The Aravind Eye Hospital, Madurai,

India: In Service for Sight

An assignment for
Learning by Case Method (MGT 4001)

by

KRISHNA SHARMA – 19F222

Under the Guidance of

Prof. Simon George

T.A. PAI MANAGEMENT INSTITUTE

MANIPAL, INDIA

September 2019
Case Facts:
Aravind Eye Care System (AECS)-a non-profit private hospital system has advanced from a 20-bed
hospital in 1976, to one of the largest hospitals of its kind with 1224 beds in the world, currently
operating: five regional hospitals. Its founder was the renowned Indian ophthalmologist and
businessman, Dr. Govindappa Venkataswamy. To treat the nearly 12million Indians suffering from
blindness, Dr. Venkataswamy (Dr. V) created a quality, standardized, and inexpensive process to
treat the blind in India. The eye camps screen potential patients for two techniques of cataract
surgeries offered by AECS: the intracapsular surgery without intraocular lens (ICCE) and
extracapsular surgery with intraocular lens (ECCE). The ICCE is the most common procedure offered
primarily free of charge to patients in need. The procedure is completed in less than 20 minutes,
without an operating microscope and requires three to five weeks of recovery. In comparison, the
ECCE surgery requires an operating microscope and involves the insertion of a tiny transparent
plastic intraocular lens (IOL) with near perfect vision restored within days of the operation. Patients
receiving the ECCE surgery pay for the procedure and recover in private post-surgery rooms. The
AECS leadership team includes many members of Dr. V’s family who were trained in the United
States and share Dr. V’s vision of delivering value by connecting with their customers through the
expansion of all aspects of the eye care system.

Philosophy of Dr. Venkataswamy:

Dr. V is a religious man who believed “serving to humanity is serving to god”. He wanted to offer
quality eye care at reasonable cost. He dreamed for eradicate needless blindness from Asia by
creating private non profit eye hospital that would provide quality eye care. He was a great follower
of Mahatma Gandhi and Swami Aurobindo and living on his footsteps, he believed through
dedication in our professional lives can serve humanity and god.

He was passionate about his profession. In his early age of 25-26, he developed severe rheumatoid
arthritis in which his all joints became swollen and painful. For several months he could not stand on
his feet and was confined to bed for almost one year. But his dedication and love towards his work
could hold him much longer. Later he trained himself step by step to be able to perform cataract
operations. And finally, he managed to perform 50 operations or more in a single stretch.

He is also a trustworthy personality. It was his name which attracted many sponsors to Aravind eye
hospital.

Comparison of performance of Madurai, Tirunelveli and Theni.

Madurai is the centre of all the hospitals system of Aravind eye hospital. It had screened the highest
number of patients in comparison of Tirunelveli and Thani. 70% of them were free of cost for the
poorest of India’s blind population. The cost of production for them was on higher side, do in order
to make it more relax, the started their own IOL factory. The initial cost for single IOL lens costed
them INR 200. Now with the introduction of this factory, they have reduced their cost by half INR
100 on IOL lenses.

Tirunelveli is a blistering rural town far away from city. They also operate with two running hospitals:
Main and Free which are headed by Dr. Ravindran. They used as such sophisticated operating
instruments as that were used in Madurai which were mostly imported from United States.
Whenever they needed more equipment, they ask Madurai head office to send them. In terms of
monitory strength, hospitals in Tirunelveli were in deep trouble and are not self-sufficient. They
were unable to repay their cost of capital. As compared to Madurai, hospitals here are much
improved. They have far bigger space to accommodate patience and operating area.

Thani is also a small town situated far away from Madurai. Managing this place is not that big issue,
as there were less facilities to handle also many times it receives the informal supervision from Dr.
Nam when visits his home town.

Below table depicts more differences between 3 locations functionalities and performances

Madurai Tirunelveli Theni

Hub of districts
Centre of city
By 1998, it had 600 beds in
total comprising of both main
and free hospital
Total of 23,321 ICCE cataract
operations
Total of 7,846 ECCE cataract
operations
70% of patients come for free
operation
331 screening eye camps
380,693 patients screened
91.29% bed occupancy rate
Rural town
75 miles south of Madurai
By 1998, it had 400 beds in
total comprising of both main
and free hospital
Total of 6,618 ICCE cataract
operations
Total of 1,466 ECCE cataract
operation
59% of patients come for free
operation
293 screening camps
142,284 patients screened
51.25% bed occupancy rate
Small town
50 miles west of Madurai
By 1998, it had 100 beds in
total comprising of both main
and free hospital
Total of 1,535 ICCE cataract
operation
Total of 227 ECCE cataract
operations
65% of patients come for free
operation
83 screening eye camps
46,358 patients screened
38% bed occupancy rate

