Market Prescriptions for Healthcare services – Evidence versus Ideology

October 28, 2012

Indira Chakravarthi


The draft chapter of the Planning Commission on HEALTH for the XII Five Year Plan, released in July 2012 had outlined a new strategy for health in the XII Plan, as part of a longer term reform of the system over the next decade (Planning Commission 2012a). The strategy proposed was one of “managed care” and “managed competition”, in which the government would function as the purchaser of health services from organized networks of public and private health providers.

Several concerns were raised about the strategies put forth in this Plan to provide universal health coverage. These were largely relating to the attempt to keep the health spending at 1.58 per cent of GDP as against 2.5 per cent recommended by HLEG; and having a uniform National Health Mission for the entire country in place of the existing National Rural Health Mission (NRHM), which covers pre-dominantly the rural populations. Even the Ministry of Health had registered its objections to these proposals, and asked for the chapter to be rewritten. The proposal of the “managed care” model had also evoked a very sharp reaction from sections of public health activists. The Planning Commission subsequently came up with a revised chapter (Planning Commission 2012b).

In formulating these plans the Planning Commission (PC) has largely relied upon the inputs provided by a “High Level Expert Group on Universal Health Coverage for India” (HLEG) that it had constituted in October 2010, with the mandate of developing a framework for providing easily accessible and affordable healthcare to all Indians. The PC strategy begins by saying that there must be substantial expansion and strengthening of the public sector healthcare system, and that expenditure by the Center and the states, both plan and non-plan, will have to be substantially increased (Sec 20.82 in Planning Commission 2012b).

Shape of things to come
What will be the shape of the expanded and strengthened public healthcare system, and how the increased finances will be utilized becomes clear from the proposals and key elements outlined in the draft, such as the following (Sec 20.82):

⁃ Encouraging cooperation between the public and private sector in achieving health goals…. Would include contracting in of services for gap filling, and also various forms of effectively regulated and managed PPP, while also ensuring that there is no compromise in terms of standards of delivery and that the incentive structure does not undermine health care objectives.

⁃ The present Rashtriya Swasthya Bima Yojana, which provides “cashless” in-patient treatment for eligible beneficiaries through an insurance based system, to be reformed to enable access to a continuum of comprehensive primary, secondary and tertiary care….. to cover the entire population below the poverty line.

⁃ Financial and managerial systems will be re-designed to ensure more efficient utilization of available resources, and to achieve better health outcomes. Coordinated delivery of services within and across sectors, delegation matched with accountability, fostering a spirit of innovation are some of the measures proposed to ensure that ‘more can be done from less for more’ .

⁃ A large expansion of medical schools, nursing colleges, etc. is necessary…; `the government shall take the lead role in creating teaching capacity in health, while private sector colleges would also be allowed…

⁃ The health system in the 12th Plan will continue to have a mix of public and private service providers. The public and private sectors also need to coordinate for delivery of a continuum of care. A strong regulatory system would supervise the quality of services delivered.

The previous proposal of a managed network comprising public and private providers, funded on a per capita basis and healthcare would be purchased, was indeed a “catastrophic” development. The revised chapter now available retains the essence of the measures first proposed; although use of terms such as purchasing, managed care networks, and competition induced efficiency have been avoided. The essential proposal now is – many countries are opting for “coordinated care” models where primary, secondary and tertiary care is delivered as an integrated framework with the participation of both public and private sector; given the reality of public-private providers, how can we organize a network of public and private providers to attain universal coverage (Sec 20.97, 20.98). It is suggested that various options of financing and organization be explored by states and they be encouraged and financed to run one to three pilots to test out the models. Such as – “The pilots could explore different models for providing universal access to an essential health package (EHP) including … a combination of public and private facility networks” (Sec. 20.102); “In areas where both public and private contracted in providers co-exist, patients shall have a choice in selecting their provider. Networks of such integrated facilities at different levels will be encouraged to provide a continuum of care …” (Sec. 20.100). There is also the proposal of granting financial and administrative autonomy to public facilities, encouraging them to raise their own resources (Sec 20.113); and more direct privatization measures to set up facilities to provide medical care (Sec 20.111).

