Private Healthcare in
By Melvin J. Howard
Healthcare is the responsibility of the Indian central and state governments. Until a decade ago healthcare services were provided only by government and charity hospitals. These service providers have been overwhelmed by the cost and demand. The demand for quality services has increased tremendously during this past decade primarily because
The marginal presence of the government in healthcare leaves the door open for alternative suppliers.
Implication of health insurance
The low level of health coverage in
As the experience in the
Private initiatives and policy options: recent health system
BRIJESH C PUROHIT
Social Service Area, Administrative Staff
In the recent past the impact of structural adjustment in the Indian health care sector has been felt in the reduction in central grants to States for public health and disease control programmes. This falling share of central grants has had a more pronounced impact on the poorer states, which have found it more difficult to raise local resources to compensate for this loss of revenue. With the continued pace of reforms, the likelihood of increasing State expenditure on the health care sector is limited in the future. As a result, a number of notable trends are appearing in the Indian health care sector. These include an increasing investment by non-resident Indians (NRIs) in the hospital industry, leading to a spurt in corporatization in the States of their original domicile and an increasing participation by multinational companies in diagnostics aiming to capture the potential of the Indian health insurance market. The policy responses to these private initiatives are reflected in measures comprising strategies to attract private sector participation and management inputs into primary health care centres (PHCs), privatization or semi-privatization of public health facilities such as non-clinical services in public hospitals, innovating ways to finance public health facilities through nonbudgetary measures, and tax incentives by the State governments to encourage private sector investment in the health sector. Bearing in mind the vital importance of such market forces and policy responses in shaping the future health care scenario in
One of the most significant trends emerging in the wake of liberalization is the new vigour of the entry of corporate hospitals and multinationals in the health care scenario. The
reason for this new tempo is the potential that
Growing NRI investment in the hospital industry
Realizing the need, the potential for profit and from a desire to develop the States of their original domicile, many NRIs from the
Corporatization of the hospital industry
Health care is thus emerging as a blue-chip industry and in recent years has attracted the investment of both domestic and foreign companies. Unlike the earlier image of the private sector, which mainly focused on nursing homes and polyclinics, the new market orientation is towards superspecialty care.8 In this regard, although the pioneering efforts were made way back in 1983 by a group known as Apollo,v a number of other companies have now entered the market. Notable among the latter include successful domestic and foreign companies like CDR, Wockhardt, Medinova, Duncan, Ispat, Escorts, Mediciti, Kamineni, Parkway, Jardine, Nicholas and Sedgwick.9,10 The entry of so many such companies has added towards corporatization of the healthcare industry with a focus on high profit-margin, superspecialty and diagnostic care. Mostly these companies have expanded their network in
Private initiatives and policy options in
Increasing participation by multinationals
Given the rising cost of health care in the last 5 years,vi the foreign companies are aiming to capture the potential of the health insurance market for nearly 135 million people in the upper-middle income segment of the population who can afford private health care. Against an estimated potential health insurance market of between Rs 6500–275 000 million, the present annual health insurance premium market by the General Insurance Corporation and its subsidiaries is merely Rs 1000 million, covering just 1.6 million people. In view of the possible opening of the market to multinationals, many foreign companies have already taken preliminary steps, such as setting up their representative offices or entering into ties with Indian companies.vii These companies aim to devise health insurance schemes suited to the Indian situation, to improve coverage by incorporating payments for general physicians (GP), medical tests and specialist charges, and containing costs through appropriate controlling systems.
