The Aravind Eye Hospital, Madurai, India: in Service for Sight

Topics: Costs, Cost, Patient Pages: 5 (1273 words) Published: November 30, 2010
The Aravind Eye Hospital, Madurai, India: In Service for Sight

1) Identify the key factors that led to Aravind’s success. What was Dr. V’s role in all this? What was the support staff’s role in all this?

Key success factors: The key success factor was to align a great social benefit with a sustainable business model. The conservative financial management with no debt allows sustainable growth. The vision and mission of the organization is well articulated and the collaborators are well aligned with it via spiritual affinity with the cause. The business model of doing treatment for free and having sponsors handling the customer acquisition and transportation costs has proven to be successful. Dr. V’s strategy of providing quality care in less developed areas of the county has avoided competition and given access to an untapped market. Dr. V’s role: Dr. V’s role is to keep the organization vision and mission alignment. He was also the founder of the first hospital (Aravind) in 1976. Dr. V. ideas also incentivize family and community to work with or participate at the project. Support Staff role: The support staff plays a pivotal role in the project. By allowing to work at lower wages and by working aligned with the mission of the organization they help keeping productivity and motivation high and costs low.

2) Are there any weakness at all with Aravinds model?

The main weaknesses are:
1) Reducing profitability per patient: The paid patients are growing at a slower rate than the free patients which means that the average cost per patient is increasing (please check exhibit 1 for details)

2) Higher growth of free patients: The number of patients selected for surgery after screening is low and the avg. rate of free patients is higher than the paid patients:

3) Capacity and Utilization problem: The utilization rate of the “Tirunelveli” and at the “Theni” units is low causing higher overhead per patient and “Madurai” unit is over-utilized. Check Exhibit 4 for details.

4) Aligning cost structure with product demand: The center performs all types of surgery and has personnel and equipment to support it but 80% of its patients demand only two types of procedures (ICCE and ECCE). This causes higher overhead and lower average margin per patient.

Check Exhibit 2 for details.

5) Low conversion rate: At Tirunelveli and Theni units only a few percentage of the screened candidates become a patient. This might be because of a less efficient marketing campaign or because that market does not have as many customers.

6) Overhead and product cross-subsidy: The fixed costs are high (two thirds) and ad demand is uncertain and not recurring, in the long run the revenues can be impacted (the hospitals can run out of customers in the areas served).

Considering that in 1991, a total of 51,490 patients were served this means that the Variable cost per patient is approximately R$ 109.96 and the overhead (Fixed costs) is R$ 222.25 totaling a cost of R$ 332.21 per patient on average and considering that the average revenue per patient R$ 696.12 the average markup per customer is 106%.

But if we take in consideration that the average price of an ICCE is R$ 750 and for ECCE is R$ 2,000 and they represent 61% and 19% of the volume of the surgeries (respectively) we can conclude that those surgeries have a much higher average profit margin and a most likely cross subsidizing the other procedures.

7) Market depletion: The business models depend on finding new patients. Due to type of treatment that is applied each patient generates revenue only once (the patient gets “cured” and does not generate recurring revenues. At the time of the case there is a huge unmet demand so market depletion is not a threat in the short term but as time goes by he will need to reach further to find more patients.

8) Channel conflict: Almost all customers are acquired via screening camps and those are...
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