The invoking of the concept of “universal healthcare” in recent times, and the frequent reference to “strengthening public provision” should not detract from the true nature and intentions underlying these developments in healthcare policy over the last two decades and the current proposals for “reform” of the healthcare system. Instead of asking why the government health system is so weak and ineffective, and why there is such a vast private sector, the PC serves it as a fait accompli and proposes tinkering around with this system. The measures proposed for “strengthening” of the public health system for universal health coverage – those of PPPs and expansion of insurance are not without their share of problems. The single biggest concern is the accommodation through all these strategies of the private sector within the health system, and an expanded role for it in the provision of clinical, diagnostic, and other healthcare services.

Before proceeding it needs to be mentioned briefly that the idea of universal health care is not entirely a new one. Provision of comprehensive, universal health services (i.e. the same quality of curative and preventive services available to all irrespective of their ability to pay) as a right, through a publicly funded national health service system had been a central feature of some welfare states, as also of the planning process in India since the 1940s. (How it was achieved to a large extent in few countries and why this has not been achieved in India is subject for a separate discussion). Whereas, with the inception of the health sector reforms, the idea has changed to provision of affordable and accessible primary healthcare services. By UHC the 12th Plan means that each individual would have assured access to a defined essential range of medicines and treatment at an affordable price, which should be entirely free for a large percentage of the population (Sec 20.81). The HLEG defines universal health care as:

“ensuring equitable access to all Indians…to affordable, accountable, appropriate healthcare services…delivered to individuals and populations, with the government being the guarantor and enabler, although not necessarily the only provider of healthcare and related services” (Government of India 2011 p 3).

While the HLEG recommends that general taxation should be the principal source of healthcare financing and that there should be no fees of any kind for health services, it also recommends that,

“Purchase of all healthcare services under the UHC system should be undertaken either directly by the central and state governments through their Departments of Health, or by quasi-governmental autonomous agencies established especially for the purpose” (op cit p 13).

Further, the HLEG Report says,

“State governments should transfer funds to the district and allow the District Health System manager to allocate the funds between public provision and purchase of services on a competing basis from contracted-in private providers, while tracking outcomes at the district level and holding these managers responsible for these outcomes” (emphasis added) (op cit. p 113).

Thus, the HLEG recommends a market approach entailing separation of financing and provisioning, and “purchase” of services from a fragmented system consisting of competing providers, instead of the system envisaged since the 1950s (but never effectively implemented), of a fully publicly financed, integrated health system, planning for and providing universal, comprehensive health services.

Available evidence shows that the best performing systems in the developing world have been unified systems that do not have a provider – purchaser split, such as in Sri Lanka, Cuba, and Costa Rica. The experience of the pre-reform National Health Service (NHS) of UK also shows that, although the system had its deficiencies and was far from perfect, yet, because of the integration designed into both funding and organization, it was possible for regional health authorities to undertake planning for large populations, avoid wasteful duplication and achieve efficiency, making it economical to run. All this made it possible to secure comprehensiveness, universality and equity of health services, provided free to all as a right (emphasis added) (Pollock 2005 pp 16-17).

Private Sector in India – increasing corporate presence
It is well documented by now that the health services in India did not grow as envisioned and planned, due to a combination of factors such as lack of political will; inadequate finances; pressure from international agencies such as WHO to implement vertical programmes for population control and against specific diseases such as malaria, polio; corruption and lack of accountability, and reluctance among doctors and specialists (trained in urban medical colleges oriented to western standards) to work in the largely ill-equipped rural health facilities lacking in basic amenities and infrastructure. At the same time the private healthcare sector in India got subsidies and conditions favourable for its unimpeded, unregulated growth, giving rise to a `passive privatization’ process through the 1980s-90s.

While there is increased attention to and discourse on health and health services in recent times, especially government health services and programmes, however, there is not as much attention to the private health sector. Despite the fact that India has had one of the most privatized health systems in the world for decades, there is little systematic documentation and analysis on the performance of the private sector. Bulk of the attention, research and analysis on healthcare in India is focused on the under-resourced government health services and programmes, and in running down their `poor performance’, `faults and shortcomings’. There are as yet no such comprehensive studies on the private sector in general, and specifically on commercialization, except for isolated ones on financial performance (Bhat 2006), or in context of foreign direct investment (FDI) and medical tourism (Chanda 2010). There is continuing dearth of information on size, spread, composition, infrastructure, efficiency and effectiveness of the private sector hospitals, services provided and their quality, employment conditions, costs, and status of adherence to rational, ethical practices. There are no rigorous evaluations yet on the terms and conditions, and functioning of PPPs in healthcare sector (Prashanth 2011, Datta 2009). The government has not shown any political will so far to impose any checks and regulations of the private sector. Yet, it is promoting and implementing PPPs. There is rarely, if any, comparable demand for accountability and transparency from private hospitals and diagnostic facilities as there is from the public sector.

