Spillover Benefits of Marketing Exclusively to Free Patients at Aravind Eye Hospital Sachin Gupta

42 Pages·2016·1.21 MB·English

by  Sungho Park

Spillover Benefits of Marketing Exclusively to Free Patients
at Aravind Eye Hospital

Sachin Gupta
[email protected]
Omkar D. Palsule-Desai
[email protected]
C. Gnanasekaran
[email protected]
Thulasiraj Ravilla
[email protected]

WP/04/016/OMQT
July 2016

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Sachin Gupta is Henrietta Johnson Louis Professor of Management and Professor of Marketing at the Johnson Graduate
School of Management, Cornell University, in Ithaca NY 14853, USA. Omkar D. Palsule-Desai is Associate Professor of
Operations Management at the Indian Institute of Management, Indore, India. C. Gnanasekaran is Manager, Operations
and HR, and Thulasiraj Ravilla is Director, Operations, and Executive Director, LAICO, at the Aravind Eye Care System,
India. The authors are grateful to the Aravind Eye Care System for generously providing the data used in this paper.
Comments from Vrinda Kadiyali, Ed McLaughlin, Shailendra Jain, Qiang Liu and from participants of seminars at Cornell
University and the Theory and Practice in Marketing Conference are gratefully acknowledge

Abstract
Spillover Benefits of Marketing Exclusively to Free Patients at
Aravind Eye Hospital
An innovative business model for delivery of health services in low and middle income countries is based on
cross-subsidizing across patients. Services are offered to poor patients for free, while other patients pay
competitive market prices. Driven by their social mission, organizations often focus their marketing efforts
only on poor patients via outreach and education. We analyze the outreach activities (camps) of Aravind Eye
Hospital in India to learn whether these efforts produce additional spillover benefits of attracting paying
patients to its hospitals. In particular, we estimate spatial and temporal (both short- and long-term) effects of
camps on different types of paying patients. Based on nine years of historical data on the spatial origin of
patient traffic and outreach camp locations, we find that camps have net positive effects on the number of
paying patients. These effects are consistent with the camps acting as advertising for Aravind. We also find
that the effects of camps are stronger for patients who pay a subsidized price than for those who pay full
price, camps influence patients in a small geographic radius of six miles, and the effects persist for up to ten
weeks after the camp. Camps also have long term positive effects beyond ten weeks on the number of new
patients who pay full price. Further, effects become stronger with distance from the base hospital, a finding
also consistent with camps acting as advertising. Our findings reinforce the viability of the cross-
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subsidization model since they identify a mechanism that creates synergy between the social mission and
income generating sides of the organization.
Key words: Spatial effects, advertising, carry-over, not-for-profit, cross-subsidization, health care

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1. Introduction
Providing health care services to the poor in low and middle-income countries is a significant
challenge. A number of innovative health service delivery models have been developed in the private sector
to try to meet this need (see, e.g., Kim et al. 2013). One such business model involves offering services to the
poor for free or at very low prices, and marketing to them via outreach activities that educate and inform
patients and give them easy access. Financially this is often accomplished via cross-subsidization across
patients, by offering services at higher prices to patients who can afford them, and using the resulting
margins to subsidize care for the poor.
A number of organizations use cross-subsidization as a business model to provide health care services
to the poor at large scale1. Examples of for-profit organizations in the private sector include CARE Hospitals
(http://www.carehospitals.com/), which provides primary care, cardiology and other specialty services in
India and subsidizes up to 70% of its patients; Narayana Hrudayalaya Hospital
(http://www.narayanahealth.org/), which performs about 12% of heart surgeries in India and subsidizes 60%
of its patients, and Lumbini Eye Institute (http://www.lei.org.np/), which meets 25% of eye care needs in
Nepal and subsidizes 12% of its patients (Tung and Bennett 2014, Bhattacharya et al. 2010). In the not-for-
profit arena, one of the best-known organizations is Aravind Eye Care System (http://www.aravind.org/) in
India, which practices cross-subsidization as the core of its business model (Rangan 2009).
A feature of many of these organizations is that they do not use traditional marketing techniques
(Tung and Bennett 2014). Instead, they rely on community outreach and education efforts which are
primarily targeted at the poor. The use of marketing strategies tailored specifically to poor patients is
necessary because of these patients’ limited purchasing power, location in underserved geographical areas,