Besides health insurance, the high-tech, medical, electronic equipment industry has been the other area to attract investment by multinationals following liberalization. This is due to the high-tech nature of modern diagnostics, which is based largely on foreign technology having a high obsolescence rate of around 5 years and thus high replacement needs. In general, a reduction on import duties on individual components, and high rates of import duties (up to 31–37%) on high-tech finished products (like CT scanners), have together encouraged multinationals to assemble the imported components in
In the last 1 or 2 years a number of State governments have become increasingly aware of the possibility of introducing policy measures that could enhance resource availability to the health care sector either through economic or institutional reforms. These include policy initiatives to attract private sector participation and management inputs into
running PHCs, the privatization or semi-privatization of public sector health facilities, innovative non-tax measures to finance public health facilities, and tax incentive measures to attract private sector investment in health care. Some of the State governments have even initiated moves to reorganize their health directorates into public sector undertakings.viii More often, however, this has been done with the assistance and insistence of the World Bank. In this section we do not intend to go into this aspect of reorganization but rather focus on the other above-mentioned measures.
Measures to attract private sector inputs in PHCs and privatization
Owing to scarcity of resources, the existing public health system has been unable to provide care to all. At present as many as 135 million Indians do not have access to health services.15 Despite the Bhore Committee’s recommendations in 1946 of the provision of one health centre for every 20 000 people, the country currently has one PHC per 31 000 population.15,16 Even the existing public health facilities run with abysmally low resources; presently, an average Indian PHC has as its budget only Rs 1 per capita for drugs. Thus, apparently prompted by the desire to increase access for more people, some of the State governments have recently favoured an increasing participation of the private sector in running the existing public health facilities.17,18
In this regard two distinct strategies with differing implications have been adopted. One strategy has been to attract direct private investment purely on a philanthropic basis while maintaining the bureaucratic management of the existing health care facility. Expenditure by the private companies falls under charitable purposes and can be claimed for exemption from taxation; beyond this, there is no benefit to the private parties. This strategy has been adopted in Tamil Nadu where the State government has called for private sector participation by inviting private investment in public health-care infrastructure and improvement. To expedite this process a special division has been created in the State’s department of health and family welfare for the promotion of private sector participation in public health. The emphasis has been laid on the adoption by the private sector of PHCs, district and taluk hospitals and other government-run medical facilities to improve the facilities provided. The State has sought private participation in the form of construction work, maintenance and provision of equipment, with the government providing the staff, medicines and management. Tamil Nadu has 1420 PHCs, many of which are not housed in their own buildings, and there is inadequate maintenance even at the level of taluk and district hospitals.ix The privatization strategy will therefore help in raising resources for maintenance purposes. As many as 100 PHCs in the State will be maintained through various private companies and industrial houses under the PHC participation scheme.x
Thus the efforts of
Another strategy has been to increase private sector participation by handing over the management of public sector facilities to a private party working on a not-for-profit basis, with core funding coming from the government. Such a move has been made by the State of
In the case of the second strategy, involving private sector management in public health facilities, the crucial considerations would be procedures for the effective delegation of powers within the existing bureaucratic framework and mechanisms of coordination between lower level (PHC) and upper level (district) authorities. The performance following the private sector adoption of a PHC would still depend crucially upon the cooperation of bureaucracy in various ways. In the absence of clear autonomy in hiring personnel, wage fixation and rate fixation, while taking into account the affordability of poorer people in the area, the chances for success of such collaboration between public and private sectors may be slim. This kind of autonomy may require modification of rules and procedures, which may be a timeconsuming process and political interference may slow it down further.
Innovative non-tax financing
Some Indian States have initiated some innovative financing measures to mobilize private resources for the public healthcare delivery system. For instance, Kerala and Rajasthan have set up committees, known as the hospital development committee (Kerala) or medicare relief society (Rajasthan). These are entrusted with all the funds, which include user charges, visiting fees, outpatient fees etc. These committees have their own bank account and can decide upon the allocation of funds .xiii Another innovative method initiated by Himachal Pradesh is a scheme called ‘Vikas Me Jan Sahyog’ (Peoples’ participation in development). This scheme envisages 20% of funds being contributed by the people and the remaining 80% coming from the State government. The scheme covers the construction of hospitals, sub-centres and ayurvedic hospitals in a specific area. Likewise, in Kerala an innovative measure of raising resources for cancer control was initiated by involving the community in a unique way. For instance, it was announced by the State that 25% of the total collections from Indira Vikas Patra would be earmarked for early detection and prevention of cancer. This resulted in an enormous positive response from the public, and instead of a planned collection of Rs 100–120 million under the scheme, Rs 760 million was collected. In fact, 25% of this collection, earmarked for a cancer control and early detection programme, was equivalent to nearly 10 years of the sanctioned budget.
