Niti Aayog and the Union ministry for health and family welfare have proposed a model contract to increase the role of private hospitals in treating non-communicable diseases in urban India. The agreement, which has been been shared with states for their comments, allows private hospitals to bid for 30-year leases over parts of district hospital buildings and land to set up 50- or 100-bed hospitals in towns other than India’s eight largest metropolises.

According to the model contact, the district hospitals will need to share their back-end services such as blood banks and ambulance services with the private players. The state government could also provide part of the funds needed by these private players to set up the new hospitals. The district health administration will ensure referrals for treatment from primary health centres, community health centres, disease screening centres and other government health programmes and ventures are made to these private hospitals.

To ensure that adequate numbers of patients are available for the private hospitals to treat, Niti Aayog and Union health ministry has suggested only district hospitals that have at least a two-year record of treating more than 1,000 cases in the outpatient department every day should be privatised. reviewed a copy of the proposal by Niti Aayog and the health ministry along with the note on it sent to the states. The World Bank was engaged as “technical partner” to prepare the document. The Niti Aayog in its note said it had set up working groups comprising industry, ministry of health and representatives of few states to come up with the document. It claimed that consultations with states, industry and other stakeholders took place across the country to prepare the draft.

The details

Under the model contract, these private hospitals will provide secondary and tertiary medical treatment for cancer, heart diseases and respiratory tract ailments at prices that are not higher than those prescribed under government health insurance schemes. For non-communicable diseases needing these three kinds of specialised treatments, the hospitals will need to have out-patient departments, in-patient beds, beds for intensive care, operation theatres, centre for angioplasty and angiography, laboratories and radiology services.

The district government hospital will be expected to share its ambulance services, blood blank, physiotherapy services, bio-medical waste disposal system, mortuary services, parking facilities, electricity load, in-patient payment counters and hospital security with the private enterprise running out of its campus, the contract says.

Beneficiaries of the government insurance schemes will be able to get treatment at these hospitals but there will be no reserved beds or quota of beds for free services. General patients will also be allowed to seek treatment. Patients not covered by the state insurance and health schemes would be required to pay the full cost.

The private hospitals operating from these public hospital campuses will be able to refer complicated cases either to other government hospitals or other empanelled private hospitals. However, sending patients further to other private hospitals would require the permission of the medical superintendent of the district hospital.

Pharmacists dispense free medication in a Tamil Nadu hospital. Credit: Babu Babu/Reuters

Two-stage bidding process

The infrastructure of district hospitals would be provided to the private sector players through a two-stage bidding carried out based on technical and financial parameters. The amount of money the private healthcare company seeks as a viability gap fund (a one-time grant for setting up the hospital) would be one of the criteria to identify the private player. The bidders would be able to apply as a single entity or as a consortium of private companies.

The winner of these bids besides running the hospital services could also be allowed to run other non-medical commercial activities such as an out-patient pharmacy, cafeterias and other concessions.

Going by this draft contract, the district hospitals would be required to lease out 30,000 square feet for a 50-bed private hospital or 60,000 square feet for a 100-bed operation. If the state government agrees initially to a 50-bed private hospital, the district administration will have to provide 75% of this space within the already-built part of the government hospital. For the 100-bed private hospital, the government hospital will have to provide 30,000 square feet of built-up area.

The government plans to firm up this model of private participation in the health sector by trying out such as an arrangement in select district hospitals in one or two states on a pilot basis.

Health as a subject falls under the purview of the state governments. Consequently, the Centre will produce this model agreement as a template for willing state governments to adopt. The states have the powers to adopt the model in entirety or modify it. Government officials said that as in several other areas of governance that fall under the purview of state governments, it is likely that the model agreement would be adopted at first by states where the Bharatiya Janata Party or its allies are at the helm. Though they pointed out that several states, regardless of which party is governing, have already privatised parts of their public health system.

How much for the private sector

The proposal from Niti Aayog and health ministry comes two years after an initial round of wrangling within the BJP-led government over how much space it should cede to private players in the critical health care sector. The first draft of the National Health Policy prepared by the ministry’s steering committee in 2015 had pushed for higher investment by the government in public health. has reviewed it. It limited the role of the private sector to strategic purchase of services that were lacking during the period public investments got ramped up. It advocated a free universal public health system based on this substantial enhanced investment by the government.

But Niti Aayog advocated against this. Responding to the draft in August 2015 it said:

 “Free care: A Chimera – The National Health Policy aspires to create a health guaranteeing Assured Comprehensive Care, Free Drugs, Diagnostic, Emergency and Patient Transport Services to all in public health facilities. This does not seem to be a reasonable supposition, given the budgetary and manpower constraints faced by the government system. Predicating our strategy on such an assumption – when government is consistently struggled to provide eve 1% GDP to this structure in view of so many demands on the tax revenue – is an astounding leap of faith fraught with potentially unfortunate consequence – that free services will be rationed as per as per budget or manpower availability...”

— Niti Aayog's correspondence with Union ministry for health and family welfare dated August 10, 2015

Opposing the draft, it added:

  “...The national health policy document does not specifically indicate a framework for engaging these providers; barring expressing intent for regulating their quality through appropriate legislation or seeing it as a resource for filling critical gaps of the public sector. This to my mind is one of the principle weaknesses of the draft national health policy document.”  

— Niti Aayog's correspondence with Union ministry for health and family welfare dated August 10, 2015
A hospital in Bihar. Credit: Money Sharma/AFP

Subsequently, the draft policy was revised and adopted by the government this year. It made a stronger case for private sector participation but not quite along the lines that the model concession agreement now advocates.

The policy document released in 2017 reads:

“The policy envisages strategic purchase of secondary and tertiary care services as a short term measure. Strategic purchasing refers to the Government acting as a single payer. The order of preference for strategic purchase would be public sector hospitals followed by not-for profit private sector and then commercial private sector in underserved areas, based on availability of services of acceptable and defined quality criteria. In the long run, the policy envisages to have fully equipped and functional public sector hospitals in these areas to meet secondary and tertiary health care needs of population, especially the poorest and marginalized. Public facilities would remain the focal point in the healthcare delivery system and services in the public health facilities would be expanded from current levels.”  

— National Health Policy, 2017

It also notes:

 “Given the large presence of private sector in urban areas, policy recommends exploring the possibilities of developing sustainable models of partnership with for profit and not for profit sector for urban health care delivery.”    

— National Health Policy, 2017

Advocating the case of increased role for private sector in the urban areas, the policy also says:

 “For need based purchasing of secondary and tertiary care from non-government sector, multi-stakeholder institutional mechanisms would be created at Centre and State levels – in the forms of trusts or registered societies with institutional autonomy. These agencies would also be charged with ensuring that purchasing is strategic - giving preference to care from public facilities where they are in a position to do so – and developing a market base through encouraging the creation of capacity in services in areas where they are needed more.”  

— National Health Policy, 2017

The draft contract agreement offers the first detailed view of how the government plans to increase the participation of private business in the health sector.

A similar debate within the previous Congress-led United Progressive Alliance government had remained inconclusive. Under the UPA government, the erstwhile Planning Commission had lengthy arguments with the health ministry over the nature and level of leverage private sector should be given in providing health care to Indians. At that time, the Planning Commission had batted for a greater role of the private sector, just as the Niti Aayog has done this time around.