By: Krishnakumar Sankaranarayanan – Managing Consultant (Healthcare Practice)  PwC India

The role of healthcare in improving a nation’s wealth and spurring economic growth is well established. India is the among the fastest growing economies in the world and is poised to become the second largest economy in the world according to a recent report from PwC. India’s Human Development Index score, weighed down by poor healthcare indicators is however a poor 0.519, ranking India at 119 out of 169 countries just ahead of Timor-Leste and Swaziland. 

Several factors that contribute to poor healthcare indicators in India are:

• India’s healthcare infrastructure is inadequate to meet the burden of disease. India has just 90 beds per 100,000 population against a world average of 270 beds
• India also has just 60 doctors per 100,000 population and 130 nurses per 100,000 population against world averages of 140 and 280 respectively
• Public spending on healthcare has also been less than 1% of GDP for the past thirty years
• India’s healthcare financing mechanisms are poor with 66%  percent of healthcare expenditure being out of pocket

Together, these factors result in a poor per-capita spending on healthcare at US$ 109 (Intl $, PPP, WHO Health Statistics 2010).

A slew of reforms are needed urgently to address these concerns.

Improving Healthcare Infrastructure

Doubling the number beds from 90 per 100,000 to 200 per 100,000 would require USD 82 billion of investments. It is unlikely that the state governments in India with high quantum of public debt (healthcare is a state subject) would be in a position to fund this mammoth expenditure. Private sector will have to provide bulk of these investments and they need incentives from the Government. Significant among the incentives being sought by the private sector is declaring healthcare as an “infrastructure industry” which would enable private sector to get funding for healthcare projects at concessional rates and also provide them with tax incentives.  Private providers would be looking forward to announcements on infrastructure status from the Finance Minister in Budget 2011.

Increasing Human Resources

Only not-for-profit institutions are allowed to invest in India’s medical education sector as per current regulations. Planning Commission (an institution in the Government of India, which formulates India's Five-Year Plans, among other functions) has suggested that this rule be amended to allow for-profit institutions to participate in building medical colleges under the regulatory ambit of the proposed National Council for Human Resources in Health. Some private healthcare providers like Max Healthcare have already indicated their interest in setting up centres for medical education.

Government is also actively advocating the public private partnership (PPP or P3 partnership between private contractors and government, in which the common characteristics are that the public sector contracts, usually on a long-term basis with the private sector for the provision of a public service) model to meet the demand supply gap in healthcare. Though PPP projects have been launched in many states, they often hid a roadblock because of lack of trust between the private sector and the government. Creating a broad framework for PPP which leverages best practices from other countries like South Africa would be an important step for the Government to take.

Enhance Public Spending on healthcare

In an effort to address, the problem of low public spending, the Manmohan Singh Government, in its Common Minimum Program outlined in 2004, promised to increase public spending on healthcare to 2-3% of GDP by 2012. Government also launched its flagship National Rural Health Mission (NRHM) with an aim of radically improving healthcare indicators in 18 high focus states. Public spending however continues to be low with the total expenditure of states and federal government being 1.06% of GDP in 2009-10, with the federal government alone spending 0.35% of GDP on health. Clearly the budgetary allocation for healthcare has to increase.

Improve healthcare financing mechanisms

World Bank estimates that 2.2 % of India’s population (around 24 Million people) goes into poverty every year because of catastrophic health expenditure. Government of India initiated reforms in the insurance sector in 2000 allowing private sector participation. 17 private sector players now offer health insurance products in India. Government of India has also initiated health insurance schemes for the poor with the introduction of the Rashtriya Swasthya Bima Yojana with an outlay of US$ 770,000 in 2009. This scheme has met with significant success with over 22 Million families enrolled under this scheme which provides a medical cover of US$ 670 for a family of five. Budgetary allocation for this scheme should be increased to allow for more beneficiaries to be covered.

Some progressive state Governments have also launched health insurance schemes targeted at specific sections of the population and these have also improved access to healthcare. Social and community insurance schemes have also taken off in India. The total population with some form of insurance cover however continues to be low – more aggressive efforts are needed by both the Government and the private players to enhance the penetration of health insurance.

Regulatory reform including enhancing the limit of Foreign Direct Investment (currently capped at 26%) may also be necessary to stimulate private sector efforts in improving financial access to healthcare. Laws are also being amended to make health insurance plans portable from July 1. Providing tax incentives to employers and families to take health insurance would also aid growth of this sector and these are steps which the Finance Minister can consider in Budget 2011.

Quality of healthcare services in India is inconsistent. Quality Council of India has created National Accreditation Board for Hospitals (NABH) standards for accreditation for healthcare facilities.  Use of Information Technology can help hospitals improve access, reduce costs and improve quality.  Government should provide incentives to hospitals to seek NABH accreditation and IT enablement by allowing 100% tax exemption for expenditures related to accreditation and IT enablement.

Budget 2010 also saw preventive health services come under the ambit of service tax. The world over, there is a recognition that more effective preventive health programmes are the only way to reduce spiralling health costs. Budget 2011 should withdraw the service tax on preventive health checkups and help incentivise health seeking behaviour.

e-mail: PwC

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