Parameters Madurai Tirunelveli Theni

Number of beds
Free 400 200 60
Paid 324 200 40
Total Patients
Free 212,809 91,482 23,401
Paid 167,884 50,802 22,957
Total Surgeries 39,557 9,911 2,022
Total Revenue 39,170,000(19585*2000) 13,512,000(6756*2000) 3,156,000(1578*2000)
Total Expenditure 18,100,000(25000*724) 10,000,000(25000*400) 2,500,000(25000*100)
Surplus 21,070,000 3,512,000 656,000
Manpower
Doctor 18 9 3
Nurses 72 36 12
Administration 36 18 6
staff
House keeping 18 9 3

From above comparison of the three regions it is clear that most of the revenue is generated from
the Madurai hospitals.
If there is 10% increase in staff salary and 15% increase on all expenditure,
and 8% provision is given for cost of capital how should Aravind modify (for
improving surplus):
A) Processes

There was complete rush with chaos all around the corner at free hospital. Outpatients facilities
were not well organised. The patients were provided with temporary shelters before registration
process. Free hospital can be renovated more innovatively that every patient has a comfortable time
in the hospital. The ECCE operation which was only provided in the main hospital can also be given
to the free hospital. Outpatients who do not have bed to rest can be arranged with a one.

One of the ways of reducing early morning rush at the free hospital for registration process is using
pre online booking of the patients. As soon as these patients are picked by the dedicated staff from
their respective villages, they can start making a pre booking in their online web portal. This way the
patients will not have to stand in the queue for hectic registration process.

B) Pricing

The initial pricing for the ICCE operation, inclusive of three to four days’ post-operative recovery was
about Rs. 500 to Rs. 1000. And if patient require on IOL implant (ECCE), then total cost of surgery
comes to Rs. 1500 to Rs. 2500. This costing of the surgery is bit on lower side. Since Aravind do not
want to make huge profit out of these hospitals, but he needs money to run their business. In order
to increase the profit margin, Aravind can increase the cost of each operation at Main hospital by Rs.
200 to Rs. 300. This increased amount will help Aravind to tackle with the increasing inflation. Also,
this amount is not huge which in individua paying 2500 cannot pay.

C) Manpower Management

The manpower at Aravind hospital comprises of: Doctors, Nurses, Administration staffs, and house
keeping employees. The major concern about them were the salary and incentives given to them.
The salary of a doctor at Aravind Eye Hospital is Rs. 80,000 annually. In comparison to this the other
private hospitals were giving a handsome salary of Rs. 300,000 to their doctors. Same Salary
differences were present for the other staffs. This was a huge concern to Aravind as their employees
were lacking monitory motivation to work for the hospital. Increasing the pricing of different
operation has led to increase in their profit. They are now more capable to increase the salary of
their employees. Therefore, they should increase their salary by 10% and can provide incentives
based on their work productivity. This way the manpower will be driven to work more and more.

D) Promotion

The promotion of the Aravind eye hospital is currently being done by local Sponsors (Soundararaja
Mills). They will promote the cause of Aravind hospital through propagandas. Their “propaganda”
was effected through handbills, wall posters, and travelling megaphone announcements. After
encouraging people to come to the camps, they will provide all sorts of financial helps which was
required by a patient to come to the Proper hospitals (including food, transport, etc). By this way the
sponsors are creating awareness of their brand as well as they were helping Aravind in their cause. If
Aravind start doing this promotion by their own, then they themselves must bear all the expenses of
promotion and all other expenses. Since Aravind main aim is not to make huge profit, they also do
not want to make losses. So, its better to let sponsors do the promotion work.

The promotions should be done two to three weeks prior to the main camp date, so that every
individual should be aware of the happening in their nearby village. Also, they should educate
people that there in no harm in having a 20 to 30 minutes of operation which can change their way
of living life. They can make more productive out of their life, by just taking a decision of going to the
hospital and having a operation which do not cost even a single penny.

E) “Slack and peak occupancy time” management.

The hospitals were facing inconsistent occupancy rate management. It was chocked during Monday,
Tuesday and Thursday, but a slack situation during Thursday and Friday. Firstly, since most of the
patients were coming through the transport provided by the sponsors, the hospital must have
coordinated with them and asked them to bring some of these groups on Thursday or Friday. This
way they can divert the crowd from peak hours to slack hours in hospital premises. Secondly, for
main hospital, they can start providing extra discounts on the slack days on first come first serve
basis. In this way most of the money minded people can be shifted to the unoccupied slots.

