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(Reading material prepared from the report of National Commission on Macroeconomics and Health, 2005) (Background material for the PPP course, April 28- May 3, 2008)

1. Characteristics of the Private Sector in India:

The private health sector consists of the 'not-for-profit' and the 'for-profit' organizations. Individual practitioners from various systems of medicin<:: provide the bulk of medical care in the for-profit health sector. The not-forprofit sector is heterogeneous, with varying objectives, sizes and the areas they cater to. o There is no clear definition as to what precisely constitutes a not-for-profit organization. e Private sector in health care has gained a dominant presence in all the submarkets-medical education and training, medical technology and diagnostics, manufacture and sale of pharmaceuticals, hospital construction and ancillary services and finally, the provision of medical services. An important subset of providers is the large number of informal providersquacks (almost one in every village). bonesetters, traditional healers. traditional birth attendants (TBAs), etc. A survey of 'quacks' in 3 districts of Andhra Pradesh showed that there was one for every 2000 population (Rao et al. 1997) o The diversity in the composition of the private sector, range from voluntary. not-for-prcfit, for -profit, corpor2te. trusts, stand-a!one specialist services. diagnostic laboratories, pharmacy shops, unqualified providers (quacks); each addressing different market segments. However typically the private sector consists largely of sole practitioners or small nursing homes having 1-20 beds, serving the urban and semi-urban clientele and focused on curative care. o Several NRis and corporate houses and pharmaceutical companies are investing in setting up super-specialty hospitals in several parts of the country, capable of providing world-class care at a fraction of the cost compared to the West. Thus an enormous potential exist for India to become a hub for medical tourism, but what are the trade-offs?

Size and Structure:


There is no uniform estimate or complete information on the extent of private sector in health care delivery. Various sources offer different types of information. World Bank (2004) estimated that at independence the private sector in India had only eight per cent of health care facilities. But today 93% of all hospitals, 64% of beds, 80-85% of doctors, 80% of outpatients and 57% of inpatients are in the private sector (World Bank, 2001).

Compiled by A. Venkat Raman, Faculty of Management Studies. Deihi University

Analysis of the 57th Round of the NSS shows that, in 2001-02 there are an estimated 13 lakh private health care providers/enterprises providing health care services in the country, employing 22 lakh people. Majority of these enterprises are own-account enterprises (OAEs). which accounted for over 80% of the total health facility in the country. OAEs are typically run by an individual or are a household business providing health services without hiring a worker on a fairly regular basis. On the other hand, the number of health establishments in the country was roughly around 2.3 lakh, which accounted for less than 20%. Establishments are those that hire at least one worker on a regular basis. The predominance of OAEs and the lack of establishments in rural areas as compared to urban India are quite stark, with over 92% of OAEs and around 7% of establishments in rural areas. In contrast. in the urban areas. establishments accounted for roughly 38% and the remaining 62% facilities were OAEs. Over one-third of them have no registration of any kind and 25% are AYUSH practitioners. The 22 lakh health staffs include skilled, semi-skilled and unskilled 1 ones, individuals range from dais, quacks, para-medicals to specialized doctors, etc. in the private sector. They account for less than 1% of the total workforce in India and more than 56% of the total workforce in the health sector. The remaining 44% were engaged in establishments. A casual glance at size-class distribution of workers reveal that of the 10.77 lakh OAEs. 10.04 lakh are single person- run health facilities and the remaining 73,204 OAEs hire one or two workers on a temporary basis. In rural India, 80% of the private sector health workforce is engaged in 90% of health OAEs. India has one of the highest levels of private-out of pocket- financing (to the tune of 87%) in the World (World Bank. 2001). The private health market is over Rs 71,000 crore, and another Rs 31,000 crore if pharmaceutical industry is included. The CII-McKinsey Report of 2004 expects it to double toRs 156,000 crore by 2012, besides an additional Rs 39,000 crore if health insurance picks up. By 2012 it is also estimated that the country will require an additional 750,000 beds, 520,000 doctors and an overall investment of Rs 100,000-150,000 crore. of which 80% has been projected as the share of the private sector. Further, the 5th Round of the NSS shows that diagnostic/pathology laboratories account for less than 3% of the health facilities in India.
Non-Profit Health Institutions

