NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

In conjunction with NextBillion.net’s series on Healthcare Delivery at the BOP, Rob Katz recently spoke to Michelle Fertig and Herc Tzaras, authors of the forthcoming What Works case study: ?Franchising Healthcare for Kenya: The HealthStore Model.?

Michelle Fertig and Herc Tzaras will receive their Masters in Business Administration from Columbia Business School in 2006. Earlier this year, Michelle and Herc traveled to Kenya to conduct field research on a company doing innovative public-private healthcare delivery work at the BOP. HealthStore?s mission is ?to improve access to basic health services and essential drugs for children and their families in the developing world.? Recognizing that ineffective distribution systems often prevent essential medicines from reaching BOP communities, HealthStore has established a network of pharmacy franchises reaching all the way down to the base of the pyramid while simultaneously providing living incomes for their nurse-owners.

1. What is the most innovative element of HealthStore’s model, in your opinion?

The combination of a for-profit franchise network with a non-profit central franchisor is the key innovation. The HealthStore Foundation (HSF) is non-profit and so there is no incentive to “cheat” the franchisees. Its job is to set the franchisees up for success, and it does this through relationships with the government, a non-profit drug distributor, regional support offices, and on-going training programs. Entrepreneurs are not only given the necessary support to earn a sustainable income, but they also gain the satisfaction of managing their own business without handouts. These local entrepreneurs are empowered to succeed in an environment where they are surrounded by poverty and despair. The communities in which they operate benefit because they are given access to essential, affordable medicine and because can be inspired by the success of the franchisee.

2. What does HealthStore do differently that enables their model to work in a BOP context?

They’ve done a great job bringing private sector skills to a traditionally non-profit context. HealthStore franchises integrate basic business practices into their operating procedures, and the central management team demands disciplined execution of those practices. HSF’s president, Chuck Slaughter, has built successful, profitable businesses in the private sector and easily transfers his experience into opportunities. Good management, marketing, a solid training program, and a focus on unit economics are basic business skills, but have distinguished the foundation from other non-profit organizations that do not have purely business-minded managers. HealthStore’s scope of mission is specific, and does not try to be all things to all people. It is run like a business.

3. What barriers would HealthStore have to overcome if it wanted to implement its model in other low-income countries?

The model only works because of the people who run it–from the upper management to the local entrepreneurs. The upper management has developed critical relationships with government regulators and with a low-cost drug distributor, and without those partnerships, HealthStore wouldn?t be where it is now. For it to work in other countries, they’d need locally-connected champions–people with business skills and connections–to build similar partnerships. And they’d need to tap into local talent pools–without dedicated, entrepreneurial nurses, good management from the center is moot.

4. How do human resources constrain HealthStore – or enable the model to thrive?

Despite a global nursing shortage, HealthStore has not had trouble recruiting franchisees. The foundation enables nurses to make a steady income and provide basic medical care, in addition to selling essential medicines that are commonly out of stock at the public hospitals. Educated nurses are easily trained to think strategically and to implement the strict business discipline required by HSF.

5. Do you think healthcare delivery services in low-income communities necessarily need to be hybrid models? Can HealthStore be self-sustaining AND profitable down the road?

HealthStore’s success is due in part to the fact that local entrepreneurs have skin in the game and can make their livelihood from being a part of the franchise. Franchisees are motivated to work smarter and grow their businesses by reaching out to communities and developing promotions, which in turn increases their revenues. Because of HealthStore’s management, training and support, non-profit drug distributor and government relationships, the franchisees are set up for success in an environment where very few small business owners can turn a profit, let alone serve a crucial community need.

6. What is HealthStore’s biggest challenge, both short-term and long-term?

In the short term, they must overcome a pipeline challenge–they need to find enough qualified nurses who are willing to take the risks inherent to owning a franchise. The best shop owners will likely already be employed at a hospital or clinic. To open a clinic, they?ll need to leave the security of that job and raise significant investment capital. That’s a big leap. And as the foundation moves into increasingly rural locales, finding the right entrepreneurs will only get more difficult.

In the long run, Kenyan operations may outgrow the capacity of its drug supplier, MEDS. The non-profit partnership between MEDS and HSF allows HealthStores to keep prices low, even with the franchise fee built in. As the number of locations grows from fewer than 100 to over 400, MEDS may not be able to keep up. If not, they will need to examine how to keep drug prices low while maintaining high quality–and doing this on the commercial market is difficult.

7. Please share a particularly good anecdote from your research.

HealthStore was running a malaria promotion, including a discount on bed nets. They thought they’d have enough nets to last 2 months, but they sold out in a week. It showed us that low-income people have the ability and willingness to pay for healthcare, something development experts tend to discount. Not only did customers turn out in droves, but promotions were effective at driving traffic to the franchises. At one HealthStore, pre-promotion traffic was about 200 customers per month. After a series of promotions, they recorded 1,000 customers per month in steady traffic. Basic business practices work in developing country contexts–all you need is good training and dedicated entrepreneurs.