Last year, when 24-year-old Madhuri Satyanarayan, a resident of Neredmet village in Andhra Pradesh, found out that she was pregnant, her joy was tempered with anxiety about the medical costs. At the nearby private hospital where she went for her check–ups, the cost of delivery was estimated to be around US$500. Her monthly household income was less than US$150. Seven months into her pregnancy, Satyanarayan heard about LifeSpring, a chain of maternity hospitals, and switched over. In July, she had a cesarean section delivery and gave birth to a baby boy. The delivery at LifeSpring cost her US$180. “We are happy with the decision we made. The hospital room was nice, the staff was friendly and most importantly, we were treated with respect,” she says. Both the young mother and the newborn are in good health.

Not everyone in India is so fortunate. A recent report by the National Institute of Medical Statistics points out that India has failed to reach its goal of reducing infant mortality rate to 28 per 1,000 live births by 2012. The report adds that the country is unlikely to achieve this target until the end of 2016. According to a study titled, “Trends in Maternal Mortality: 1990 to 2010,” published earlier this year by the World Health Organization (WHO), UNICEF, the United Nations Population Fund and the World Bank, the maternal mortality ratio (MMR) in India for 2010 was 200 maternal deaths per 100,000 live births.

The study notes that just two countries account for a third of global maternal deaths: India at 19% (56,000) and Nigeria at 14% (40,000). The global MMR in 2010 was 210, down from 400 in 1990. In developing regions, the MMR is 240, 15 times higher than in developed regions. Under the United Nations’ millennium development goal (MDG) of improving maternal health, India’s target is to reduce the MMR to 109 by 2015. (The MDGs are eight international development goals established by the United Nations in 2000.)

Dileep Mavalankar, dean at the Indian Institute of Public Health at Gandhinagar and vice president (west) of the Public Health Foundation of India, points out that although India’s MMR has almost been cut in half in the past 10 to 15 years, it still lags behind other developing nations, such as Sri Lanka, China and Malaysia. “Unlike India, these countries have a good, reliable public health care infrastructure,” he says. “Our system suffers from under-investment and under-management. Our district hospitals, primary health centers and community health centers are understaffed and overworked.”

According to Mavalankar, public-private partnerships, albeit with strict monitoring by the government agencies concerned, could be the way forward. He points to Chiranjeevi Yojna, a state government health financing effort for maternity services in Gujarat. Under this program, a private hospital is given a lump sum for 100 deliveries, irrespective of the type of delivery. Mavalankar suggests that LifeSpring, too could perhaps charge a flat fee for both normal and C-section deliveries. “By doing this, [LifeSpring] can cross-subsidize the extra cost of C-section with normal deliveries.”

A Social Enterprise

LifeSpring was formed in 2008 as a 50/50 joint venture between HLL Lifecare, a central government enterprise providing contraceptives and other health care products and services, and the Acumen Fund, a U.S.-based social venture capital firm. The two partners jointly invested about US$4 million in the venture. The LifeSpring chain currently has 12 hospitals in the city of Hyderabad and offers pre-natal, delivery and post-natal services both for outpatients and inpatients. It also offers laboratory, pharmacy and family planning services. In addition, it has a community outreach program to educate the surrounding communities on maternity and related health issues. Each hospital is typically a 20-bed facility and has one general ward and two to three deluxe rooms.

“A mid-sized hospital typically charges between US$160 to US$300 for a normal delivery and US$280 to US$500 for a C-section,” notes Anant Kumar, CEO of LifeSpring Hospitals (LSH). “Our goal is to provide affordable healthcare…. We offer the same services for US$80 and US$180 [respectively].” According to Kumar, in 2008, LifeSpring performed around 1,200 deliveries. Today, it conducts more than 6,000 deliveries a year.