1 The cross-subsidization model is popular not only in health care but in nonprofit organizations in general. Oster (1995) provides
several examples. Jahani and West (2015) discusses enterprises that focus on “base-of-the-pyramid” markets via cross-subsidy
models and why such organizations may be attractive to impact investors.
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and low health literacy, and is also consistent with the social mission of these organizations. Studies have
shown that despite the magnitude of the need among these populations, only a small percentage seek out
health care on their own. Fletcher et al. (1999) concluded based on a field experiment in South India that
93.2% of those who could have benefited from eye treatment did not avail of the services. More recently,
Olusanya et al. (2016) found that 75% of adults in a rural community in South Western Nigeria who were in
need of eye care were not utilizing eye care services. As a result, marketing to generate demand may be a
critical ingredient to improving eye care.
At the same time, often these organizations devote little or no resources to marketing their services
to paying patients, either because of unavailability of funds, or because they believe that marketing their
services to paying patients contradicts their social mission. Interestingly, these institutions commonly face
competition for these patients from other private sector providers of health care services. Given the unusual
focus of marketing on customers who do not pay, or pay relatively little, an important strategic question to
ask is whether these marketing efforts not only affect poor customers, but have an additional spillover
impact on the demand from paying customers. Evidence of spillover would reinforce the financial viability
of the cross-subsidization form of business model, since it would mean that marketing spending directed
towards fulfilling the organization’s social mission also enhances its revenues. The main focus of the present
paper is to theorize how such spillover marketing effects may occur, to measure and characterize them in the
case of Aravind Eye Hospitals (henceforth Aravind), and provide insights into the interdependence between
the income-generating and social mission sides of Aravind and similar organizations. Next we present a brief
background of Aravind to set the stage, before we describe the research objectives and intended contribution
of this paper.
Aravind Eye Care System
Since its inception in 1976, the Aravind Eye Care System has been engaged in its mission of “eliminating
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needless blindness by providing high quality, high volume, compassionate eye care to all.” In 2014-15,
Aravind’s outpatient visits exceeded 3.5 million (Aravind Eye Care System Activity Report 2014-152). In that
year over 400,000 surgeries and laser procedures were performed by Aravind eye surgeons, and over half of
these surgeries were free or deeply subsidized to the patient. These statistics make Aravind one of the
world’s largest and most productive eye care organizations. Underlying these numbers is an organization
with a unique business model, culture, and ethos that has served as an exemplar for compassionate care
around the world. Much has been written about Aravind’s business model (e.g. Rangan 2009) and
operational efficiency (e.g. De Vericort and Lobo 2009). However, to our knowledge, there is little published
on the marketing function of Aravind.
Aravind was founded in 1976 by Dr. G. Venkataswamy as an 11-bed hospital in Madurai in the
southern Indian state of Tamil Nadu to provide care for patients with disabling cataract blindness. Cataracts
are the major cause of blindness in developing countries, accounting for 41.7% of all cases in South Asia in
2010 (Jonas et al. 2014). A cataract forms as the natural lens of the eye clouds over time. Among others, poor
nutrition and tropical weather are believed to be significant causes of cataract. In most cases, a cataract can be
surgically removed and the eye’s natural lens replaced by an artificial one known as an Intraocular Lens
(IOL). While Aravind began as a modest venture, in the last four decades there has been dramatic growth in
the organization and its service capabilities. As of 2015 Aravind has five tertiary care centers that provide
specialty care, six secondary care centers that provide cataract services and specialty diagnoses, six outpatient
centers that provide comprehensive eye examinations and treatment of minor ailments, and 55 primary care
centers that provide comprehensive eye examinations. Additionally, Aravind conducts extensive community
outreach (details on this follow), manufactures IOLs, conducts research and training, and systematically