Health NGOs are reportedly mushrooming rapidly. NPis account for a miniscule 1.32% of the totalenterprises. The spread of NGOs is quite erratic in different States. For instance, Uttaranchal has a substantial number NGO health establishments followed by Punjab. The respective shares of NGOs in the total health establishments in these two States are 2

Compiled by A . Venkat Rama n, Facu hy of Management Studies, Ddhi lJ nivcri ty


roughly 43% and 15%. States such as Bihar, Goa, Jharkand and Karnataka have a negligible presence of NGOs, accounting for less than 1% of the total health establishments in these States. In India, one of the criteria for a not-for-profit organization/NGO is that it should be a legal entity registered under the Societies Registration Act, 1860; Indian Trust Act, 1882; the Charitable and Religious Trusts Act, 1920 or Section 25 of the Companies Act, 1956 as NGOs. At present. almost every State has adapted its own Societies Act and Charitable Trust Act Until the mid-1960s. the not-for-profit health sector was hospital-based but later expanded to include community health in developmental projects. Often, hGs:fth vts :..s2by 1-!GOs c:s the entry point to communities. : The efforts of the not-for-profit sector in health care today covers a wide range of activities and can be classified broadly into: advocacy, awareness and education, research. and actual provisioning of services. From the 1960s, the Government offered subsidies and grants-in-aid to various NGOs to assist the State in National Health Programmes such as the tuberculosis, leprosy and family planning programmes. In the Ninth Plan, the Government, recognizing that NGOs were complementary in nature. handed over a number of primary health centres to NGOs. The percentage of villages with any kind of NGO presence ranges from 1.4% in Uttar Pradesh to 34.4% in Maharashtra. For India as a whole. it is estimated that 10.6% of the villages have the presence of some type of I'JGO (Mahal et al. 2000) _ More than 7000 NGOs are working in the field of health care. Number of hospitals in this sector was estimated to be 937 (10% of all hospitals) and the total number of beds 74,498, comprising 13% of all beds in India (GOI 1988). It showed that 17% of all the private hospitals were not-for-profit and 42%of all the private beds were in this sector.

Characteristics of Public and the Private Sector: Eight District Facilities ,)'urvey by National Commini:m on Macroecouomics alllll-lealtll (NCMII) The survey was taken up in 8 median districts (Nadia 0fVest Bengal), Jalna (Maharashtra), Khammam (AP), Kozhikode (Kerala), Vaishali (Bihar), Varanasi (UP), Ujjain (MP) and Udaipur (Rajasthan)) and 80 blocks/tehsils; covered 210 lakh population base, 9,987 villages and 83 towns:

It covered only the qualified provider sector of both the disciplines-allopathy and AYUSH. Information on the ownership pattern. services provided, utilization levels. human resources appointed, equipment used, prices charged for some services. etc, were compiled.

FINDINGS OF THE SURVEY: Size, growth and organiz<itronalstructure of the private sector

CO!upikd by /\. Vcnkat Raman, Fa..:ulty of Management SlUdi;!s, l)clhi University

Of the total of 9457 facilities run by qualified providers; 61% are private. Two thirds of the corporate hospitals and 50% of the hospitals owned by partnership firms were established after 1995. The ratio of the public-private sector is 60:40 in rural areas as compared to 10:90 in urban areas. Higher percentage of public facilities in rural areas is on account of subcentres ' Presence of the private sector in the poorest 15 blocks is negligible 91% of the facilities being run by sole proprietors. Infrastructure of the private sector: Beds, human resources, and di agnostic services 86% of the facilities are small - OP clinics with one or two beds. Two-thirds of the facilities and 79% of beds are in urban areas. 75% of the blocks have barely 3 beds per lakh population Seventy-five per cent of the specialists are in the private sector: 61% anaesthetists, 78% cardiologists. 85% general physicians and 73% gynecologists and surgeons, with the majority in the above 30-bed category hospitals. The ratio of doctors per 1000 population is low. The position is equally dismal in relation to nurses. The average number of Nurses per 10,00 population in all districts is 0.32 per 1000 population Of the 80 blocks, 32 have less than 0.10/1000.