The current discourse in health, focusing largely on financing mechanisms and insurance, ignores the fact that the private sector today no longer comprises simply of a non-profit segment of individual practitioners, small nursing homes, laboratories, charitable hospitals. Since the 1990s the provision of health services has become increasingly commercialized, a revenue / profit generating activity (Chakravarthi 2010). Healthcare in India was reported to be one of the largest service sectors with estimated revenue of around $ 30 billion (Rs 150,000 crores at Rs 50 a dollar) constituting 5% of GDP and offering employment to around 4 million people. According to Investment Commission of India, the sector has witnessed a phenomenal expansion in the last 4 years growing at over 12% per annum. Industry associations have been putting out forecasts of growth in the industry size – to be around US $ 79 billion (Rs 395,000 crores) in 2012, and set to increase to US $ 280 billion (Rs 1400,000 crores) by 2020 (IBEF 2011, PricewaterhouseCoopers 2007).

Since the early 1990s, when healthcare was seen as a `sunrise industry’, several big corporate houses, Fortis Healthcare (promoted by Ranbaxy Labs), Wockhardt Hospitals (promoted by the pharma company Wockhardt) and Max Healthcare announced plans to set up hospital chains across the country. In addition to these big hospital chains including the oldest one Apollo Healthcare Enterprises Limited (AHEL), a large number of other private hospitals and specialty facilities, such as for cardiac care, renal care, eye care, orthodontics, laparoscopy, pathological laboratories, imaging facilities, etc. have also come up (see Nagral 2012). The International Finance Corporation (IFC), a member of the World Bank Group, is providing loans for expansion of private hospitals and for setting up hospitals in smaller cities and towns in the country (such as to Apollo, Max and Rockland groups); as part of its strategy to invest in health care, and to promote private sector involvement in healthcare in India.

In 2010 corporate hospitals were reported to be 10.4% of the total number of hospitals across the metropolises of NCR, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad (Ernst & Young figures cited in IBEF presentation 2010). As per CMIE (Centre for Monitoring Indian Economy) analysis, sales of 30 companies in healthcare sector for the five year period of 2003-2008 had steadily increased (CMIE 2010).

The activities of AHEL, reported to be the largest healthcare group in Asia (CRISIL Research 2009), give an idea of the spread of the corporate hospitals. As of March 2011 Apollo had 54 hospitals with a total capacity of over 8700 beds, across 22 cities of Ahmedabad, Aragonda, Bengaluru, Bhubaneshwar, Bilaspur, Chennai, Delhi, Hyderabad, Indore, Kakinada, Karimnagar, Karur, Kolkata, Ludhiana, Madurai, Mysore, Noida, Pune, Raichur, Ranchi, Ranipet, and Vishakapatnam, and one each in Dhaka and Mauritius. It was planning to add around 2,200 beds by 2014, in different regions in the following manner: Expansion in existing projects, in Hyderabad, Chennai, and Bilaspur; Apollo Reach hospitals (in semi-urban and rural areas), in Ayanambakkam, Nasik, Karaikudi, Nellore, Trichy; super specialty hospitals in Vizag, Belapur, Mumbai, Secunderabad, and Hyderguda. All these activities were expected to increase the total beds owned to 2,230 at a cost of Rs 1107 crores. In addition, through joint ventures and associates in Thane (super specialty), Bangalore (expansion), and New Delhi (expansion), to take bed strength to 438 at a cost of Rs 246 crores. AHEL is also reported to be setting up pediatric hospitals, 4 in India and 1 in Nigeria (IBEF 2011). In the year ended March 2011, the gross revenue of the company had increased to Rs 2353.3 crores, registering a growth of 27%, over the previous year. The profit after tax for the year increased by 20% to Rs.181.7 crores, compared to Rs. 152 crores in the previous year. Total number of employees for the group increased from 26,659 in March 2010 to 30,640 as of March 2011. The average revenue per occupied bed (ARPOB) increased at a CAGR of 11.4% to Rs 11,616 in the first quarter of the 2011 (all figures from Annual Report 2010-11 Apollo Hospitals).While hospitals, pharmacies and consulting are the three main lines of business for AHEL, it is the hospitals segment that was reported to bring in the maximum revenues (CRISIL 2009).