Income and Expenditure Statement for 1992-93 based on above data:

ICCE operation has been increased from Rs. 1500 to Rs. 2000 also total number of patients coming
for ICCE operation has been increased from 31,474 to 40,000 during 1992-93

Number of patients coming for ICCE operations in all three regions = 40,000

Therefore, total operation revenue = 40,000 * 2000 = 80,000,000

For improving the infrastructure, the expenses to Building maintenance has been increased from
1,117,500 to 1,500,000 in 1992-93

The stipends and staff salaries has been increased by 10%. Therefore, the salary expense for year
1992-93 has been increased to 4,713,518

Cost of beds – since cost for 400 beds is Rs. 10,000,000.

Therefore, cost of total of 1224 beds is (10,000,000/400) * 1224 = 30,675,000

Let us assume that the total cost for bed has been taken as loan from the bank. Taking cost of capital
(interest paid to the bank) as 12%. Therefore, total cost of capital = 0.12*30,675,000 =

3,681,000

All other expenditures increased by 10%.

Revenue Cumulative Total Cumulative Total Percentage

1991-92 1992-93
1. Medical services 3,380,985 3,380,985 3.67%
2. Operating charges 23,235,389 80,000,000 86.89%
3. Treatment charges 2,225,609 2,225,609 2.42%
4. Consulting fees 3,424,728 3,424,728 3.72%
5. Laboratory charges 857,265 857,265 0.93%
6. X-Ray charges 206,890 206,890 0.22%
 7. Donations 771,474 771,474 0.84%
8. Interest 1,062,889 1,062,889 1.15%
9. Miscellaneous 129,666 129,666 0.14%
10. Sale of ophthalmology 33,835 33,835 0.04%
books
Total Revenue 35,328,733 88,712,356 100%
Operating Expenses
1. Medical and cotton 1,307,968 1,504,163 1.7%
2. Hospital linen 148,848 171,157 0.19%
3. Library and 66,519 76,496 0.08%
subscription
4. Building maintenance 1,117,550 1,500,000 1.7%
5. Electricity charges 1,667,964 1,918,159 2.16%
6. Installation and 774,129 890248 1%
equipment
maintenance
7. Electric items and 196,195 225,624 0.25%
bulbs
8. Printing and stationary 564,841 649,567 0.73%
9. Postage and telephone 447,750 514,912 0.58%
charges
10. Building rent 7,980 9,177 0.01%
11. Cleaning and 356,515 409,992 0.46%
sanitation
12. Stipends and staff 4,285,017 4,713,518 5.31%
salaries
13. Employer’s PF 190,208 218,739 0.24%
contribution
14. Bank commission 9,748 11,210 0.012%
15. Travelling expenses 758,876 872,707 0.98%
16. Miscellaneous 236,508 271,984 0.30%
expenses
17. Photography 181,316 208,513 0.23%
18. Resident doctors’ 54,338 62,488 0.07%
hostel expenses
19. Camp expenses 1,347,457 1,549,576 1.74%
20. Vehicle maintenance 459,361 528,265 0.59%
21. IOL 2,926,520 3,365,498 3.79%
22. Cost of beds N/A 30,675,000 34.58%
23. Cost of Capital N/A 3,681,000 4.14%
Expenditure Total 17,105,615 54,027,993 60.9%
Cost Offset by:
1. W.H.O., Ford 96,246 96,246
Foundation and Jain
Hospital
Actual Expenditure total 17,105,615 53,931,747 60.9%
Net Surplus 18,319,363 34,780,609 39.1%
If Aravind go for franchising model at Coimbatore (instead of setting up a
hospital), what all should Aravind control and monitor?
Franchising helps to get customer trust and establish a brand name in the industry. It will also help
them grow more rapidly and tapping every market segment. Generally, franchise has a owner
(known as franchiser), and a third party (known as franchisee). Franchisee operate a business using
franchiser’s business name and system for an agreed period.

Since Aravind hospital has a well-established brand in South India, it will become benefitable for the
franchisee to operate under their name. As a well-established brand will attract more customers to
franchisee. Also, buying a business is cheaper than starting a new one. So, owning a franchisee under
your name will make the main hospital franchisee ECCE operations cost rate much cheaper. More
and more people can now come and have ECCE operations. In this process the motive of Aravind eye
hospital is also getting fulfilled, as they will have more customer attached to their name.

Aravind hospitals should make sure, all the process which were being followed at the original
hospitals, they all should be replicated in the franchisee model. Their main aim is to provide benefit
for all the sections of the society. They should keep check on the functionality of franchisee whether
they are meeting their expectations.