Posted on Aug 29, 2012 by Sergio Ulloa
During his inaugural speech of the 6th FICCI HEAL (Federation of Indian Chambers of Commerce and Industry - Health Enterprise and Learning) 2012 annual international conference in Delhi this week, Indian President Pranab Mukherjee noted that there is a "high variance" in the quality of service available in public and private sector hospitals, and that the country's healthcare system should be developed to meet medical requirements of all sections of the population.
"There is a high variance in the quality of service available. Some private hospitals provide world class facilities, so much so that people from third countries come here for treatment giving impetus to medical tourism. On the other hand is the lack of access to even basic medical care for many people, particularly the poor and disadvantaged."
India's healthcare system reflects the country's massive rich poor divide very accurately. The public healthcare system is barely able to provide essential services to the urban population, while there are many rural areas where no public health service is available at all.
The private healthcare sector has taken up some of the slack, and currently accounts for more than three quarters of total healthcare spending and a similar percentage of the country's total hospital beds. While private hospitals provide a critical service, the majority of hospitals are based in large urban centres.
The rural population is generally also significantly poorer than the urban population, compounding the problem of availability of medical services with that of affordability. According to Future Generali India Insurance, only about 320 million, or 26% of the population, are covered by some type of health insurance and many pay for medical treatment out of the family's savings.
Improving the affordability, availability and quality of healthcare available to India's billion-plus population presents both a massive challenge and enormous opportunities. India's government is actively pursuing Public Private Partnerships to try and tackle the problem, with the goal of leveraging the scale of the public system with the efficiency and quality of the private sector.
Some examples of these Public Private Partnerships working successfully already exist. The Urban Slum Healthcare Project in Andhra Pradesh is a partnership between State Commissionerate of Family Welfare and NGOs. Outsourcing of emergency transport services in 14 states where state governments are in partnership with private providers has proven to be very successful, as has the partnership between GE Healthcare and public hospitals to set up diagnostic centres within the hospitals.
While some work is being done to alleviate the plight of the currently underfunded and short staffed public system, many hospitals are feeling the pinch and have not seen any government action for years.
For instance, the state run Gandhi Hospital in Hyderabad currently has an extreme shortage of anaesthetists, extending waiting times up to two months and preventing hundreds of operations from being performed.
The shortage is causing some departments to close down, despite long waiting lists, and while the hospital is still managing to handle all emergency cases, elective surgery has been all but suspended.
The hospital usually operates five days a week, but currently has no anaesthesiologist on duty for two of those five days. Even for patients already admitted, the waiting time for procedures has gone up from three days to two weeks. According to Dr. Upender Goud, head of anaesthesia, an average of 40-53 surgeries per day are performed at Gandhi Hospital.
"The number of surgeries is not the criteria. What matters is the quality of work. Even a small mistake can cost the life of the patient. We are overburdened and hard-pressed," says Dr. Goud.
Several representations by the anaesthesia department have been pending with the state government for nearly four years. For the time being, the officials said that they are planning to outsource a couple of specialists and are hoping that there will be some improvement to the situation within a month.
India spends only about 0.9% of its GDP on healthcare, and it will require a lot more investment than that to bring the 30 year old health system up to date. There is a shortage of more than 6000 doctors in primary care facilities across the country, while there is only 1 public hospital bed for every 2000 people. A leading government think tank recently produced a report proposing some changes to try and tackle this massive healthcare conundrum. The report suggests some radical changes in the current system. One of the major proposals is for the government to relinquish its role as the nation's primary healthcare provider, leaving that role to private facilities, and focus on administration and management of the healthcare system It envisions a situation where the government pays private healthcare providers fixed rates for providing medical services to the public. These proposals have not been well received by the Health Ministry, which prefers to try and bolster the public system and use private resources to fill in the gaps.