Access to emergency obstetric care 70% of the blocks have no Emergency obstetric care facilities.

Access to diagnostic laboratories and technology (Based on 21 equipments and

17 investigations/ tests)

Almost half of the haematology and urine tests and one-third of angiographies are being done in the public sector. 90% of the expensive equipment is concentrated in a few urban areas. There is substantial infusion of technology, largely by the private sector. Almost 20% of the blocks do not have even one X-ray machine and in a backward district, such as Vaishali, there are 69 X-ray ma. chines, all in the . , pnvate sector. CT scan or an MRImachines were in excess; there was a proliferation of ultrasound and Doppler machines.

Fig.1: Availability of Equipments I investigations in Public and Private Facilities:

Compiled by A. Venkat Raman. Faculty of Management Studio::s. O lhi U niver it y

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Nature of Services

In the provision of dental. ENT, orthopaedic services, and for all noncommunicable diseases such as myocardial infarction, cancer chemotherapy, mental health, medical termination of pregnancy (MTP). hysterectomies, the private sector accounts for almost three-fourths of the total caseload. Private sector is also actively engaged in providing treatment for acute care as well-tuberculosis (TB), deliveries. childhood diseases.

Utilization of Facilities: Outpatient care o The private sector share of OP cases is estimated to be 52% comparatively lower than the estimate of 81% indicated in the 52nd Round of NSS. ..but the survey data is assumed to be an under estimation. It is presumed that even the NSS data is an under estimation. Inpatient services o Of the totaiiP cases, 47% utilized private facilities; the rate of IP per 1000 population was 45.5 against 16/1000 estimated in 52nd Round of NSS. o On an average, the bed occupancy in the private sector is 44% as compared to 62% in the public sector. o Nearly 50% of all the private facilities having beds had less than 50% bed occupancy rates. Cost of care o The payment system in the private sector is predominantly fee for service. o There is a huge variation in the prices charged for similar services. o An IOL surgery costs between Rs 2000 to Rs 80,000, a caesarlan s.:. c;t1on between Rs 3500 toRs 50.000. o Prices are lower in rural areas for the same procedure/service/investigation;

Comrilcd by/\. Vi.!nkat Raman,Faculty of Management Studies. D..:lhi Uniwrsity

Prices are far higher in places where the paying capacity is more or input costs are greater e Government pricing is three times lower than market prices.
Fig. 2:Tariffs for some of the common medicalprocedures (in Rs.)
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2.Behaviour of the Private Sector

Behavior of private sector in health is dependent on interplay of complex set of factors such as, the nature of financing and payment systems, type of technology, cost of in1tial education and training, public expectations and perceptions, regulatory framework, and social values which determine how equitable, efficient, safe and accessible the private sector could be. In the absence of regulations governing location, standards, pricing, to name a few, private facilities run in marketplaces, residential colonies, pharmacy shops, with the freedom to provide any kind of services, of whatever quality and at exorbitant cost, which varies from facility to facility. e Private sector tends to appoint persons at low wages, discharge patients earlier than medically advisable to keep a quick turnover of patients (Baru 2002). In a survey of 24 hospitals in Mumbai, half were found to be operating from sheds and lofts, congested spaces, with leaking operation theatres (OTs) and over 90% of unqualified nurses and doctors with degrees in alternative medicine providing care in allopathic medicine. Care included unnecessary tests, consultation and surgery, without providing any information on diagnosis or treatment (Nandraj 1994). Not-for-profit organizations that are presently delivering curative services range from faith-based to community-based organizations working at the primary and secondary levels, and also a few at the tertiary level. In . addition, big business groups have also estaplished hospitals as trusts or societies, which qualify them for tax exemptions.