In the mid-1990s owners of the erstwhile leading corporate hospitals, manufacturers of advanced medical equipment, like Philips Medical Systems-India, and the Confederation of Indian Industry (CII) started working together for the establishment of an active industry association, an `organized private sector’ in India, for provision of healthcare, as against the prevailing unorganized, fragmented and unregulated sector comprising largely of small hospitals and nursing homes. These efforts culminated in the formation of the Indian Healthcare Federation (IHCF), an association of corporate hospitals, diagnostic centers, medical equipment manufacturers and pharmaceutical companies. According to the IHCF an active industry association could play an important role in the development of the healthcare sector. `To boost the overall growth and development of healthcare in India, the sector needs a vibrant industry association, which will have to present a united front to key stakeholders, such as government insurers, policy institutions and industry players’. The IHCF commissioned a report on healthcare market in India, prepared for it by Confederation of Indian Industry (CII) McKinsey and Company, and released in October 2002 (Confederation of Indian Industry 2002). The Report was meant to provide a roadmap for the creation of this infrastructure by the organised private players, in a viable and cost-efficient manner. It concluded with clear recommendations for industry and government on how to increase levels of investment in the sector and create opportunities for public-private partnerships in healthcare. It also recommended that if investments were made by the organized private providers (corporate and charitable, excluding small hospitals and private nursing homes), then they could increase their share significantly in healthcare delivery. IHCF works closely with the CII-National Committee on Healthcare. Together they organize regular India Health Summits, attended by industry and government officials, to promote and `showcase’ the Indian healthcare industry (, see Councils and Committees). Similarly FIICI organizes regular IndiaHeal summits.

Since then all industry associations have become active in the healthcare sector. The corporate segment of the private healthcare sector is thus well-organized and lobbies actively with the government in its interest, on the pretext of partnering with the government to serve the healthcare needs of the nation. The industry is actively promoting the idea that “Health care infrastructure should not just be viewed as a social good but also as a viable economic venture with productivity” (FICCI 2008). Government documents, as well as the business sector itself including the media, talk of the `Indian healthcare industry’, in which they include all public as well as private healthcare providers. As per the President and CEO, GE Healthcare India “India is the first country to have a large number of multinational healthcare providers. There are seven-eight very active MNCs. It opens a whole host of opportunities for us. I see the healthcare sector as one of the biggest business opportunities.” Some of the industry demands are that the government should attract private healthcare investment to supplement the public funding deficit in healthcare allocations, by giving various fiscal and non-fiscal incentives; facilitate PPPs for building health infrastructure i ; allow private players in medical education; and replace the non-viable concept of free treatment by private sector in lieu of subsidies/incentives by insurance or third party payment (FICCI 2008).

It is not just the industry that is projecting `growth’ in the healthcare markets and promoting avenues for `exploiting’ the `booming’ opportunities. The government itself is promoting India as a `favourable destination for investment in healthcare, which is an area for potential growth’. According to the IBEF ii (India Brand Equity Foundation), `India is one of the world’s most lucrative healthcare markets and is expanding rapidly…’. Citing business reports IBEF also states that huge private sector investments will significantly contribute to the development of the hospital industry, comprising around 80% of the total market.

According to business reports the healthcare industryiii is reported to be “flush with private equity (PE) funds”, and there has been an increase of PE funding in healthcare. The investment of PE funds is not just for established hospital chains in urban areas, but also for “targeting” new segments; namely setting up primary care clinics and hospitals in tier II and tier III cities, rural and semi-urban areas, diagnostic centres and medical equipment. For instance, New-York based Acumen Fund and Hindustan Latex Limited (HLL – a company under the Ministry of Health & Family Welfare) have formed a joint venture called Life Spring Hospitals, which is creating a chain of small hospitals (20-25 beds) in south Indian states, to provide maternal and child healthcare services ( ICICI Venture, through I-Ven-Medicare, was reported to be investing in not so-well known names in healthcare, such as Rs 180 crores in Sahyadri Hospital, Pune; Rs 120 crores in Vikram Hospital, Mysore; Rs 81.25 crores in Medica Synergy, Kolkata; and Rs 51.25 crores in RG Stone, New Delhi (Dutta 2008).

