While government spending on healthcare has stagnated over the past decade, the private healthcare industry has boomed, shows data from various sources. This has meant that people continue to spend high amounts from their pockets as costs of medical care rise over time.

While a market-driven system economy expects the government to merely govern and leave the economy to the private sector, most market-oriented governments have treated public health as an exception to this rule, to varying degrees and with good reason. But the extent of private sector involvement continues to be a subject of debate across the world. For instance, the United States has witnessed a pitched battle over repealing parts of the Affordable Care Act or Obamacare and the Congress has failed to pass the new healthcare bill for want of a consensus.

In India, the private sector is becoming the preferred source of healthcare as government spending on health remains low, forcing people to seek private services. Now, the Niti Aayog, the government’s policy think tank, has suggested a model that provides for a greater role for private players in the India’s healthcare sector. The model has reignited the debate on the merits of involving the private sector in medical care.

Health and policy experts in India almost unanimously agree that the abysmally low investment by government has hit public health hard over past decades. Many of them advocate a role for the private sector, but the nature of that engagement is what divides the experts.

Some advocate an increase in public health spending each year, combined with a strictly regulated private sector that provides specific services or technology that the public sector does not offer at the moment. Others advocate handing over a much greater strategic control of the health systems to private players. This often comes coupled with the admission that government investments in health care are unlikely to rise soon. The Niti Aayog said as much two years ago, while building the case for the public-private partnership model that it suggested last month.

Scroll.in looked at how the investment map for health care has changed since 2010 and how it stacks up against other emerging economies. While several governments and researchers have talked about the need to spend at least 2.5% of the gross domestic product on health, the Indian government only spends about 1.4% of the GDP on the sector (in 2014). This have given a lot of room to private players to enter the healthcare space. Private health spending in India was more than double the government’s expenditure, at 3.3% of the GDP in 2014, according to a recent PricewaterhouseCoopers report.

A comparison how much of their GDP countries spend on healthcare.
A comparison how much of their GDP countries spend on healthcare.

This brings India’s total expenditure on health to 4.7% of the GDP, which is fairly short of what other countries spend. For instance, China spent 5.5% of the GDP and US spends a whopping 17% of their GDP on health while the world average remained around 10%, according to the data collected by PricewaterhouseCoopers.

Moreover, though health spending by the government is rising every year in absolute terms and on a per-capita basis, there is no significant increase in the percentage of money allocated to healthcare. For instance, per-capita spending on health by the government rose to Rs 973 in 2015 from Rs 621 in 2009 but government expenditure on health as percentage of GDP did not see a significant change in the five year period between 2009-2014, noted the Ministry of Health and Family Welfare’s national health profile published this year.

The health ministry finds that over the years, the Centre’s share in health spending has been declining steadily even as the share of states in total public health expenditure has been increasing. For 2017-’18, the Centre is expected to fund 28% of the total public expenditure on the health while the remaining 72% will comes from the states. India’s total public health spending outlay for the current financial year is expected to be Rs 1.80 lakh crore.

Crawling along

In 2012, the Congress-led United Progressive Alliance government promised to increase government expenditure on health to 2.5% of the GDP, but it remained at barely above 1% of the GDP at the end of its tenure in 2014. The Bharatiya Janata Party-led National Democratic Alliance government also promised a “universally accessible, affordable and effective” healthcare system in its manifesto for the 2014 Lok Sabha polls but over the three years that it has been in power, it has increased expenditure on health by a mere 0.2% of GDP, according to government data.

As percentage of GDP, public spending has not risen much over the last six years, government data suggests. In 2009, the government spent 1.12% of the GDP on health. For 2016-’17, it set aside 1.18% of the GDP for healthcare in the budgetary estimates. Meanwhile, states’ spending in the same period has risen from 0.7% of their GDP to 0.9% the health ministry claims.

This, experts suggested, is a measly amount when compared to the country’s needs. Scroll.in spoke to Ravi Duggal from advocacy body Centre for Enquiry into Health and Allied Themes, who said that the private expenditure and investment on health was bound to go up when the government was not spending enough money on building and maintaining facilities.

“When NITI Aayog itself is promoting private companies, the public facilities do not stand a chance to compete,” Duggal said. “The encroachment of private sector in healthcare has been happening for two decades but it has become quite rapid in the last few years as people are forced to pay for health at private healthcare providers instead of getting treated at public facilities.”

The recommendations of the fourteenth finance commission, released in 2015, also contributed to the increased burden on states to spend on building public healthcare. The commission had increased the tax devolution, or the share of Union taxes that go to the states, from 32% to 42%. This has, consequently, reduced the wiggle room for the Centre to spend on the social sector.

But states have gone different ways in deciding how they spend the additional money each year. Some have increased spending on health, but several have not.