Kumar is the driving force behind the organization. Prior to LifeSpring, he was a regional manager at HLL Lifecare and the program manager of the Andhra Pradesh Social Marketing Program, an initiative of HLL Lifecare Family Planning Promotion Trust in collaboration with the state government. Appalled by the condition of maternity services in the country, Kumar came up with the idea of providing affordable maternal care. He got a feasibility study done by KPMG, convinced the management at HLL Lifecare, secured the funding and opened the first 20-bed low-cost LifeSpring hospital in 2005. This was at Moula Ali, a low-income suburb of Hyderabad. The hospital broke even in just 18 months. Acumen came on board later when the joint venture was formed in 2008.

The KPMG study highlighted the lack of health care infrastructure in the country and noted that maternity was the second most common reason for hospitalization in India, next only to acute infection. The quality of ante-natal care and the number of institutional deliveries in the country were also found to be quite low. Importantly, the utilization of services from non-governmental medical care institutions was found to be expanding at the rate of 30% annually.

Market-based Approach

On the basis of the KPMG study, LifeSpring developed a low-cost, no-frills maternal care model focusing on service specialization, high asset utilization and para-skilling (the breaking down of a complex process into multiple simple tasks that can be performed by less skilled professionals). The model was designed keeping in mind the core customer base: the bottom 60% of the Indian population with a monthly household income of US$60 to US$140. Most of LifeSpring’s customers at present are employed in the informal sector.

To keep its costs low, LifeSpring has refrained from making investments in building specialized infrastructure required by very few of its patients. For instance, births requiring intensive care account for just about 2% to 3% of all of its deliveries. Therefore, instead of creating in-house infrastructure to address this need, LifeSpring has worked with pediatric hospitals to provide this care. This has helped not only in keeping the initial capital costs low, but also in reducing operating expenses related with hiring full-time pediatricians and pediatric nurses.

Three years ago, LifeSpring decided to adopt a cluster approach of having multiple hospitals in the city and relocated three of its hospitals from Nellore, Rajahmundry and Vijayawada (all in Andhra Pradesh) to the state capital Hyderabad. This enables expensive resources, such as ambulances and back-end operations, to be shared easily between the different facilities. Operating out of leased premises, flexi-staffing (an optimum patients-to-staff ratio is maintained on the basis of the number of deliveries done) and short-term transfers to sister facilities have also helped to keep the costs down.

In addition, LifeSpring operates at a much higher volume for outpatient care and deliveries than traditional players. A LifeSpring hospital typically completes 100 to 120 deliveries per month compared with 30 to 40 in similarly sized hospitals. The scale helps spread the company’s fixed costs over a larger number of customers.

According to Venkateswara Rao P., business head at LifeSpring, the twin focus on reducing costs and improving volumes helps the individual hospitals to become profitable in less than two years. “Each hospital requires an investment of about US$0.2 million. This fund is used for [capital expenditures] and [operational expenditures] until the facility breaks even,” says Rao. “Our model is designed such that a typical hospital would have a unit revenue increase of 5.5 times over the base in five years time. Typically, it becomes EBDITR [earnings before depreciation, interest, taxes and rent] positive in the second year. LifeSpring tracks this because it operates through leased properties, unlike other big hospitals which own the premises, and [earnings before interest, taxes, depreciation and amortization] positive from the third year onward.”

Kumar notes that the low-cost model hasn’t resulted in any compromise on quality: More than 150 processes related to clinical and operational protocol are followed at LifeSpring. A partnership with the Cambridge-based Institute for Healthcare Improvement (IHI) is also in place. “IHI’s expertise in clinical quality improvement has helped decrease our rates of maternal and neonatal morbidity, improve clinical protocol adherence and strengthen a culture of safety in all of our hospitals,” Kumar says. “In addition to these clinical outcomes, our quality improvement initiatives have simultaneously increased operational efficiency, leading to a reduction in our operating costs.”