It hasn't been suggested how much such proposals would cost to implement, but in a country with such a large part of the population living in poverty, one wonders where the money will come from. India not only needs to make some major investment in its healthcare infrastructure, but its road network is falling into disrepair, the railway system is ancient and the electricity grid needs massive investment as well. While the current government is promising to spend USD1 trillion on infrastructure upgrades by 2015, the healthcare problem is far greater than a mere lack of facilities, with issues that are not so easily solved.
The situation in private hospitals is far better, the problem is that very few can afford treatment in them. With almost a billion people having to pay for any healthcare costs out of their own meagerly filled pockets, it is absolutely certain that private healthcare will stay out of reach of the vast majority of Indians for the forseeable future given that only around 6% of the population is covered by private medical insurance.
Compounding the affordability problems of healthcare, the private insurance company, Future Generali India Insurance, sees medical costs in the country increasing at an average of around 15 per cent annually. Currently only about a third of all hospitalization costs in the country are covered by health insurance, meaning the inflation in medical expenses will progressively put quality healthcare further out of reach of a growing number of Indians.
The demand for health insurance coverage in India is very high. Getting more people covered by health insurance may help with removing the urban bias in the accessibility of health care, and may also improve the standard of medical services for all Indians. If the government does decide to step back from being a healthcare provider and chooses to use the private sector to fulfill that role, the demand for private healthcare will obviously increase. As we have seen in other countries who have similar systems, there will always be a market for premium medical services, away from the throngs of people, queues and budget constraints that feature so strongly in public healthcare.
The health insurance industry is expected to grow at a rate of 16-20 per cent per annum for the next five years. The potential for growth is high but for insurance companies it is still a loss making business. Basic loss ratios, which only take into account premiums to claims, have been above 100 per cent and combined ratios which are a measure of ultimate profitability are above 120 per cent. Some of the factors making it difficult for insurers to turn a profit are a high ratio of fraudulent claims and almost no regulation of private healthcare providers, meaning that private hospitals can charge whatever they like. Furthermore, the Indian system of using third party administrators (TPA's) to act as a kind of broker between insurers, hospitals and policyholders is prone to abuse and fraud. TPA's are supposed to ensure that claims are dealt with smoothly, by helping the customer file a claim, working with the healthcare provider to settle bills directly, and referring clients to doctors who are able to deal directly with insurers. The reality is that currently, TPA's are often delaying payments, offering to settle only partially, leaving policy holders with large unexpected bills, and some are even processing claims for fictional treatments at non-existent hospitals. There have been calls to regulate the role of TPA's more strictly, but no new measures have been implemented to date.
In an effort to increase market exposure and improve efficiency and ultimately, profitability, insurers are developing strategic partnerships with banks. In one such recent move, Tamilnad Mercantile Bank Ltd, in partnership with United India Insurance Company Ltd, has launched a co-branded family healthcare product, to offer customised health insurance policy for the bank's customers. "The cost of healthcare is going to increase rapidly in the coming years and insurance is a requirement to meet the cost of healthcare for each individual. This co-branded product will give our customers a fine risk coverage at a low premium," said KB Nagendra Murthy, managing director and CEO of the bank.
Indian health officials have some big decisions to make. They could choose to simply try and improve the current system by investing in public healthcare infrastructure, increasing training facilities and using the private sector to simply fill in where it cannot provide care, such as in super specialized facilities or experimental treatments. Another option would be to step out of the healthcare provider role altogether, as outlined above, and simply pay private healthcare providers set amounts for treatment. This option is fraught with potential dangers of overpricing and overdiagnosis, as is the case in the USA, where providers are paid per treatment, and the more they do for a patient, the more they get paid.
The PPP model seems to be the most promising, and if done right can play into each sector's strengths and existing infrastructure. Whichever route India decides to take to deal with its healthcare challenges, working out affordable solutions will definitely be a challenge. However, India has a reputation for innovation, creativity and adaptability in business, let's hope they have politicians brave enough to implement the changes they need.