Out-of-pocket

That public spending is not meeting people’s health care expenditure needs is evident from out-of-pocket-expenditure data compiled by the World Bank. In the year 2014-’15, 62.42% of health spending was borne by citizens. Ideally, when a country’s public healthcare system is improving, the out-of-pocket-expenditure as a percentage of total health expenditure should come down. In India’s case it only has reduced marginally, from 63.37% in 2010 to 62.4% in 2015.

Duggal said this clearly shows that health expenditure in the country, especially from the public sector, is inadequate. He argued that about 85% of the total out-of-pocket-expenditure is spent on private facilities.

On this count too, India performs poorly in comparison to several other countries. For instance, in China, out-of-pocket expenditure is as a percentage of total health expenditure is 32% in China, 11% in US and averages around 18.2% for the world, according to World Bank data for 2014.

Meanwhile, World Health Organisation data shows that Indian government’s per-capita spending on health measured in dollars and adjusted for purchasing power parity was $267 per capita per year, compared to $730 in China and $1318 in Brazil in 2014.

The National Health Policy Draft of 2015 estimated that nearly 6.3 crore people are faced with poverty every year because they do not have financial protection for their healthcare needs.

To afford these out-of-pocket expenses, many have to borrow or part with assets acquired over the years, data shows. For instance, 68% of rural India uses their savings to finance health expenses while one in four people in rural India have to borrow money to fund their hospital bills, according to data published by the National Sample Survey Organisation.

Private party

As the public sector has failed to fill the gap in terms of investment as well as access to affordable and quality healthcare, the private sector has stepped in and brought with it big money, funding large hospitals and chains of diagnostic centres, but with a sharp focus on profitability. This is also why most private investments in the healthcare sector are driven towards big cities where people have a higher spending ability rather than in smaller cities and rural areas where facilities are lacking.

According to foreign direct investment fact sheets published by the government, the healthcare sector attracted foreign direct investment of Rs 4,149 crore in the financial year that ended this March. This is a jump of almost 169% over the five years since the 2011-’12 financial year.

Analysts say that healthcare will continue to make money for private players because they offer differentiated services. An increase in incomes is also driving up people’s preference for treatment at private hospitals.

For instance, 58% of rural and 68% of urban respondents in 2010 preferred to access a private hospital than a public one, according to National Sample Survey Office data.

“Government healthcare budget per-capita is very deficient so private sector is bound to step in,” said Surajit Pal, assistant vice-president and analyst for healthcare and pharmaceuticals at the brokerage Prabhudas Liladher. “Most healthcare spending is out of pocket and that’s also due to the fact that government hospitals are sometimes not able to provide quality services or have too much crowd, forcing people to look elsewhere.”

Pal said that the hospital industry seems to be crowded in metros like Delhi and Mumbai even as there is a lot of scope for expansion in tier 2 and tier 3 cities.

“Their [private hospitals’] charges are pretty high, from diagnostics to medicines, so not everyone can afford it,” he said. “Also, private hospitals are sometimes not even interested in treating basic diseases like malaria because there are enough government hospitals doing it. They want to cater to a different market seeking specialised treatment.”

Even though private hospitals are yet to reach the district-level penetration of the government’s facilities in the country, they are making a lot of money in the areas they cater to.

According to rating agency ICRA’s analysis of five big hospital chains – Apollo, Fortis, Narayana Hrudayalaya, Max India Limited and Healthcare Global Enterprises Limited – revenues of these entities alone touched Rs 12,990 crore in the year ended March 2017. This is an increase of about 80% over the course of a five-year period starting March 2012. Meanwhile, their profits grew by Rs 770 crore during the same period to touch Rs 1,890 crore by this March. This is an increase of 68.75%. However, on an annual basis, their profits grew at about 11.03% while revenues grew by 12.59%. Pal said that the rise in profits seems to be a bit lower in actual numbers because most hospital chains such as Fortis are rapidly expanding by ploughing back their profits in setting up new facilities.

“The performance of the hospital industry has improved in FY [financial year] 2017, despite the events of demonetisation and the cap put on prices of stent,” the agency said in its report published in May. “Demand-supply gap for quality healthcare services in the country coupled with the dominance of private sector in healthcare industry continues to aid growth.”

The situation is unlikely to improve in the near future, especially if the Niti Aayog’s recommendations to increase private involvement in healthcare are accepted. The agreement allows private hospitals to bid for a 30-year leases to develop parts of district hospital buildings or land to set up 50- or 100-bed hospitals in towns. The Niti Aayog proposal provides for the private sector being subsidised by the government (by giving them free land and allowing them use existing infrastructure in district hospitals for free for three decades, a guaranteed flow of patients and the possibility of a direct one-time capital subsidy as well). Against this, the private sector is to provide its services from the government district hospitals at controlled rates. But global experience suggests that these rates eventually rise and the people end up paying directly from their pocket instead of public money going through the subsidy channel.

Corrections and clarifications: The story has been updated to add average annual growth rates for revenues and profits of private hospitals.