2 http://www.aravind.org/content/downloads/aecsreport201415.pdf
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shares the intellectual property of its business and technology freely with other organizations engaged in
health care around the world.
A central tenet of Aravind’s business model is to be financially self-sustaining through earned
revenues, with almost no reliance on grants or philanthropy. The organization has been successful in this
goal by following the cross-subsidization model. Although Aravind’s mission is to serve the under-served,
especially the rural poor, in order to achieve this mission it also serves a large clientele of paying patients
seeking eye care. Paying patients are those who can afford to pay market rates. Patients who cannot afford to
pay market rates are provided eye care for free, or at heavily subsidized prices that cover Aravind’s marginal
cost. Aravind uses the profits generated from paying patients to fund care for those who cannot afford to
pay. This model has not only allowed Aravind to be fully self-reliant financially, it has also generated
surpluses that have funded the organization’s rapid growth and engagement in ventures such as
manufacturing IOLs. In 2014-15, Aravind hospitals served almost 1.9M paying patients, 0.5M patients at
deeply subsidized prices, and 1.6M free patients.
At Aravind the core services (such as surgery or comprehensive eye examinations) are essentially the
same for paying and non-paying patients, in that they are provided by the same team of physicians and
surgeons. Aravind does provide a differentiated service to paying patients by offering several levels of type of
surgery and IOL, and choice of accommodation (features such as beds, air-conditioning, and semi-private
bathrooms). All patients self-select whether they wish to be free or paying patients, and if the latter, they
choose one of several price-service bundles.
An important decision that the Aravind founders had to make was where to focus the organization’s
marketing efforts. Vision impairment is widespread among the poor, patients typically lack awareness and
understanding of treatment options, and do not have the knowledge or financial resources to be treated.
Thus, marketing to poor patients especially in rural markets was essential for Aravind to fulfill its mission.
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To reach these patients, Aravind developed an extensive community outreach program that includes eye
screening camps, mobile units, and vision centers. At the same time, more affluent patients have choices in
terms of providers of eye care services in southern India (examples of other private providers are Vasan Eye
Care, Sankara Nethralaya and Hindu Mission Hospital). Furthermore, these patients typically have access to
information as well as the education and financial resources needed to make a considered choice. This might
imply that Aravind should devote some marketing effort to create awareness of and preference for Aravind
in this segment, which consists of patients who are critical for the financial sustainability of Aravind’s
business. However, as a matter of principle, Aravind’s founders and current management have decided to
not devote any marketing efforts directly to attract or retain this patient group.
Outreach Camps
Aravind pioneered the large-scale use of eye screening camps to reach out to the rural poor and bring
to the base hospitals those who qualified for surgery. In 2014-15, almost 3,000 outreach camps screened over
560,000 patients, and the screenings resulted in almost 93,000 surgeries at base hospitals. Camps are
organized with the collaboration of local community service organizations such as Lions Club, Rotary Club,
community-based non-governmental organizations, hospitals, industry associations, etc., who act as
“sponsors.” The primary role of the sponsor is to set up a campsite with the necessary supporting facilities
such as furniture, electricity, water, and to provide food and lodging for the medical team. A large school
building is often a good venue to hold a camp. An important role of the sponsor is to undertake publicity
for the camp. Aravind advises sponsors to limit promotional activities for a camp to a radius of about five
miles. Promotion outside this radius is not productive since Aravind has learned from past experience that
access is a significant challenge for potential camp patients. Technologies like Geographic Information
System have been in use for over two decades to identify the villages that fall within the five mile radius and
the routes to take for efficient promotion of the camp in these villages. Promotional activities take the form
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of distribution of handbills and posters, posting of notices on publicity boards on street corners, shop
billboards and bus stops, loudspeaker announcements, and referrals through local doctors, teachers, and
village leaders (Velayudhan et al. 2011). Most of the publicity is done 2-3 days before the camp date.
Aravind’s specification of an ideal location for a camp is a village or a rural town with a population of ten to
twenty thousand, with easy access by surrounding areas. Dates for the camp are chosen to avoid major
festivals (such as Pongal and Deepavali), elections, as well as local festivals or marriages. Most camps are held
on weekends.
A very well structured process guides how a patient progresses upon arriving at a camp. The stages
include patient registration, eye tests by paramedical staff, followed by an ophthalmologist’s examination. If
the patient needs eye glasses, they are made available at the campsite for the patients to buy. Patients who are
advised to have surgery are transported to the base hospital, either by a hired bus or by public transport,
accompanied by an Aravind staff member. Since camps are attended predominantly by very poor patients,
Aravind provides all services (except glasses) at the camp for free, including transportation to the base
hospital, surgery, food, post-operative medications, transportation back home, and follow-up a month later
at the camp site.
Patient Segmentation
Aravind’s pricing approach leads to a clear segmentation of patients into three groups:
1) Free patients: patients who go to an Aravind outreach screening camp, and are transported to an Aravind
hospital and treated completely for free.
2) Paying patients: patients who walk-in to an Aravind hospital, choose the “paying section” of the hospital,
and are charged for each service based on a menu of product-price options. Prices for cataract surgery
range from US$100 to US$700.
3) Subsidized patients: patients who walk-in to an Aravind hospital and choose the “free section” of the
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hospital. These patients are not charged any consultation fee. Patients admitted for cataract surgery pay
approximately US$12, which covers the cost of all surgical consumables, including the IOL, medications
used during the hospital stay, and post-operative eye drops for a month.
Research Goals, Contribution and Related Literature
In this paper we develop a model to measure and characterize the effects of outreach camps on the
number of new walk-in (i.e. subsidized and paying) patients at Aravind. We use historical patient data over a
nine-year period from one of Aravind’s tertiary care hospitals and measure both spatial and temporal effects
of camps. In particular, we address the following research questions. Are there measurable spillover effects of
Aravind’s outreach camps, which are targeted to free patients, on the demand from walk-in patients? How
can these effects be characterized in terms of temporal carry-over after the camp week? Do the carry-over
effects persist in the long run? How far do these effects reach geographically in terms of distance from the
camp, and how do the effects change with distance of the patient from the hospital? Do the effects differ
between subsidized and paying patients?
Answers to these questions enable us to provide insights into a source of interdependence between the
free and paying sides of the cross-subsidization business model. To our knowledge the literature has little
scientific evidence on the performance of marketing activities of nonprofit organizations in general (a
notable exception is Kumar et al. 2015) or marketing to the poor. In recent years there has been a lot of
interest in business models to serve poor consumers, with Prahalad and Hart (2002) advocating the
possibility of the “fortune at the bottom of the pyramid” via a low-price, low-margin, high-volume strategy,
and others arguing against the practicality of this business model (e.g. Simanis 2012, Karnani 2007). However,
the cross-subsidization model as an alternative way to serve poor customers has received less attention. Our
work contributes to better understanding of this model.
When the influence of camps on walk-in patients is seen as a form of advertising (as we argue in this
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