Private initiatives and policy options in
Tax incentive measures
A number of tax concessions have been extended to the hospital industry in recent years. These include both central and State level measures. At the State level, these concessions are available in the allotment of land and investment allowances for medical equipment. The Rajasthan Government, for instance, has adopted incentive measures such as the allotment of land for hospitals at concessional prices and subsidy for investment in medical equipment.20 In order to extend these facilities, the private enterprises have been classified into different categoriesxv which could take advantage of a reduction of 25–50% on the market price of agricultural land in rural areas and the residential land price in urban areas, up to a certain land ceiling. However, if the land allotted for medical institutional purposes is not put to use within 2 years from the date of allotment, it may be taken back by the government. Likewise, if the medical institutions were set up before 31 March 1999, the eligible health care institutions are exempted from local levy and State sales tax on medical equipment, plants and machinery imported from abroad or outside the State or purchased within the State.
Many of these incentives, as well as financial help from banks, are available to private hospitals in other States, including Andhra Pradesh and
However, there remains a problem of coordination on this aspect between the private hospitals and the concerned State governments. For instance, in Delhi, the Apollo Hospital, which was recently constructed on concessional land by the government (the latter also being a partner holding a 26% share), was required to build a free outpatient ward, provide 200 free beds and free diagnostic and operation theatre facilities and free diets to poor patients. Despite this all being carried out by the hospital, there was some confusion; government administration also insisted on free medicine and consumables for poor patients, despite the absence of such a clause in the contract.22 Likewise, under the contract it was agreed that complicated heart and brain surgery would be performed free of charge for the poor by ‘Super Specialists’ at the hospital. But, due to further confusion, the government has been insisting on admitting and treating all road accident victims for free at the hospital, again a condition not mentioned in the clause. As a consequence the excellent facilities of the outpatient and in-patient wards, operation theatres and other diagnostics have remained unutilized and the dispute remains unresolved.
At the central level, these hospitals have the advantage of the concessional duty for imports of medical equipment. At present, the import duties have been reduced to an average level of 15% for medical equipment and there is no duty on life-saving equipment.24 At the aggregate level, in value terms these imports contribute 50% of the total requirements of medical equipment in the country. This kind of import liberalization for health care equipment is accelerating the growth in the domestic production of medical supplies, but it is also being spurred by the affluent and consumer-oriented middleincome population, which is demanding quality health care
using hi-tech equipment.
Policy options and welfare implications
Many of the merits and problems associated with recent policy measures and market forces concerning developing countries generally, seem to be equally relevant for the Indian health care sector. The main thrust of policy in the postliberalization period has been to encourage market forces. However, there are limits to this approach, unless appropriate refinement in the role of government is undertaken. In the last few years, many of the recent reforms both in developed and developing countries have been geared towards privatization or increasing private sector participation in public health care.26 With increasing private sector participation it is presumed that managed markets, especially in the hospital sector, will increase supply-side efficiency by increasing competition among providers and there will be increased transparency in trading or hospital business.27 Also, efficient managed markets in welfare services like health presuppose: (1) competition between suppliers; (2) definable outputs for which consumer valuation could be made; and (3) lower transaction costs compared to an existing set of costs.28 In some recent reforms some of these conditions are not satisfied, one consequence of which has been a rise in costs. Nonetheless, it has been emphasized that the private sector can be a more efficient producer of secondary and tertiary level health care, and therefore the government budget can be balanced.