LifeSpring has also adopted an innovative approach to reach out to its target audience. Its marketing team utilizes the clinical health information management system to track pregnant women in the communities it serves. Realizing that the real decision makers are usually the pregnant woman’s mother, mother-in-law or husband, the hospital’s campaigns address these decision-makers through orientation programs, health camps and other initiatives. “Community outreach workers are employed at each LifeSpring Hospital for executing these marketing initiatives,” notes Vijaybhasker Srinivas, LifeSpring’s head of process control. “Often, they come from the very communities that they serve. [And], as hospitals mature, word of mouth becomes the most important method to get customers to the hospital. Women who deliver at LifeSpring often promote it best.”

Gita Johar, a professor of business at Columbia University, notes that LifeSpring’s target market is large and also “falls in the crack between government hospitals and private clinics and hospitals.” LifeSpring’s business model on the operations and marketing side “make it an excellent double bottom line business to profile,” she says. “They found an underserved market and provided them with the benefits they seek, together with value for the money.”

It is estimated that around 39 million Indians fall below the poverty line every year because of high health care costs. According to the World Health Organization study, “World Health Statistics 2012,” India ranks third in the list of countries with the highest out-of-pocket expenditure on health in the Southeast Asia region. A report published in 2007 by the McKinsey Global Institute, the economic research arm of McKinsey & Co., titled “The Bird of Gold — Rise of India’s Consumer Market,” notes that health care spending in India grew from 4% of average household income in 1995 to 7% in 2005. It is expected to grow to 13% by 2025.

Not Without Challenges

According to Kumar, LifeSpring is looking to go public in five years. By then, it plans to expand the chain to 100 company-owned-and-operated units spread across the country. The new markets where LifeSpring will enter will be determined by a framework that takes into account real estate costs, doctor and nursing staff rates and other factors. “The price to customer in a particular city is influenced by these costs,” Rao notes. “If the hospital can generate a surplus with prices to customers that are 30% to 50% lower than the market, only then is it considered a feasible market to enter.”

There are other challenges, too. “What we need today is smarter capital — one which understands the needs of a social enterprise such as LifeSpring,” Kumar says. “When we approach the banks, they compare us to corporate hospitals and expect the same kind of returns from us…. But our business model is different. We can’t be benchmarked with a big corporate hospital, nor are we an NGO.” He adds that LifeSpring’s other key challenge is attracting top management talent.

But even as he grapples with these issues, Kumar notes that LifeSpring has had an interesting spinoff: A number of other hospitals in the regions where LifeSpring operates have been pushed to reduce their prices and also improve the quality of their services.

According to Acumen Fund founder Jacqueline Novogratz, LifeSpring has the potential to be a game changer. In her book The Blue Sweater: Bridging the Gap between Rich and Poor in an Interconnected World, Novogratz noted that LifeSpring “is already influencing policy. In the state of Andhra Pradesh, there are between four and five thousand hospitals, yet there are no approved standards for clinical treatment. The government has asked LifeSpring to work with the Indian Institute of Public Health to lead a group focused on developing those standards and clinical guidelines.” She goes on to write that LifeSpring is talking to the government about possibly bringing its model to 627 districts across India. “If this happens, it will be a game changer of the highest order. By taking this step of building an affordable hospital system with uncompromising quality and a focus on new mothers as consumers, it is within LifeSpring’s grasp to change the way we think about what low-income women should expect when it comes to reproductive health care. And that’s good for everyone.”

Aneel G. Karnani, associate professor of strategy at the University of Michigan’s Ross School of Business, adds another perspective. According to Karnani, “‘social enterprise’ is a confused concept.” He says that companies should not try to balance profit and philanthropy. As for LifeSpring, he thinks “it does not actually serve the bottom-of-the-pyramid, but rather the middle class of India. [And] it does that well.” Karnani points out that there is tremendous opportunity for entrepreneurs to make a profit by selling products and services to the growing middle class in India and in other similar countries, especially in health care. “I think LifeSpring does this,” Karnani notes. “The biggest challenge [for such ventures] is to recognize the limited purchasing power of people in the middle class. Thus, the product or service has to be affordable for [this group]. This usually involves finding the appropriate price/quality trade-off.”