Compiled by A.. Venkat Raman, Faculty of Management Studies. D flhi U niversity

Due to the heterogeneity and plurality of providers. the nature of services also varies across the providers in the not-for-profit sector; The dominant system of medicine in most not-for-profit hospitals is allopathic. General health services are provided by almost all the institutions but very few provide only specialized and super specialized services such as cardiology and neurology. Most not-for-profit health institutions are located in semi-urban/urban areas. Most of these organizations establish themselves in places where infrastructure is already present

Unethical Practices " There are nexus between private medical practitioners and pharmacy shops-some times pharmacy shops are 'owned' by the doctors; private doctors depend on referrals from quacks who acted as 'procuring' agents for getting patients to their facilities for which a certain commission was paid: fee-splitting between diagnostic centres and referring doctors, AYUSH practitioners practicing allopathy; etc are other common practices. e Unqualified practitioners enjoyed close rapport with the local community, were accessible at all times, provide treatment for several types of ailments, including antibiotics that gave quick relief. etc, but their poor knowledge and lack of training did result in substantial morbidity. Equity and Cost of Care:

The 52nd Round of the NSS showed that 35% of those hospitalized in Bihar (compared to 16% in Kerala) get pushed below the poverty line on account of meeting the cost of medical treatment. This is in the context of over 90% of service delivery in Bihar is in the private sector compared to about 60% in Kerala. Pricing in the private sector, are unreasonably high. But the costs in a government hospital does not reflect the true costs, but of only the consumables and drugs. In the private sector pricing is influenced to a large extent by the market prices of inputs- land, building, equipment, labour costs, source of capital. provider payments, etc. But the government extended subsidy to the private sector, such as giving land free or excise waivers has not really lowered the prices. The private sector prices are also determined by three factors-the experience of the treating physician. technology and location.

., It is also observed that due to the generally low occupancy of beds, the private sector attempts to stay competitive by appointing unqualified nurses and AYUSH doctors at far lower wages. combine salof drugs and earning commissions from diagnostic laboratories for every Cf!Se referred, etc.
Quality of Care '

Compil ed by A. Venkat Raman, Faculty of Management St udies, Delhi University

., There is a disturbing perception that equates the use of sophisticated technology with 'good' quality and good value for money. Quality is perceived to be expensive. As the Government is constantly poorly funded and private providers seek to save on costs to maximize profits, low quality is an issue for both. o The motivation to institute quality assurance systems for enhancing patient safety will be a low priority so long as the payments are based on fee for service for, in such a system, every visit and every additional investjgation brings revenue to the provider. Not -for-profit sector Not for profit sector is scattered, isolated and small in scale, but they conclusively demonstrated that they have the capability of providing reasonably good-quality care at affordable rates to the poor. Contrary to for-profit sector, public subsidies extended to NGOs !have shown substantial social gain (e.g. under blindness control programme, notfor-profit sector perform almost 30% of the total 40 lakh cataract surgeries in a year). However, due to the rising cost of inputs and uncertainty of grants. both foreign and domestic, the proportion of user fees is increasing and free care is reducing. NGOs offset this by differential pricing-higher amounts for well-off patients and free or subsidized rates for the poor. o It is not possible to put the not-for-profit sector into one typology because of its heterogeneity in terms of organizational structure, pattern of funding, ownership, nature of services and its changing character. It is also scattered and disorganized. The not-for-profit sector has its own constraints and limitations. The question of sustainability is central to their existence. In order to achieve appreciable and sustainable results. NGOs have to make long-term commitments to the community. They frequently face difficulties such as shortage of trained staff. high turnover of middle level workers. and dependency on donor agencies. User fees have therefore been introduced to take care of recurrent costs. o Numerous trust hospitals have become more commercial in their operations, hence altering their character from a charitable institution to a private for-profit/corporate image. ., Berman and Dave (1994) identified that not-forprofit hospitals are able to achieve cost efficiencies due to Low wages of employees. using contract workers; Utilization of specialist services on an honorary basis; Use of generic and essential drugs; Emphasizing referrals and stringent use of expensive technology. o Not-for-profit organizations draw on a wide variety of sources for finance. These include donations. government funding as grants-in-aid, funding from foreign donors, corporate funding, and user fees. o The average total expenditure per hospitalization in a charitable institution is less than in for-profit hospitals but hig er !hain puc c,?r hospitals.

