David Green has figured out how to make expensive medical products affordable to the world's poorest people. He helped found Aurolab, a nonprofit manufacturing company in India, to produce surgically implanted artificial lenses for cataract patients for US$4 - $6 apiece, a dramatic reduction in the average US$100 - $150 price for lenses, in order to make them affordable to poor people in developing countries.
Aurolab production employees working in high tech environments
Because Aurolab is the world's second largest manufacturer of these lenses and is financially sustainable earning revenues 30 percent above expenses it serves as a model for a new way of doing business that Green calls "compassionate capitalism." He aims to correct what he calls a glaring "market failure" in global capitalism: the fact that corporations sell relatively small quantities of expensive, high-profit-margin medical products (generating substantial profits for their shareholders) while largely ignoring the enormous market of poor people where potential sales volumes are huge but profit margins are slim-to-nonexistent.
Green first encountered this new paradigm after receiving a Masters degree in public health from the University of Michigan. He worked for the SEVA Foundation, an organization whose primary mission at the time was restoring sight to cataract-blind people and reducing avoidable blindness in India and Nepal.
In 1983, Green began working with SEVA's principal partner in India, the Aravind Eye Hospital, where he met Dr. Govindappa Venkataswamy, the hospital's director and founder. Facing retirement at the age of 58 in 1978, "Dr. V," as he is called, mortgaged his house so he could open an 11-bed eye hospital in Madurai, India. When Green arrived at Aravind five years later, the hospital was performing 5,000 eye surgeries annually, of which 70 percent were provided at no charge to poor patients and 30 percent were provided at well above cost to wealthier patients. He observed how Dr. V made compassionate capitalism a reality by charging varying levels of fees ("multi-tiered pricing") based on a person's ability to pay.
Green worked with Dr. V to extend the concept of compassionate capitalism at Aravind, helping to expand its operations so that it now serves 40 times more patients than when Green first arrived. Today, Aravind operates four hospitals in the southern tip of India, performing more than 200,000 cataract surgeries annually, which is equal to 10 percent of the total number of cataract operations in the United States.
Approximately one-third of Aravind's patients receive free surgery, one-third pay about 65 percent of cost, and one-third pay fees in excess of costs, generating sufficient revenue for the hospital to be profitable and grow while serving the poorest patients.
Green collaborated with Aravind to create these efficiencies and to dramatically reduce the cost of Aravind's services by streamlining and rationalizing the management of its operations while simultaneously setting high quality standards. Aravind has been able to increase the availability and affordability of healthcare while becoming financially self-sustaining. Although the operation is profitable, the overriding goal is to serve people, not solely to boost profits.
Since working at Aravind, Green has helped to bring this model of compassionate capitalism to other eye hospitals including the Lumbini Eye Care Project in Nepal, the LV Prasad Eye Institute in Hyderabad India, the Al-Noor Foundation in Egypt, Malawi's national eye care program, and eye hospitals in Kenya, Guatemala, and El Salvador. By working with the Lions Aravind Institute for Community Ophthalmology, he has helped these hospitals establish a multi-tiered pricing structure based on a survey of local income levels and a calculation of how much revenue is needed to cover the hospital's expenses.
To date, the Lions Aravind Institute for Community Ophthalmology has provided training and consulting to more than 120 eye care programs, of which "75 percent have increased their productivity dramatically and become self-sustaining," Green says. "The Lions Aravind Institute helps these programs become self-sustaining from user fees, which then enables them to raise money not for operating expenses, but to start new programs that address the huge need for creating eye care services where they don't exist now."
In collaboration with SEVA Foundation, Green managed reforms that made Nepal's Lumbini Eye Care Project financially self-sustaining in 1993. It now generates a 40 percent surplus, allowing it to earmark US$1 million for institutional growth and free surgery to the very poor.
Since introducing cost recovery in late 1993, Lumbini's annual surgical volume has more than tripled from 6,000 to 22,000 operations in 1999; the percentage of patients receiving an IOL increased from 50 percent to close to 100 percent. Some 20 percent of patients receive free surgery, 18 percent pay two-thirds of the cost; 57 percent of patients pay just above cost for the operation; and 5 percent pay two or three times the cost.
"These successful models of self-sustaining eyecare with multi-tiered pricing . . . are examples of hospitals that figured how to provide services to the poor in a way that doesn't compromise the income from higher paying patients, and how to do it in a way where they can be more than self sustaining in fact they are highly profitable," Green explains. "It's a growing movement."
Although blindness from cataracts is preventable, almost every developing country has a tremendous backlog of cataract cases, which account for 60 to 80 percent of all blindness and visual disability. The direct economic cost of of blindness worldwide is US$25 billion annually and this figure may double, or triple, if indirect costs are also considered. Government programs that rely on top-down funding of operations for poor people have not successfully reduced the problem of cataract blindness in any significant way, Green said.
