Spillover Effects of Mission Activities on Revenues in Nonprofit Health Care: The Case of Aravind Eye Hospitals, India

Abstract

Nonprofit health care organizations in low- and middle-income countries often pursue a cross-subsidization business model wherein services are offered to poor patients for free through surpluses generated by serving some patients at market prices. This approach allows such organizations to fulfill their mission-oriented and revenue-generation goals. Conventional wisdom holds that mission activities need financial subsidies from revenue-generating activities. The authors examine this dependence in the context of Aravind Eye Hospitals, which delivers eye care services in India. They measure whether the marketing activities (outreach camps) of Aravind that are targeted only to poor patients produce the spillover benefit of attracting paying patients to its hospitals. Using nine years of patient-level historical data, the authors find that camps increase the flow of paying patients. These effects are comparable to the camps acting as advertising for Aravind. Using model estimates, the authors compute the incremental revenue accruing to Aravind from a camp and find that it exceeds the incremental cost of a camp. The findings challenge conventional beliefs about the subsidies required by mission activities.