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.
Cataract surgery at Aravind Aravind Eye Hospital
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.
Sometimes 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.
Producing intraocular lenses at Aurolab
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."
Aurolab production employees work in high tech clean rooms
Green 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 in Madurai
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. For this and subsequent ventures, he demonstrated a remarkable flair for recruiting the top talent he needs to launch the venture in the form of people he describes as being "at the top of their game in their respective industries."
Typically, Green looks for "someone who is the head of an R&D department who is recently out of job usually because the company was moving its R&D operations overseas and they don't want to move." For the suture business, he landed Rolf Spengler, head of U.S. Surgical's manufacturing and research and development when Spengler did not want to accompany the relocation of a manufacturing operation from Germany to the United States. Instead, Spengler agreed to work with Aurolab.
This recruiting strategy has allowed Aurolab to "benefit from the R&D budgets of large corporations," Green said. "Rolf got to make a lot of mistakes and figure out the right thing to do in a big company like U.S. Surgical. But we didn't have a huge R&D budget. We had to do what Rolf knew would work, so that's what we did."
Thus, only a small portion of the start-up capital for Aurolab's suture business was used for product R&D because most of the product design "was based on Rolf's many years of experience in making suture products," Green said. Spengler and Green figured they could launch a manufacturing operation that sold suture for $40 a box or less, considerably below the market price of $200.
Aurolab began selling suture products in 1998. Today, Aurolab's 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.
Confidence Man: Hearing Aids are Next
Now Green is setting his sights on manufacturing a high-quality hearing aid that is affordable for the world's poorest people. Once again, if he succeeds, he will be a pioneer.
Green admits that as he embarked on each of his manufacturing ventures, "I didn't know if I could pull it off." This uncertainty is "anxiety provoking and stressful," but "that's the hallmark of a social entrepreneur," he says, playfully intoning the phrase with mock gravity, " doing something that everyone else says can't be done, and which you're not sure can be done either."
Green's goal is to make a hearing aid that uses current hearing aid technologies, rather than developing a new hearing aid design and sell it for a fraction of the current going price for hearing aids. "Most people equate affordability with a dummied-down product that doesn't work that well, so what we look at is 'how do we make pre-existing state-of-the-art technology affordable?'," he said. "It doesn't really cost that much to make stuff if you find the right people to work with you who have the right knowledge about how to do it."
Green found this knowledge in the person of Sunil Chojar, the director of research and development at Siemens AG, the world's largest hearing aid company, from 1993 to 1999. Green persuaded Chojar to work for Aurolab so that it would be well positioned to take advantage of existing technological development.
Chojar had developed state-of-the art programmable and non-programmable hearing aids from conception to manufacturing, including the development of software, hardware, integrated circuits, and mechanical and electro-acoustics engineering. He was the first to develop a custom programmable "completely in the ear canal" hearing aid, and 40 percent of hearing aids sold in the world use technology that he developed. Bill Clinton, Nelson Mandela and Sean Connery all wear hearing aids designed by Chojar.
"Chojar had a big R&D budget at Siemens and lots of people working for him," Green said. "He got to make lots and lots of mistakes expensive ones at that to come up with good products for Siemens, so he already knew what would work and what wouldn't.
"Usually it costs at least a million dollars to develop a proprietary chip that is the heart of the hearing aid and can be programmed according to each individual's hearing loss. Lacking the funds to develop our own chip, we waited until a couple of companies marketed generic versions of a quality hearing aid chip, and then we adapted these designs to our own use."
Cutting Costs without Sacrificing Good Quality
The Affordable Hearing Aid Project (AHAP) business model depends on controlling costs and pricing at each level of the operation, from the purchase of components to the final price paid by the end user. It eliminates as many intermediaries as possible to cut costs.
AHAP keeps production costs low by manufacturing in developing countries where overhead and labor costs are lower. Green has negotiated discounts with hearing aid component manufacturers equivalent to those normally offered on purchases of 500,000 units or more.
