI’s operating rooms all have large windows, providing natural light that has proven to reduce operating team fatigue, resulting in better outcomes.

Efficiency Enabling Measures by the Cayman Islands Government Accommodations. The HCCI development effort between the Cayman Government and NH included changes to optimize the project’s chances of success for both parties. For example, the Cayman Government agreed to:

Cap the amount of insurance claims related to non-economic losses in medical malpractice cases. (Achieved)

Recognize medical qualifications from India and approve Indian doctors and nurses to practice in Cayman. (Achieved)

Issue reduced cost work permits for HCCI’s Indian staff. (Achieved)

Changed immigration regulations to remove any cap on the number of work permits. (Achieved)

Duty concessions on imported medical equipment supplies for 25 years. (Achieved)

Amended planning law to allow high density, large scale health care development. (Achieved)

Support the HCCI initiative in principle as it will generate large economic opportunities. (Achieved)

Help HCCI to obtain land at reasonable costs for the project. (Achieved)

Work with HCCI to provide less expensive fares and new flights to bring patients to Cayman. (In Progress)

Upgrade the airport to accommodate the increase in arrivals. (In Progress)

Implemented a VIP pick up program which allows patients to be met by an HCCI representative at the plane and expedited through Immigration and Customs. (Achieved)

HCCI has negotiated a 25-year tax moratorium with Cayman Islands. (Achieved)

Government agreed to allow HCCI to own and operate its own blood bank which creates efficiency and reduces costs of blood, platelets, and plasma by approximately 50%. (Achieved)

Government agreed to allow HCCI to handle bio waste and medical waste onsite, reducing disposal/transportation risk and reducing disposal cost by over 80%.

Potential Higher Cost Factors
As mentioned above, cost of living in the Caymans is higher than in the US. HCCI’s capacity to deliver high quality care at very low cost is a testament to its focus on efficiency.

Airfare and lodging expenses may be high, but are often included in HCCI’s bundled pricing.

The shipping associated with essential health system supplies and equipment is unavoidable, but compensated by careful international sourcing.

Building on NH’s goal of delivering the highest quality care at the lowest possible cost, HCCI represents a refreshing and potentially highly disruptive approach to globally competitive medicine.

HCCI offers unquestionably high quality care at surprisingly affordable prices, but the model’s marketability is being tested by the US market, which is all but locked in by special interest structures. For example, health plans seeking to make health care cost more, rather than less – net earnings may be a percentage of total expenditures – may see nearshore care as counter to their interests. Brokers may view medical tourism as disruptive and threatening to their health plan partners. Employers and unions may not feel comfortable sending employees offshore while going around health plan networks. Medicare and Medicaid plans are prohibited from paying offshore providers, and require waivers for access.

HCCI is already getting significant traffic from the Caribbean, Central and Latin America and Canada and traffic is now growing from the US as well. Increasing success within the US market would be a key milestone for HCCI. Equally important, though, is HCCI’s potential as a paradigm disrupter. As this model, with thoughtful attention to so many efficiency design elements, gains traction and attention, its performance will resonate throughout the developed world as a harbinger of global medical care. It will challenge US health care’s often calcified operations and clinical excesses, forcing renewed introspection into how health care organizations can deliver better health outcomes at lower cost.

Vidar Jorgensen is Founder and Chair of the World Congress conferences and Vice Chair of Grameen America. Brian Klepper is a health care analyst and Principal of a boutique consulting practice, Worksite Health Advisors.

Categories: Uncategorized

17 replies »

  1. 2012 hip replacement (re-surf) Chennai India, Apollo Hospital, Dr. Bose – $10,000 including hospital charges, surgeon, hotel/resort, airfare. Bundled surgery cost was $7000. One week in hospital.

    Dr. Bose has his own surgery center now.

    But that shows large pay cuts for staff and surgeon. Large bright room with private bath and meals. Lots of nurses.

    I was uninsured at the time, so good deal for someone with resources. Do docs and nurses here want to work for those wages and hospital execs take nothing like what they demand here? If health care is 1/6th the economy what would it be at those prices?

  2. Steve, are you saying the Oklahoma city folks and the Cayman island folks are not providing services at below ‘market’? You are right to say that I don’t have a good sense of what things cost – and would love to be educated if these folks are truly pulling the wool over our eyes. Andy why focus on the profit? Who cares if they really do provide services at significantly less than what’s out there?

  3. Margalit’s cynical response trivializes and distorts what has been accomplished by Health City Cayman Islands (HCCI). Yes, they searched the Caribbean and sought accommodations for their investment, but they settled on a sophisticated, business-friendly environment – Cayman already had deep experience with the banking and captive insurance industries – that could support the development of an international Center of Excellence.

    The medical staff is very experienced as a team, and was sent over from Narayana Health in Bangalore. Local staff is paid well, and its obvious to visitors that they’re delighted to be part of this effort. The external review on their stats has been part of the Joint Commission International accreditation they hold, along with only one other Caribbean facility. HCCI is the first non-US organization to apply to Leapfrog.

    Services/prices are bundled. The $19,000 for a Hep-C treatment includes labs, airfare, lodging and all other amenities. Extra costs are detailed beforehand so there are no surprises.

    It is important to note that, as Steve 2 comments, there are US facilities that deliver very good quality and/or low cost. There are very few facilities, however, that deliver both consistently, as well as all-in pricing that is guaranteed in terms of follow-through and the potential need for after-care.

    In terms of pricing, HCCI does not follow the ridiculous US convention of “charges” vs. “paid.” The $32,000 CABG bundled price is complete and covers any unexpected service costs. Prices are posted – they were recent published in a WSJ op-ed page ad – and are easily verifiable. There is no marketing sleight of hand.