What are the implications for a mixed health system of the presence and expansion of such a corporate, commercialized private sector, and of influx of finance capital into healthcare? What is the basis for such positive forecasts of the `booming healthcare industry’, by the government and the industry? In the context of similar developments in the USA, it was observed that with the coming of the corporation has come “the pursuit of market logic above all” (White 2007 p 396). The proposals for the 12th Plan need to be seen in light of all these developments in the private sector, as well the larger ideological shift that has taken place since the 1980s against provision of welfare services by the state. As a consequence of this shift against welfarism, health sector reforms were initiated in many advanced capitalist countries, as well as developing countries, that had a public healthcare system, irrespective of whether it was funded by taxation or by insurance, and there has been dismantling and privatization of national health care systems in several other countries in the name of these reforms (Qadeer et al 2001, Sen 2003), or pressure to do so (Unger et al 2008).

Culmination of Health Sector Reforms
The deficiencies of the existing public healthcare system, arising largely from its deliberate neglect, could have been rectified and it could have been transformed into an universal, efficient, effective and accountable healthcare system by providing adequate financial and material resources, and guided by the recommendations made from time-to-time by various Committees and principles of comprehensive Primary Health Care that evolved in the 1970s. Instead, they have been used to justify imposition of a series of health sector reforms (HSRs) since the 1990s, which advocated limiting of public expenditure on health, minimal public services, as well as privatization in various forms (Qadeer et al 2001). The current developments are the culmination of these health sector reforms.

The government expenditure on health was subsequently restored and marginally increased, yet still remains at barely 1 % of GDP. State Health Systems Development Projects with World Bank loans (running into hundreds of crores of rupees) were implemented in several states – AP, Punjab, Karnataka, W Bengal, Orissa, Tamil Nadu, Maharashtra, Uttar Pradesh, Uttaranchal and Rajasthan. The loans were exclusively for: improving infrastructure at secondary levels; development of management skills; policy reforms; and improving the performance of the healthcare system. Other reform measures were: cost-recovery through enforcing charges for health services in public facilities (user fees); contracting /outsourcing and privatization of services such as diagnostics-cleaning-housekeeping-kitchens; insurance programmes; decentralization of planning and management to the district level; improvements in management – planning and budgeting, financial management and accounting systems; creation of district health management units; management training for all health professionals; and quality assurance programmes. However, at the same time the idea of free, comprehensive health services for all through the three-tier referral system, has also been eroded and replaced by that of an `essential health package’ to be delivered by the government facilities, and the rest to be provided by private sector, through insurance or other mechanisms. So through the government facilities we have now provision of a package of only some reproductive and child health (RCH) related services (for family planning, during pregnancy and childbirth, immunization) and some national health programs for certain communicable diseases such as malaria, tuberculosis, AIDS, etc. Much of these measures have all got consolidated under the NRHM. Multiple cash transfer and voucher schemes (variously termed incentives, or demand side financing or performance-based financing, popular name Janani Shishu Suraksha Yojana) also exist in several states to promote use of institutional (hospital based) health services (public or private) during pregnancy.

The 12th Plan now proposes another round of reforms, by formalizing the presence of the private sector in the health services. There is a move from what had been described as `creeping privatization’ through contracting and public-private partnerships to now introducing competition among multiple healthcare providers, with the assumption that it will increase efficiency on the supply side, all in the name of new public management.

Ostensibly, these reforms are being posed as (i) a way of meeting the needs of the country, to meet which the government claims it does not have sufficient resources and managerial capacity; and (ii) as a solution to the weaknesses of the present system of public provisioning of healthcare, to “the inherent disadvantages of a pure public sector delivery model, based on provision of budget resources to public sector providers with little incentive to deliver quality services”.

The assumption here is that such market solutions are the panacea to the problems of the public sector, such as poor quality of services, unresponsiveness and unaccountability to patients, poor management, in general, overall technical inefficiency. A further unstated assumption is that the market/private sector does not have these or other kinds of problems. What is the evidence for these generous assumptions?