The result is a chip that is affordable and highly competitive in quality and technology design. Aurolab will be making behind-the-ear and in-the-ear models that can be programmed for each client's specific hearing loss. At present, 50 percent of hearing aids sold are non-programmable and non-digital, leading to low customer satisfaction and low consumer demand. Because of this, 80 percent of the people who need hearing aids in mature markets such as the United States and Europe choose not to use them.
But Green says he is pleased with the quality of the Aurolab hearing aid. "I feel like we've got a very really good, quality product based on testing of our prototypes.
"I have a very expensive hearing aid that was given to me by one of the hearing aid companies for free. Our hearing aid, which I haven't gotten properly programmed yet nor do I have a custom-made mold works better than that fancy, fully-digital, $3,800, custom-fitted-in-the-ear-canal model, programmed-to-my-hearing-loss model," he claims.
The hearing aids meet both U.S. FDA and European CE Mark standards. They have been designed for local service and maintenance and to withstand the climatic and cultural conditions of developing countries. They run on both rechargeable and regular batteries that have a battery life considerably longer than other hearing aids on the market. A solar battery re-charging unit has been designed for a selling price under $5.
Green says that those he has invited to test the hearing aid have been impressed by its quality and clear sound. "We've had it independently tested by a lab in Denmark called Delta. They felt it is an excellent quality hearing aid, and it tested very well. It probably has the longest battery life of any other similar product on the market, so in that sense we have a technology competitive edge over similar products on the market."
Green's ultimate target cost for the hearing aid is $40. "We have almost fulfilled our cost goal," he said. "We know we will be able to make a hearing aid that usually sells for $1,500 for about $50 for the first 10,000 units. We plan to get that price down lower as we get to higher volume production and to do research and development on reducing some of the component costs." The manufacturing and assembly of hearing aids will create employment opportunities, and Project Impact aims to hire a workforce composed of at least 70 percent people with disabilities.
The Biggest Risk: Selling
Green has raised $2.7 million from donors including the Social Profit Network, IMPACT Foundation UK, Al Noor Foundation, Lions Club International Foundation, World Bank and Acumen Fund. This will pay for product development, clinical trials in four locations to demonstrate the safety and effectiveness of the hearing aid, fulfilling legal and regulatory requirements, developing components for the first batch of 10,000 hearing aids, creating training and distribution infrastructure, and two pilot distribution programs that provide training for technicians who will screen customers and fit the hearing aids. Green reports that the money will be spent by April, and his business plans calls for raising "at least another million dollars" to pay for sales and distribution.
While the production start up is coming along well, "the biggest risk we face is selling," he says. "I feel pretty confident that we can be self-sustaining at the manufacturing and distribution level, but we won't be self-sustaining for at least a couple of years at the level of creating the infrastructure, people and systems for selling."
Aurolab will manufacture the hearing aids under contract to Project Impact, a nonprofit organization that Green founded. Project Impact's Affordable Hearing Aid Project (AHAP) is assuming the startup risk and providing overall management of the hearing aid venture. "We hope that once we make it successful, Aurolab will take ownership of the hearing aid manufacturing," Green said.
AHAP will be creating new markets by selling hearing aids to poor people who have previously been ignored by hearing aid manufacturers, but it also must "capture existing markets because we need to sell to survive," Green said. "We need to gain volume as quickly as possible to become self-sustaining."
Green plans to vary the price of the hearing aid in different countries according to the income levels. For "middle income" countries in Latin America, the Middle East or Southeast Asia, AHAP plans to break even immediately by making profits on sales to those who can afford to pay a bit more than the cost of the hearing aid while distributing some of the hearing aids, perhaps 20 percent, free of charge to the very poor.
Total sales in countries with very low income levels will break even or generate a loss, and these must be subsidized by charging higher prices in more affluent countries. "Let's say it costs us $40 to make the hearing aid in India and we sell it for $60 to Egypt, but we sell it for $20 to Nepal," Green said. "Then we can use the money that we make in Egypt to cross-subsidize making it available and affordable in a poorer country like Nepal."