(\nn pi lcd by /\. Vcnkal Rarnan. Fm :ullv of M:uwgcmcnl Studies. l klhi l J n tvcr-;i t.'

The cost per hospital bed per day in the not-for-profit sector was very low compared to others. Both the 42nd and 52nd rounds of the NSSO showed low utilization of charitable institutions for outpatient care. Limited numbers of NGOs are involved in health and family welfare in rural areas and they mostly had weak financial management and technical capacity (Misra et al. 2003).

Medical equipments in the public and the private sector


Medical equipment are better utilized in the private sector as compared to the public sector in terms of number of investigations per machine, number of investigations per doctor and staff. unit cost per investigation, which are lower than that in the public sector despite the high interest rate and ROI. This is achieved by employing an optimal number of staff, more working hours and better quality in terms of early and timely delivery of reports. Private sector doctors and technicians do more number of investigations per machine in a year than in the public sector. Procurement of medical equipment is faster and more efficient in the private sector, averaging 3 months from demand to commissioning; in the public sector it takes 18 months. Breakdown of medical equipment is very low in the private sector. averaging 3 days in 5 years per equipment. The cost of ultrasound is barely at break-even point in private diagnostic centres. lower in private hospitals and high in public hospitals. The unit cost of ultrasound in a private hospital is 60% that of a public hospital and 70% that of private diagnostic centres. The price of as MRI is extremely high in public hospitals as compared to private ones (twelve times high). Costs in the private sector are high due to interest, rentals and other establishment costs. as well as return on investment. Costs in the public sector are high due to human resources. Public hospitals provide a subsidy (cost to hospital less patient price) of Rs 439 on ultrasound. Rs 1203 on CT scan. and Rs 46,750 on MRI to the public. and 100% subsidy in biochemistry tests (calculated for blood sugar). In private sector diagnostic centers there is no subsidy thus they break even at a high volume load. The percentage utilization in relation to break-even numbers (number of investigations required to recover fixed costs at the current patient price) are as follows: for ultrasound, it is 90%-120% in the private sector. 20% in the public sector for CT scan, it is 53% in public hospitals, 90% in private hospitals, 190% in private diagnostic centres for MRI, it is 7% in public and 120% in private diagnostic centres


Compiled by/\.. Yen kat Raman, Faculty of Manage111ent Studies, !XIhi Universi ty

Table 1 Size of the Private Sector in India

Impetus to the rapid growth of the private sector had inadvertently came from government policies-advocating the private sector to offer specialty services thus paving the way for extending a spate of subsidies; corresponding decline in public expenditure on health, particularly capital investment: and rising incomes that tncreased the willingness to pay for health services; and people's perceptions of quality in the private sector and an unfettered regulatory environment. What do these portend for the public sector health system and the welfare implications for the poor? Should the public sector health system confine itself to providing only the primary care and leave all curative care to market forces; or regulate the private sector; selectively contract its services to achieve public health goals and compete with it; or should the Government over time become a purchaser and regulator of service delivery and divest itself from the' responsibility of seNice provisioning? What would be the correct approach keeping in view the state's obligqtions to the poor on the one hand, and severe limitation on public finances on the other? The moot question is whether private sector could address the health needs of the poor where the public sector has failed, by addressing the financial

Com pi led hy A . V..:nkat R aman. r ac.:ult )' of M.tnag..:mcnt '->ludic' llclhi l!n1 vt.:ril) .

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barrier through health insurance. But no insurance policy, however attractive, can have any value for the poor if the provider supplying the services is located at a distance that would entail huge indirect expenses in terms of loss of wages, transport costs, etc. This is more relevant for women and the elderly who may have to depend on another person to accompany them to the facility. The NCMH survey clearly showed that in the poorest districts, the distribution of facilities is highly skewed. In half the rural areas, the only alternative is the ill-equi ped and under-funded public p sector

The survey indicates the concentration and duplication of facilities, which portends a possibility of equitable geographical distribution or relocation through a set of policy incentives.