There exists abundant anecdotal information pointing to a host of problems across private hospitals in India – fleecing of patients for money, lack of facilities, lack of proper trained staff, poor employment conditions, acceptance of commissions (“cuts”) for referrals, irrational and unethical practices (such as sex selective abortions and the recently reported unnecessary hysterectomies to claim insurance money). In 2000 the Health and Family Welfare Department of the Government of National Capital Territory (NCT) of Delhi constituted a 10-member High Level Committee under the chairpersonship of Justice A.S. Qureshi, to review the existing free treatment facilities extended by the charitable and other private hospitals that had been allotted land on concessional terms/rates by the government. This Committee Report clearly documents the greed, corruption and mismanagement of private and corporate hospitals in Delhi, their indifference and resistance to any monitoring and regulation, and the role of the government in condoning and conniving with these activities and attitude (Qureshi Committee Report 2001). It acknowledges that

“the task is important and challenging…In view of the fact that there is quite a lot of discontent and criticism among the people regarding the working of hospitals and nursing homes in Delhi, there should have been a thorough and wide ranging enquiry ordered to cover all aspects of functioning of hospital and nursing homes, including mismanagement, misappropriations, overcharging, siphoning out into the open market medicines meant for poor patients, rude and insulting behaviour with poor people and a whole lot of wrong things done there. But the Government of NCT of Delhi, in its wisdom, ordered this enquiry with narrow terms of reference. There are public interest litigation writ petitions filed in the High Court of Delhi against some hospitals… this could have been taken as an opportunity to find out illegalities, irregularities, improprieties and other defects in the working of hospitals and nursing homes in Delhi. They are too many and of big magnitude”.

The Committee sent a comprehensive questionnaire to 450 hospitals and nursing homes in all to elicit information and gather material for use as a database. There was resistance and refusal by the managements of most hospitals to comply. Some did so reluctantly and sent replies to the questionnaires as it suited them, disclosing some of the facts and withholding what they found inconvenient. Only 80 out of the 450 hospitals responded to the second request to return the completed questionnaires. As the Report says `some who have been allotted government land had not bothered to even reply to the questionnaire in a spirit of open defiance’. Thus, available reports point to blatant misuse of concessions granted to the corporate sector so far; and that the government itself is in no position to monitor their activities and rein them in. Similar observations have been reported of the trust hospitals in Mumbai (Duggal 2012).

Adverse impacts of market oriented reforms, of corporate presence
The PC document states that “A mix of public and private services is the reality of most countries. In order to make this mix work, a strong regulatory framework is essential to ensure that the UHC programme is most effective in controlling cost, reducing provider-induced demand, and ensuring quality” (Planning Commission 2012b Sec 20.97). While the reality of public-private mix is not entirely true, what is important is that there is no evidence that such a mixed system is better, more equitable or efficient. On the contrary, there is plenty of evidence available of the adverse consequences of markets, of corporate investment, of having a system of public funding and private provisioning, and of the impact of reforms aimed at introducing competition and managed care in the UK National Health Services (NHS).

The impact of corporate presence in health sector has been studied in countries such as Australia (White and Collyer 1998), Malaysia (Barraclough 1997), and the USA (White 2007). In Australia it was found that corporate investment clearly undermined the capacity of the state to intervene in the healthcare sector, and there was loss of political and bureaucratic control over the planning of appropriate hospital services. Among the problems of introducing competition in this sector was that of lack of information sharing between hospitals, such as of disease infection rates (such as staphylococcal infections), and about financial performance on grounds of `commercial sensitivity’. Such inhibition of information sharing decreased the capacity of the state to monitor, regulate and control. In Malaysia it was observed that `the profit motive does not appear to have resulted in vigorous competition and improvements in the quality of services. Nor had competitive pricing resulted in lower costs to consumers’ (BarraClough 1997 p 653). Further, many doctors and nursing staff had left the public sector for the better pay, work conditions and prospects in the private sector. The erstwhile Prime Minister himself, a doctor, was forced to admit that loss of specialists to lucrative private practice had aggravated the problems of the public hospitals, which had to treat more patients despite shortage of medical staff. Yet another issue was that existing charitable hospitals were finding it more difficult to cross-subsidize their poor patients due to the need to be competitive with commercial hospitals.

