See Me! Hear Me!
(FORTUNE Magazine) – It's just the kind of dilemma that entrepreneurs like David Green love. The West has cutting-edge, high-tech medicine, but the poor of the world, who sorely need it, can't come close to affording it.
To bridge that gap, Green, a quiet idealist, is doing something revolutionary: applying market forces to Third World health care. In the process he has driven the prices of medical devices such as hearing aids and intraocular lenses to a fraction of what they once were. That means life-altering treatments for blindness and deafness are now inexpensive--and in some cases free. "I'm attacking it from a pricing viewpoint," he says. "How do you make cool technology affordable?"
Green, who founded and runs Project-Impact, a nonprofit group in Berkeley, is part of a growing movement in the U.S. called social entrepreneurship. Its proponents aim to create businesses whose primary goal is to improve society rather than maximize profits. Social entrepreneurs have been around for years; the founders of the Grameen Bank, which makes microloans to the poor in India, are perhaps the most famous example. What makes David Green stand out is the scale and scope of his brand of compassionate capitalism. A factory in India that he helped start 11 years ago makes inexpensive plastic lenses used in cataract surgery, giving sight to 200,000 impoverished Indians a year. Just another charity, you say? The factory not only makes a profit (it posted 30% margins last year) but also has become one of the world's largest manufacturers of lenses, with roughly 10% of the market. Now Green is applying his low-priced business approach to digital hearing aids. "I've created a sustainable business," he says. "What that means is that poor people who can't afford health care won't have to depend on charity or government largesse."
One of triplet sons of a college professor, Green, 47, first became interested in helping society after studying Zen, Jewish, and Christian mysticism as an undergrad at the University of Michigan. Later, while attending the university's School of Public Health, he started working for the Seva Foundation, a Berkeley nonprofit dedicated to improving health in the developing world. Seva was supplying donated lenses for use in cataract surgery in India and Nepal. The lenses are inserted behind the iris to replace patients' clouded natural lenses. Blindness in the developing world--much of it due to cataracts--affects 40 million people and accounts for $7.8 billion a year in lost productivity, according to Kevin Frick, a researcher at Johns Hopkins.
In the late 1980s big companies stopped donating their plastic lenses, the biggest expense in cataract surgery in developing countries. But Green wasn't willing to give up. He figured that if he could control the manufacture and distribution of the lenses--which then cost $300 each--he could drive down prices. He wasn't willing to compromise on quality, either. "My goal is state-of-the-art technology for all," says Green. "We don't want to give crappy technology to poor people. That's the opposite of what most companies think."
There were two daunting problems: Green had no training in business and no money. Yet he assembled a group of expert American engineers who told him they could figure out a way to make the lenses cheaply, without violating any patents. In 1992, Green persuaded Seva to invest $400,000 in seed money to help start a lens factory in Madurai, India, called Aurolab. Aurolab didn't have to go far to find a customer: The Aravind Eye Hospital is right next door. The typical eye surgeon there does 2,500 cataract operations a year, vs. 125 or so in the U.S. Thanks in part to such steady demand and to India's cheap labor, Aurolab today can sell roughly 700,000 lenses a year for as little as $4 each and still make a profit. Aurolab, which operates as an independent nonprofit, made money from the beginning (its startup costs were covered by donations). It reinvests all proceeds into expanding its operations and designing new products, such as sutures and eyeglasses.
But even at $4 a lens, how can the very poor afford eye surgery? The Aravind hospital has set up a scheme in which patients pay whatever they can. Those who are relatively well off pay more for their surgery, subsidizing the very poorest, who pay nothing. Even with these subsidies, the Aravind hospital makes $2 for every dollar it spends on cataract surgery. This has enabled it to open up five more hospitals, whose markets include some 100 million Indians.
Green has spread his sustainable-business formula to Nepal, Egypt, Tanzania, El Salvador, Malawi, and Guatemala. The poorest patients in these countries can buy Aurolab's cheap lenses and, just as in India, get surgery for free. "What keeps me going is the incredible discrepancy between the haves and the have-nots," Green says.
His latest project tackles another major problem in the developing world: hearing loss. The World Health Organization estimates that at least 250 million people globally have a disabling degree of deafness. In developing countries, at least half of all hearing impairment could be reversed by making available good, affordable hearing aids. Most of the ones that the needy have access to now are analog models that don't work very well. The cost of high-quality digital hearing aids--about $1,600 in the U.S.--is prohibitive.
Green raised $2.6 million in seed money from his partner, the Impact Foundation in Britain, plus other nonprofits such as Ashoka, Social Profit Network, and Acumen Fund. Working once again with U.S. engineers, he was able to design a hearing aid without running into patent problems. The device, which can be digitally programmed according to each person's level of hearing loss, is now being manufactured in India by Aurolab for only $50. After adding the cost of distributing and fitting the hearing aids, Green is selling them in India for $118 per ear. As with the lenses, the profits from those Indians who pay $118 subsidize the very poor who get theirs below cost or free.
So how can Green make and sell a high-quality hearing aid for $118 that costs four figures in the U.S.? First, Green doesn't have the R&D costs that the big manufacturers such as Siemens, Oticon, and Phonak carry. He uses off-the-shelf chips and components, which helps slash the cost of manufacturing. And he has no marketing costs because there's no competition: According to Karl Strom, editor-in-chief of industry magazine Hearing Review, the major players so far haven't focused on the developing-country markets.
Green hasn't forgotten his own country. He is now working with Lions Clubs International to get his inexpensive hearing aids to America's poor. They are in the midst of setting up a distribution system; the aids will retail for about $300.
The beauty of Green's sustainable-business model is that it can be taken further still. Conceivably it can also be applied to crucial medicines, including AIDS drugs. Rarely have God and Mammon been so close. --Brian Dumaine