During his first eight years at Aravind Eye Hospital, Green persuaded intraocular lens (IOL) manufacturers to donate "a couple of hundred thousand" lenses for patients at Aravind Eye Hospital and Nepal's Lumbini Eye Care Project. This allowed the hospitals to offer surgically implanted IOLs to correct a patient's vision after cataract surgery instead of prescribing thick "aphakic" eyeglasses.
The availability of IOLs attracts many more patients for cataract surgery because they offer sharper vision correction than cataract eyeglasses. And in any case, research from Nepal shows that more than 50 percent of cataract patients lose or break their aphakic glasses within a year of surgery, rendering them blind again.
When they can afford IOLs, people who need cataract surgery are willing to get the operation earlier, before their eyesight deteriorates so much they can't work and can't afford to pay for the surgery. This keeps people in the work force longer, minimizing lost wages and sparing individuals, families and communities the tragedy of blindness.
About 85 per cent of males and 58 per cent of females who had lost their job as a result of blindness regained those jobs after cataract surgery, according to research conducted by the Aravind Eye Hospital in 1983. Some of the patients who did not return to work enabled other family members to get jobs by assuming their household duties. Patients who regained functional vision generated 1500 percent of the cost of their surgery in increased economic productivity during the first year after surgery, researchers said.
The number of cataract surgeries boomed in the United States during the 1980s when implantation of IOLs became the norm for cataract patients. Lens manufacturers "were selling them for $300 or $400 apiece, and with such a profit margin they didn't really have to control their inventories that carefully," Green said. "I was able to benefit by gleaning lenses as donations that were moving slow in the industry's inventories, and sending them over to our programs."
But by the late 1980s, this source of IOLs dried up after the U.S. Health Care Financing Administration (now the Centers for Medicare & Medicaid Services) imposed limits on the prices charged by IOL manufactures. With lower profit margins, these manufacturers were no longer willing to donate IOLs.
An Audacious Notion
Green's response was an audacious notion for someone who admits "I didn't know anything about business planning or manufacturing." He decided he would figure out how to manufacture affordable lenses himself.
He engaged in what he calls "forensic research," scouting out IOL manufacturing operations to see how companies make the lenses, then visiting suppliers of the manufacturing equipment and technology. "It was becoming more of a mature industry, so there were more people out there willing to share knowledge and sell equipment," he said.
Nevertheless, the intended beneficiaries of his manufacturing scheme were skeptical. "I didn't appear to have any experience to enable me to do this, and it was quite a leap for a nonprofit organization or a nonprofit eye hospital to think that they could get into manufacturing a medical device," he says. "So there was a lot of internal opposition, which was overcome when the money for it finally became available from donors and and we just said 'OK, here's the money, let's do it.'"
Aurolab began manufacturing IOLs in 1992, selling 37,000 lenses that year. Since then, production has grown by about 37 percent annually and Aurolab now manufactures 600,000 to 700,000 IOLs annually, controlling about 10 percent of the world market for IOLs.
Some 300 employees work at Aurolab's high-tech manufacturing plant in Madurai. Dr. Bala Krishnan, the managing director, has led the effort for Aurolab to be a high-quality, high-volume manufacturer of affordable medical devices. Aurolab has received ISO 9000 certification for its quality management and quality assurance, and its IOLs have received the CE Mark Certification required for all medical devices sold in European Union countries.
About a fourth of Aurolab's IOLs are used in Aravind's eye hospitals. The rest are exported to 86 countries throughout the world. Since 1992, the average price of IOLs made by other companies has dropped from $300 - $400 to about $100 - $150 while Aurolab's cost for manufacturing IOLs had dropped from $10 to about $4 - $5 apiece.
"Basically, we use the same equipment and manufacturing process and we fulfill the same regulatory requirements for quality as other companies do, whether they are in America or Europe or elsewhere," Green said. "But Aurolab sells the lenses for less, not only because their costs are lower but because they chose to price them lower because our goal is maximizing service rather than maximizing profit."
How does he manufacture lenses at such low cost? Green said he begins with a basic intuition "that it really doesn't cost that much to make something." Then he sets out to test this assumption by "demystifying the cost and the technology by walking around the industry and checking things out by seeing manufacturing and doing some estimates of how much it really costs them to make stuff based on their equipment and how old it is, whether they've amortized it, their labor costs and cost of the raw material."
David GreenGreen says he believes most businesses employ a "basic deception" in the sales of their products that amounts to saying: "I know how much it costs me to make it, but I'm going to fool you the consumer into paying as much as possible."
