India might be the last place on earth where you’d expect to find health care innovation. Government programs have finally brought some infectious diseases under control, but the nation’s ability to meet the basic medical needs of its citizens remains abysmal. Despite robust economic growth over the past two decades, the infant mortality rate is three times higher than China’s and seven times greater than that of the U.S. Of the 2 million Indians in need of heart surgery, fewer than 5% get it. The majority of the country’s estimated 63 million diabetics and 2.5 million cancer sufferers haven’t been diagnosed, let alone treated. Seventy percent of India’s 12 million blind people could be cured by a simple surgery—if it were available to them.

Although India boasts 750,000 doctors and 1.1 million nurses, practitioner density is about one-fourth what it is in the U.S. and less than half that of China. Hospital beds are in short supply, and most medical facilities are dated, cramped, and often unhygienic. In a country where the nominal per capita income is only $1,500 a year, patients typically have to pay 60% of health care expenses from their own pockets. Still, Indians believe that good medical treatment is something everyone should have access to regardless of their ability to pay.

Necessity spawns innovation. Despite the pressing demand and constrained supply, a few relatively new Indian hospitals have devised ways of providing world-class health care affordably—and to scale. These hospitals target well-off patients, which forces them to provide care that meets global quality standards. But their purpose is to serve everyone, including patients with very low incomes, which puts pressure on the organizations to lower costs dramatically. Such a business model scales because the low costs of these hospitals attract large volumes of patients and allow the overall enterprise to be profitable. As a result, the hospitals are able to sustain their operations not through the usual government subsidies, charitable donations, or insurance reimbursements but through their revenues. Aravind Eye Care System, for instance, has paid for all its expansion projects from its profits, even though two-thirds of its patients receive free or subsidized care. These extraordinary private Indian hospitals should serve, we believe, as an inspiration to those in other developing nations and as a wake-up call to hospitals in Europe and the United States.

In fact, America’s health care system may soon find itself competing with one of India’s innovators. Building on the success of India’s medical tourism boom—a $1 billion business that is growing by 30% a year—Narayana Health (NH) is opening a 2,000-bed multispecialty hospital in the Cayman Islands. A short hop from the American mainland, it will begin providing care in early 2014. Uninsured and underinsured patients will be able to receive high-quality treatment at an internationally accredited hospital for less than half of what they would pay in America. The proximity of NH’s beachhead may well pressure U.S. hospitals to develop the innovative practices and systems that we describe in this article.

Two years ago, we kicked off a project to understand how some Indian hospitals are able to provide world-class health care at ultralow cost. We identified more than 40 hospitals with innovative strategies and selected nine of them for an in-depth study. Seven of the hospitals are for-profit and two, not-for-profit. Four focus on a single specialty, and the other five are multispecialty institutions. Seven of the exemplars operate as academic centers and integrate education and clinical research with health care delivery. We visited all the hospitals, gathered data, and conducted more than 100 interviews with the founding doctors, their leadership teams, physicians, staff, patients, and industry experts over several months.

The Indian hospitals we studied treat medical conditions that range from problems of the eye, heart, and kidney to maternity care, orthopedics, and cancer. Their charges for most procedures are as much as 95% lower than those at U.S. hospitals. That isn’t because the Indian providers offer low-quality services; five of the exemplars are accredited by either Joint Commission International (JCI), the international arm of the Joint Commission—an independent nonprofit that certifies the quality of more than 20,000 health care organizations in the U.S.—or its Indian equivalent, the National Accreditation Board for Hospitals & Healthcare Providers, which uses standards similar to those of JCI. A sixth is seeking accreditation and a seventh has chosen not to do so for fear that the process could stifle experimentation and curtail innovation. The other two are not big enough to seek accreditation yet.

Some of these hospitals—for instance, the Apollo Hospitals Group’s flagship in Hyderabad—have recorded equivalent or better outcomes than the international standards for medical complications associated with knee, coronary, and prostate surgery as well as for infections related to the operating theater and catheters. NH’s 30-day postsurgery mortality rate for coronary artery bypass procedures at its Bangalore hospital is below the average rate recorded by a sample of 143 hospitals in Texas. Similarly, the five-year survival rate for breast cancer patients at HCG Oncology is comparable to U.S. benchmarks. Deccan’s five-year survival rate for peritoneal dialysis patients is the same as that for patients in the U.S. undergoing hemodialysis, the more expensive treatment commonly used there. Rates of complications associated with eye surgery at Aravind compare favorably with those of the best hospitals in the UK’s National Health Service.

How are some Indian hospitals able to provide such high-quality health care at ultralow prices? The obvious answer—the differential in the cost of labor—does play a role: Cardiothoracic surgeons, nephrologists, ophthalmologists, and oncologists in India earn anywhere from 20% to 74% of what their American counterparts do. For instance, Aravind’s ophthalmologists earn $50,000 annually compared with the $253,000 average for U.S. ophthalmologists. NH’s cardiothoracic surgeons gross between $150,000 and $300,000, whereas the median income for their U.S. counterparts is $408,000. And the salaries of nurses, medical staff, and administrators in India are dramatically lower; some earn only 2% to 5% of what a U.S. hospital would pay.

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