A review of a large number of studies of the US healthcare system arrived at the following indicting conclusions:

“The US has four decades of experience with the combination of public funding and private healthcare management and delivery, closely analogous to reforms recently enacted or proposed in many other nations. Extensive research…shows that for-profit health institutions provide inferior care at inflated prices. The US experience also demonstrates that market mechanisms nurture unscrupulous medical businesses and undermine medical institutions unable or unwilling to tailor care to profitability. The commercialization of care in the US has driven up costs by diverting money to profits and by fuelling a vast increase in management and financial bureaucracy, which now consumes 31 percent of total health spending…The poor performance of the US healthcare is directly attributable to reliance on market mechanisms and for-profit firms, and should warn other nations from this path” (Himmelstein and Woolhandler 2008).

Yet another review from US of studies of the market mechanisms in medical care over more than a decade (1993 – 2005) indicates that some of the features of the market – particularly how investors allocate capital – have been incompatible with the pursuit of a more efficient and equitable healthcare system (White 2007). Some other observations were: Competition has little ability to rationalize (re-organize) healthcare systems; costs were driven more by market power over prices than by management of utilization; competitive or financial threats compelled a very large portion of all providers (including non-profit providers) to merge with larger entities, with resulting loss of local managerial control.

Macro-economic measures aimed at curbing public expenditure on health were introduced in the mid-1970s in the UK. Extensive documentation and analyses of the UK experience of reform of NHS, through a range of market prescriptions, point to erosion of universality and comprehensiveness, and to the enormous transaction costs and waste associated with such policies (Pollock 2005). It was observed that

“costs were driven up, not down; bureaucracy continued to expand, instead of decreasing, inequities of all kinds were aggravated, not reduced, and new inequities were created; more services that had been free were to be charged for, or would simply disappear from the NHS, to be provided only by the private sector, for those able to afford them. Comprehensiveness and universality became things of the past…Healthcare moved increasingly rapidly away from being a right, back towards being a commodity – as it had been before 1948” (op cit p 35) (emphasis added).

“Comprehensiveness has clearly been abandoned, whether explicitly, as with most long-term residential care and routine optical care, or implicitly, as with dentistry, which is available at NHS terms only to children…Universality has gone in as much as the services provided both by GPs and hospitals vary increasingly from place to place…The emphasis is now on `decentralization’ and `choice’, but there are no mechanisms for providing democratic local control…” (op cit p 83).

“The management reforms of the 1980s and the introduction of the internal market in the early 1990s saw the NHS’s administrative costs rise from 6 percent to 12 per cent. With the creation of a full market, these costs are bound to rise again. Making and monitoring hundreds of thousands of contracts, billing for every treatment (to achieve payment by results), and paying for accounting, auditing, legal services and advertising – not to mention shareholders’ profits – are bound to swallow a large part of the new money. As the NHS approximates more and more to a full health market, its administrative costs are likely to move closer to those familiar in the USA. In the US in 1991 administrative costs accounted for between 19.3 per cent and 24.1 per cent of the total costs. By 1994 these costs had increased to 22.9 per cent in public sector hospitals, 24.5 per cent in independent non-profit hospitals, and 34 per cent in for-profit hospitals” (op cit p 260).

As a result of outsourcing of non-clinical work in the NHS, turnover of support staff rose, cleaning standards fell, while the poor quality of hospital meals became notorious…..managing the outsourcing contracts and monitoring their performance often consumed more administrative time than had previously been needed to manage the services in-house…the main effect of outsourcing, however, was to replace the professional culture that had previously prevailed in NHS hospitals with a business culture focused less and less on medical values and more …..on accounts (op cit p 40-41). Another consequence of the market was that it had become “virtually impossible to track NHS expenditure…..and the lack of transparency is set to worsen…” (op cit p 227). “At a deeper level still are the implications of the so-called mixed economy of healthcare. Quite apart from some £4 bn a year of tax revenues going to the private long-term care industry, more and more of the NHS budget itself now ends up in the accounts of private companies providing everything,,,” (op cit. p 84). Lastly, the independent regulator was to regulate the medical markets that are sought to be created through these reforms. The mandate of the regulator had nothing about comprehensiveness, universality and equity (op cit p 85, p 234).

Other than these problems associated with markets and the difficulties and barriers in regulating them, the two major casualties of the introduction of markets have been loss of the population focus in the health system, which is what public health is all about to begin with; and the reversal of healthcare from being a right to a commodity as it was about a century ago.