To prevent third parties from buying the subsidized hearing aids in one country and re-selling them in another country at a profit, the hearing aids will be factory-programmed to be configured and controlled by proprietary software that is unique to each country, Green said.
Leveraging Existing Distribution Networks
The biggest challenge facing Green is developing a sales network that will adopt this multi-tiered pricing scheme as well as other techniques that make screening and installing the hearing aids affordable and feasible for poor people in developing countries. "It's challenging because we have to be in control not just of the technology, production and pricing but also the distribution and delivery to the end user if we truly want to ensure affordability," he says. "That's a huge challenge."
Green's strategy is to take advantage of organizations that have developed their own networks that can be used as channels for selling the hearing aids. Green wants to partner with organizations like the Lions Clubs in the United States or with social entrepreneurs who have highly effective networks such as Mechai Viravaidya, an economist and politician from a prominent family in Thailand who is best known as that nation's "condom king" for his successful efforts to fight AIDS by promoting safe sex practices.
"We are talking to the Grameen Bank [in Bangladesh] about a Grameen hearing aid because they have a lot of health care projects now," Green added.
AHAP is completing a study of the feasibility of collaborating with Lions Clubs throughout the United States to develop a Lions-branded hearing aid. The Lions Clubs would work with audiologists to persuade them to make the hearing aid available and affordable to patients who otherwise would not be able to afford one based on present pricing and Medicaid reimbursements.
Ethical Globalization through Social Franchises
Green plans to quickly expand to global distribution of the hearing aid through "ethical globalization" that combines affordable pricing with local ownership of distribution and any profits from sales. He plans to accomplish this through "social franchising" in which Project Impact gives local organizations that distribute hearing aids the training and expert knowledge they need to do business planning to establish a multi-tier pricing scheme, test patients for hearing loss, and provide treatment including fitting, installation and maintenance of hearing aids.
Green has recruited Eric Brodersen, an audiologist from Denmark who has extensive experience in developing countries, to train hearing technicians and staff so that local organizations can operate audiology clinics and dispense hearing aids. AHAP's first pilot distribution project in Madhari India is funded with a $150,000 grant from the Lions Clubs International Foundation.
AHAP will provide a six-week training program that creates a new breed of paramedical hearing professionals known as hearing aid technicians (HATs) who can dispense fully fitted and programmed hearing aids at hearing camps in a two-hour period instead of requiring the customary one to four weeks. This reliance on paramedicals cuts costs and allows efficient screening of large numbers of patients.
In the next few months, AHAP will be testing the hearing camps in southern India where HATs will screen and select patients for hearing aids and fit them on the spot. AHAP will recruit community groups to provide the publicity and advertising that attracts people to the camps.
"Once we've proven that, we hope the Lions will put aside larger amounts of funding for other Lions groups to set up hearing aid distribution in other countries," Green said. He estimates it will cost about $175,000 to create a distribution franchise in a developing country including training, equipment, cost of goods, and the first six to twelve months of operating expenses in collaboration with a large, well-established organization.
AHAP will give priority to children in the distribution of hearing aids because infants with an undetected hearing loss will suffer significant delay in the acquisition of speech and language. They may also suffer delays in social, cognitive, emotional, psychological and academic achievement. Infants will be the first to receive hearing aids and/or related services, followed in order of priority by preschool children, school children, working adults, and older people.
Next, Green hopes to add more sophisticated multi- and omni-directional microphones in the hearing aid and raise money to develop advanced hearing aid technologies for second-generation hearing aids. They would be fully digital hearing aids that automatically adjust to different listening situations, and include noise cancellation, feedback cancellation, speech discrimination, and a memory that stores up to three to four settings. At the same time, Green hopes to further cut manufacturing costs and product prices by re-designing the hearing aid and its manufacturing process.
On the Horizon: Affordable AIDS Drugs
Green's vision for spreading compassionate capitalism 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.
Tel: 510-812-4246 (US only)
Tel: 443-253-7821 (US and International)
Project Impact Office:
1193 Sand Lake Hwy
Onsted, MI 49265 U.S.A.
Contact: Cathy Moore, Adm.
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