Distributional inequity raises three sets of issues. The first is the duplication of public and private facilities almost everywhere. The private sector, in most places, is located where the public sector is already established. Does this show an unmet demand that the private sector is meeting or are many of these facilities established and sustained by government doctors doubling up to work in private hospitals? One study showed that two-thirds of private hospitals employed government doctors, it is believed that 30% of the private sector consists of government doctors working in small, rural nursing homes or large c1ty hospitals. In the event of the government doctor 'owning' the private facility, chances of relocation could be problematic, calling for hard policy decisions to address such issues of conflicts of interest. o Having multiple facilities in the same location though may provide choice, but such choice in a small market space could also lead to creating small unviable units, each adopting unhealthy practices and cutting corners on quality to stay competitive, as well as the sub-optimal utilization of public facilities.

Concentration of specialists and technology

The NCMH survey showed that more than three-quarters of specialists and technology are in the private sector, all located in a few towns. One of the option is to strengthen the capacity of public facilities to force down the prices in the privqte sector to reasonable levels.
Need for Standards and Treatment Protocols

One of the effective ways of countering perverse practices by the priv(:lte sector markets is to develop standards and treatment protocols and having a system for enforcing them. Public policies in fixing rates dq not take thee fqctors into account. For e)(ample. under the CGHS for its employees, rates for reimbursement of

Com riled by A. Vcnkat Raman, Facu lty of Management Studies, Dqlhi University


services in private hospitals are based on an average of the rates quoted by all the tendering hospitals. In such a system, higher than market rates are paid to facilities located in smaller towns, and lower rates paid for city hospitals. If the CGHS is an important source of revenue for the town hospital, then it generates an overall increase in the price structure in those areas, while patients in the city hospitals are forced to pay the differential amounts out of pocket. Therefore it is necessary for the Government to undertake the unit costing of services. Status of Regulation in Private Health Enterprises Although beer bars and pan shops require a license for establishing and running these stores in India. health facilities-whether consultation chambers run by doctors or a big private hospital-do not require a license. The mushrooming of the private health sector without a regulatory structure is a cause for concern. Only a little over half of the enterprises are actually registered under the Medical Practitioners Act and another 8% are registered under other Acts (mostly Societies Act. Shops & Establishments Act, and Local Bodies Act). More than one-third of the health enterprises do not have any form of registration. State-wise analysis shows that in Assam, only one-fourth of the health facili ies appear to be registered, with a paltry 12% of the faci ities t l registered under the Medical Practitioners Act. This is followed by Orissa, wherein over half the enterprises do not have registration. On the other end of the spectrum are smaller States such as Goa and Uttaranchalwhere only 1.5% and 7.25% of enterprises are not registered, respectively. Maharashtra is the only big State in which roughly three-fourths of the health facil ties are registered under the Medical Practitioners Act. i 4. Public Policy Response: Public-Private Partnership

Government has been attempting to engage the private sector in providing services under the National Health Programmes (NHPs). The primary objective of such an attempt has been to expand access to health care. The experience has been far from satisfactory and even the little success achieved is more due to the partnership with the not-for-profit sector and non-governmental organizations (NGOs).

Forms of public-private partnerships can be categorized into three types: o Handing over public facilities (Primary Health Centres) to the private sector for management (Karnataka and Gujarat). Super-specialty hospitals constructed and handed over to the private sector (Karnatakand Chhattisgarh).

Compiled by A. Yenkat Raman. Faculty of Management Stud ies. Del h i U ni versity


Contracting the for-profit sector to treat the members of Central Government Health Scheme (CGHS) employees of public sector organizations, at pre-fixed rates. u Contracting private vendors for services ranging from laundry and kitchen, canteen, landscaping, drug store, security, diagnostics, waste management, etc. (by several state governments).