"I make the cost structure transparent so that at least I can see if something can be made affordable," he says. "We do everything we can to sculpt each cost and each margin along the way for any given supply chain to fit our ultimate target price that ensures affordability for the end user."
"Then I see whether I can work with ethical people to deliver a product that's going to meet quality standards and still be affordable whether we can produce it with a start-up and operating cost that creates a price that is affordable to our target populations, which are basically poor to middle class people in developing countries. My goal isn't to maximize return on investment to shareholders, but to maximize number of people served. It's a humanitarian goal."
Despite being a nonprofit charitable trust that charges rock bottom prices, Aurolab generates a surplus of 30 percent that it reinvests to upgrade and expand its manufacturing facilities.
On the Cutting Edge: Sutures
By 1996, having achieved success in IOL manufacturing, Green turned his attention to other medical supplies. He noticed that only 10 percent of wound closure products, such as sterile surgical sutures, were being purchased in developing countries because they were costly. Aravind Eye Hospital often bought suture material for eye surgeries from a multinational corporation with a near monopoly on the market in India, so Green set out to reduce the cost of sutures by making Aurolab the first nonprofit manufacturer of ophthalmic suture products.
The results are clear. In 1998, Aurolab began selling suture products. Today, Aurolab's afforable suture products have FDA approval in the U.S. and CE Mark Certification in Europe, and the company sells more than one million ophthalmic suture needles annually, Green said.
Hearing Aids: Success again
In January, Aurolab was to begin manufacturing the first hearing aid that uses top-of-the-line technology and is affordable to the world's poorest people. The quality of Aurolab's digitally programmable hearing aid is on a par with state-of-the-art hearing aids that on average sell for $1,500 in the United States. Green has found a way to manufacture them for just $50 apiece.
The hearing aids will be priced on a sliding scale so that the poorest people receive them free, and the very poor pay between $20 and $60. Sales to lower- to upper-middle class people who can afford to pay more for the hearing aid generate profits that offset losses on below-cost sales to poor people.
Taking Control of Technology, Production and Pricing
Green argues that this focus on cutting costs and pricing quality goods on a sliding scale makes it impossible for developing countries, which are most in need of medical devices and medicines, to procure them. "Because the bottom line for most companies is the return on investment to shareholders, there isn't enough internal pressure to examine how they can make a product affordable to poor people, whether it's in developed or developing countries," he says.
For example, hearing impairment is the most common birth defect in the world and at least 250 million people in developing countries have a hearing impairment, according to the World Health Organization. Half of these people would benefit from a hearing aid, but hearing aid companies produce just 6 million hearing aids annually and only 12 percent are shipped to developing countries where 70 percent of the world's population lives.
According to Green, "the World Health Organization estimates that there is probably a need for 32 million hearing aids each year just for developing countries. If the industry, with their high-margin, low-volume model is only serving 6 million a year, that's a market failure."
Green hopes to address this market failure by manufacturing one-half million affordable hearing aids annually within five years. If the world's largest hearing aid companies take notice and try to put Aurolab out of business by competing, that's fine with Green.
"It's very difficult to convince companies that they should employ some other business strategy that they feel possibly threatens their ability to be profitable, so what I do is gain control of the technology, production and pricing and then compete with them," he said. "I am hoping they will come and compete against me in these developing country markets with products at affordable prices, because then I will have been successful.
"I have no interest in being a producer or seller of hearing aids. What I do care about is creating a paradigm shift in how people view how they can make a product and service affordable and available to a greater number of the human family."
On the Horizon: Affordable AIDS Drugs
Green's vision now extends to the fight against AIDS. Most efforts to provide health care in developing countries including AIDS drugs are top-down, government-funded programs, he noted.
Unfortunately, "many governments have fewer and fewer resources for health care services, particularly in countries afflicted with growing HIV. Out of 40 or 50 million people who are HIV-positive in developing countries, fewer than 300,000 are on any drug regimen."
Rather than depend on government programs to purchase and distribute AIDS drugs in these countries, Green wants to establish a bottom-up system that is driven by market forces and is financially self-sustaining through multi-tiered pricing. Project Impact is considering conducting a feasibility study that examines AIDS drugs pricing, distribution, and other legal, political and clinical issues.
Green said he hopes to develop a "market-driven, bottom up approach that is ethical and distributes and dispenses AIDS drugs according to World Health Organization guidelines." Anticipating his next steps, he said, "We are looking at that to see how some of our core competencies might apply. It's a huge area of need and a tragedy of epic proportions." Making a financially viable business of selling AIDS drugs to the poor? It's an audacious notion to be sure, but given his track record, Green's confidence may be warranted.