New study by a Cornell University marketing expert offers insights into optimal resource allocation at health care nonprofits not only in low- and middle-income countries but also in higher-income countries.
Nonprofit health care organizations in low- and middle-income countries often serve poor patients for free and charge affluent patients full price. The conventional wisdom is, the free services require financial subsidies from paying patients.
The study, led by Sachin Gupta, the Henrietta Johnson Louis Professor of Management, found that community outreach clinics and associated promotions aimed at nonpaying patients act as advertising that attracts paying patients as well.
Gupta and his colleagues studied nine years of data from the Aravind Eye Hospital in Pondicherry, India. One of the world's largest eye care organizations, Aravind has developed an extensive community outreach system including eye screenings at temporary clinics and mobile units, promoted through means including posters, billboards and referrals through community leaders.
When Aravind was created in 1976, Thulasiraj Ravilla, a founding member and a co-author on the study, noticed an interesting pattern. After an outreach clinic took place in a particular village, an influx of paying patients from that village flowed in to the main hospital two months later - even though Aravind hadn't specifically targeted them as patients.
Gupta noticed the dynamic, too, when he read about Aravind. "Everything I study in the marketing world says you have to spend money, on advertising or a sales force, to generate demand," he said. "In this case, we knew Aravind spent no money in marketing to the paying patients. And that just seemed unusual. Why are those patients coming?"
The research team collected data on when and where the outreach clinics had taken place, and when and where paying patients had come from. The correlational pattern told them the clinics and their promotion attracted affluent patients as well, but directly to the hospital. "What draws the paying patients in is price transparency, which is a big issue in health care markets in countries like India, and perceived quality, which is spread through word of mouth from other patients," Gupta said.
Health care nonprofits that ignore the revenue stream flowing from the mission side of operations risk not investing enough in it, he added. "The model of cross-subsidizing is more sustainable than was previously thought."
The paper, "Spillover Effects of Mission Activities on Revenues in Nonprofit Health Care," was published in the Journal of Marketing Research. Gupta's co-authors are Omkar Palsule-Desai of the Indian Institute of Management, Indore, India; and C. Gnanasekaran and Thulasiraj Ravilla of Aravind Eye Care System.