Efforts of the Government to collaborate with the private sector have been programme based, sporadic, disjointed and tentative, and not the result of a well thought-out strategy aimed at achieving national health goals. The NCMH survey showed that such partnerships were few, not exceeding 4.6% of the total private facilities in the 8 districts. Despite the mixed and varied experience. collaboration with the private sector could enable expansion of access. The problem is a tack of clarity as to the financial, legal and institutional arrangements that governments need to possess to ensure that such partnerships result in social gain. The experience of giving incentives to private hospitals, such as excise duty exemptions, free land, etc. in lieu of treating 10% of IPs and 40% of OPs free has not been favorable. Other forms of engaging the private sector need to be explored. Adoption of a more holistic and pragmatic approach with the pnvate sector will need to be considered for expanding access. Any such policy will have to ensure that there is no adverse selection and risk sharing is facilitated. In other words, supporting the private sector without accompanying policies to provide financial risk protection could be ruinous as is being witnessed today. If collaborating with the private sector is for a basket of services rather than single, one-time activity such as a delivery or a sterilization, then it would require a multi-skilled health team rather than a sole practitioner. Such an approach would require the sole practitioner to expand his facility to conform to the standards, which would require investment that a practitioner will be willing to make only if he is certain that he will get the contract for that period of time till he breaks even. But in a competitive system, such assurances become problematic, requiring a new way of doing business. At the same time, if competition is eliminated, the provider can also charge monopoly prices. tn super-specialty hospital based services, public health goals can be assured by having public representatives on the board and the power to fix rates based on a costing. Any such collaboration requires basic treatment protocols and standards that would form the basis for costing of services. In the absence of such standards and protocols, there is an element of arbitrariness in fixing prices, often stretching these to the maximum thpt the market can bear. With treatment costs reportedly increasing 9t the rate of


Compiled by A. Venkat Raman, Faculty of Management Studies. Delhi Unive ity

about 22% every year. no government or insurance system can sustain such inflation over a period of time.
Regulatory Capacity of the state

Collaboration with the private sector carries the implication of substituting in many ways the role of the state by market forces to regulate several aspects of provider and patient behaviour. Therefore, regulations on all aspects of health care service provisioning need to be formulated and certifying institutions established for laying down benchmarks for excellence and accreditation of facilities. The development of the capacity to enforce these regulations is also important. Enforcement is expensive: extensive computerization and people to monitor, inspect, verify and correct are required. The capacity to contract and enforce the contractual obligations is an important set of monitoring skills. Without such capacity. institutionalizing public-private participation is difficult to sustain. Conclusion It is clear that the need of the hour is to regulate provider markets and correct distortions that have created an inequitable, inefficient and expensive system. The regulations will need to address all market failures that give rise to malpractices such as fee-splitting, overmedication, low adherence to quality standards. They also need to ensure ethical practices, transparency and dissemination of information on prices and quality to consumers, impose requirements for licensing and accreditation of hospitals, protocols and prices. If these market failures are not urgently and decisively addressed, the health care system will be unsustainable.

Compiled by A. Vcnkat Raman. Faculty of Management Studit:s. Delhi University


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)tcltus of rcgitr.rtiotl in the priv cl te hecllth

Sbt Medic..ll Pr.xtiont:rs Act


i nlnrlic1n St.t tes (2001 02} iin "d

Other Act

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{'ompih.:d by A. Vcnkat Raman, Faculty of Management Studies, Delhi University

! f"

lor profit and non - profit instit utions in lndiiln Stiltes (in "d<Jfi1 '-:ts.tih4ion Sbllo

rorprofit itatitu tion



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Compiled by A. Venkat Raman. Faculty of Management Studies, Delhi University


Average total expenditure per hospitalization (in Rs) by source of trea1ment

Typeofhospit.ll Rur,l


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O ti!I!IS

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31 1

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) tlllll'll<lry

of utilil<llion a nd costs in Delhi



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S.rn d..!y


( 'orupilcd by /\. Vcnkat l{mnan, Faculty of Managcmc1H Studies. Delhi Univers i ty