    The larger point of the article was to convey that Narayana Health’s approach to driving better outcomes and efficiencies is a true mission-driven philosophy. This is, at least in part, why Ascension, the largest US not-for-profit health system, invested in this project.

    It is this relentless drive toward better performance and value that has inspired our interest and that will ultimately influence the often bloated and complacent US health system industry. The incentives for change often come for the least expected sources.

  4. Steve,

    That’s great! Does your hospital post its prices online? If so, where? If so, I suspect they are following suit behind Surgery of OK, who have been doing this for 8-10 years. (Note: there’s nothing wrong with following good ideas, that’s how it’s supposed to work. All that patients ask for is “Show me the money!”)


  5. Us-
    Posterior Cruciate Ligament Reconstruction-$6,000

    Meniscus Repair Medial and Lateral (Arthroscopic)-$3450

    Synovectomy Major (Arthroscopic)-$4650

    ACL Reconstruction (Arthroscopic)-$10,270


    Posterior Cruciate Ligament Repair- $6,999.00

    Med & Lateral Meniscectomy- $3,740.00

    Anterior Cruciate Ligament Repair with Allograft-$9,790.00

    Complete Synovectomy-$3,740.00

    What is really apparent is that most docs really don’t know how much stuff costs, so when people like the Cayman Islands guy or the Oklahoma people (and both groups are great at marketing, lets give them that) publish numbers people ooh and ahh but they aren’t nearly as good as people think they are.


  6. I assume that when the government cuts favorable deals with a multi-national corporation, the term most applicable is crony-capitalism, not free-market.

    Free-market to me means that they come there and do it all on their own. No special favors. If you want to argue that government should provide special favors to corporations (to benefit the public, of course), then I would argue that now it’s just a matter of how much…..

  7. Margalit,

    How is the government-funded system you prefer not “externalizing costs to society?” Where does it say that the land was provided for free and not purchased? Why do you assume that Cayman inhabitants did not benefit from the investment and will not benefit from the added economic activity? Why do you insist that high quality affordable care is only legitimate when provided by bureaucrats using other people’s money?


  8. Steve,

    If indeed your hospital’s prices are comparable to Surgery of OK, then it will have achieved its goal of bringing some price competition to the market. (Ask your VP to show you your hospital list prices over the last 10 years and compare that trend to SOK’s.)


  9. So the primary innovation here is to externalize startup and operation costs to society, by having local government provide land and all sorts of amenities and regulatory relief, including importation of cheap labor, while forgoing taxation on everything from labor to goods. Sort of like the MLB and NFL operate in major cities in the US…..
    The secondary innovation is to limit this already limited liability practice to cash-and-carry low-risk patients for a fixed number of days, while doubling the productivity (workload) of each surgeon (and I assume all the underpaid staff as well)..
    I do however love the tertiary innovation of bio-friendly waste management, water recycling and all that, especially the big windows.

  10. From one of our senior VPs. We were talking about this as our published prices are generally lower than theirs or about the same, He informed me that we are actually better as theirs did not include all or some of the anesthesia fees.


  11. I would be interested where you found the information about Surgery center of OK. It is my understanding the bundled fee absolutely includes physicians charges and follow up too.

  12. Awesome post! This is medical innovation in raw form. This should be our future. I think Dr Shetty is brilliant!

  13. Several points that maybe the authors could clarify. You could just go to Alabama to have your hip surgery for $11,000. Why would this not be a better deal? (online prices of total hip at private UK hospitals, including London, run about $13k, if I have the money conversion down correctly.)


    Could you define bundling for all of these procedures? I have become very suspicious about how this is used. I just recently found out that the “bundled” price for the surgicenter in Oklahoma that many people like to cite does not include some physician fees. (When in doubt I add 15% to the hospital costs to account for physical fees, so this is not that big of a deal.)

    We just built 2 new hospitals of about the same size in your article at a cost of much less that of $1.5 million per bed. Does your cited number include all of the equipment, beds, etc? Where did you get that number from?

    Your number for CABG looks high to me. Is that a charges cost? (Very frequently, even here on a healthcare blog there is confusion about charges vs actual costs.) The numbers I am familiar with are much lower for the total cost of a CABG. You can come to PA and have a CABG done in the $30k-$40k price range if you are on Medicare. 30 day readmission rates for CABG run about 16%. How long do the patients stay after CABG? Who pays for readmissions?

    What is the profit margin for this place? Given that it appears they only take care of surgical patients, and only those fit enough to fly, I would expect it to be relatively high.


  14. Fascinating – CABG: 5 x cheaper than the US – Shouldnt be a surprise is to anyone who’s walked through a US hospital

  15. This is very interesting stuff, Brian

    Some will question the comparison (offshore location, white sand beaches, imported in house talent, local officials eager to please), but there’s more to it than that

    I’d love to have Shetty on THCB so we can ask him a little more about the methods here and at his facilities in India.

    For one thing, I’d like to know about the EMR our friends have developed over in Bangalore. And compare how that technology is being used: I’m imagining a lightweight set of tools less focused on billing and more on patient care

  16. Let me pick the patients and we can have much lower costs and maintain high quality.

    Query(s)- So when their post-op CABG who is a month out needs an emergency cath, who pays for that and where is it done? Anyone know? Also, the article cites the salaries for surgeons. Anyone know what they pay other staff? Finally, who does their stats and how are they confirmed?


  17. What a fresh breeze…..Uber magnitude innovation/disruption is indeed possible!…and can bring higher quality and innovation and lower costs….but we should have acknowledged this already as we have seen it with Lasik.