Political economy of healthcare
Thus, there is a wealth of information on how presence of markets and competition in healthcare systems has not achieved objectives such as efficiency, cost-control, and a regulated private sector. If such overwhelming evidence is to be ignored, and governments and policy-makers insist on imposing market prescriptions for health system strengthening and reform, then is it anything other than belief and faith in a neo-liberal ideology?

As mentioned earlier, health sector reforms are not unique to India. The re-structuring, since the late 1980s of economies worldwide have had significant implications for healthcare, for the social sectors in general. It has given rise to a restructuring of health services in the name of efficiency. Shaoul’s analyses of the rise of neo-liberal policies that gave rise to several kinds of health sector reforms in the UK show how the chief characteristic, of all these economic, financial and organizational `reform’ measures, is that they are `the techniques used by the private sector to generate profit out of the production of commodities for distribution to the providers of finance’ (emphasis added) (Shaoul 2003 p 152). The reforms comprised a series of measures under the umbrella of New Managerialism: (i) institutional measures to control healthcare expenditure as a whole and to generate income (ii) measures to cap the activities and scale of the public sector (iii) a set of financial, organizational and managerial measures to increase outputs and reduce costs through greater efficiency at the point of service delivery. In addition there were (iv) introduction of quasi-markets and the reconstitution of healthcare providers as business units charging for the services on a competitive basis; and (v) use of private sector to finance, build and operate non-clinical services. The underlying basis for all these was the assumption that the tools of private sector management could improve the output and thereby resolve or contain the `problem’ of rising cost of healthcare provision.

Furthermore, there was an emphasis on financial management as a proactive tool to manage public healthcare in order to achieve objectives, not simply as a tool to record income and expenditure. This approach was accompanied by emphasis on the three Es – economy, efficiency and effectiveness – and the growth of performance measures which attempted to capture and compare the performance of public sector providers. It represented a change in the way that public health was managed in two significant respects: from planning on the basis of perceived need to managing by financial numbers; and from decision-making and control by the service professionals to decision-making and control by managers. A closer look at the health sector reforms in many states in India and measures under NRHM would reveal that many such features – financial management, patient welfare societies (rogi kalyan samitis) in health facilities for autonomy, outsourcing of diagnostic and other services – are being implemented with similar objectives.

As rightly pointed out by Shaoul, through these measures a transformation of social relations is being affected. Firstly, the relations of production in health are being realigned so that they match those of the private sector. Second, services funded by the public through taxation are being organized by the state to serve more directly the financial interests of the private corporations, not the public, via outsourcing, partnership arrangements, and insurance. Third, the public is being reconstituted as the `customer’ for the goods and services so produced (op cit p 153). While these measures may appear, and are presented as a form of decentralization that permits local decision-making, their real function is to create the structures and mechanisms for the private sector to more easily control, own and direct public services and public policy. These changes are part of an ongoing process whereby the social and public services pass into the private sector through sub-contracting and PPPs. Such services can then get integrated into the wider international economy as they are taken over by the trans-national corporations, through provisions such as GATS (Chanda 2002). In other words, what is happening is that the social welfare functions of the state are being integrated into the world economy, not for the benefit of the population at large as they are made out to be, but for the benefit of capital. The significance of the neo-liberal policies, such as these 12th plan proposals, is that they are providing the ideology as well as the mechanisms by which to create markets, national and international, for health. Terms such as `universal healthcare’ `healthcare as a right’ `equity’ `choice’ etc are merely being used to give the so-called `human face’, rather a mask to conceal what is essentially becoming an immoral accumulation in the name of health.

The author is a public health researcher based in Delhi.

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1 Comment »

One Response to “Market Prescriptions for Healthcare services – Evidence versus Ideology”

  1. Dr,S.V.Nadkarni Says:
    November 18th, 2012 at 08:38

    An extremely interesting article.Clearly exposes the (hidden) trend to privatisaton and avoid responsibility of providing Real health service. However, the strong prejudice of the author against Private sector management principles needs review.I would be happy, if I can get the e-mail address or mobile of the author to have a continued discussion on the subject, as also to present my own book “Management of the Sick Health Care System”. I have also prepared My Own HL-OWN report for Universal health care, in which I have modified the HLEG recommendations to answer many objections raised in this article
    Ex-Dean,LTM Medical College, Sion, Mumbai

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