On January 8, the Ministry of Health and Family Welfare issued guidelines on incentives that private players setting up hospitals in non-metropolitan cities could get, if they were willing to treat patients under Pradhan Mantri Jan Aarogya Yojana.

The incentives include easing up land allotment on lease or through bidding, facilitating clearances within specified timelines and providing viability gap funding of up to 40% of the total project cost.

Viability gap funding is a mechanism that the government launched in 2004 to provide a one-time grant to infrastructure projects that may not be financially viable but that the government considers economically justified.

Alok Saxena, joint secretary in the health ministry, said the incentives were aimed at expanding the availability of hospitals for the implementation of PMJAY, the government’s flagship health insurance scheme under Ayushman Bharat. Under the scheme, which was launched in September 2018, an eligible family can get an annual health cover of Rs 5 lakh for treatment at select public and private hospitals.

“When PMJAY was launched, the question was ‘where are the hospitals?’” said Saxena. “Some doctors who want to provide services in these cities have no experience setting up hospitals and this will help them.”

Organisations representing private healthcare providers welcomed the new guidelines. “This will go a long way in helping hospitals set up in tier 2 and tier 3 cities,” said Dr Alexander Thomas, executive director of the Association of Healthcare Providers.

Since the launch of Ayushman Bharat in February, the health ministry and the government think-tank NITI Aayog have held several consultations with private health players. “We had said that the rates under Ayushman Bharat are not viable and that we will need some incentives to be able to implement the scheme,” said Thomas.

But public health researchers and activists criticised the government’s latest move. They said the guidelines confirmed the suspicion that the government was diverting public resources to the private sector through PMJAY. Instead of promoting health insurance which leads to over-medicalisation, they said the government must focus on building and improving public hospitals and preventing diseases.

“PMJAY is a vehicle to cater to the private sector,” said Ravi Duggal, independent researcher and health activist. “Why is the government bending backwards? If they want more private sector participation in health then leave it to market forces.”

Where is the money?

India has about 6.34 lakh hospital beds currently. The health ministry estimates that this needs to be doubled over the next 10 years to be able to cater to the intended PMJAY beneficiaries – the poorest 40% of India’s population or approximately 10 crore people.

But it is not clear where the resources for the viability gap funding for private hospitals will come from. State governments are responsible for implementing PMJAY. The Centre contributes 60% of the funds. Some states have complained that the Centre is taking all credit for the scheme, even though they are covering 40% of its costs.

When asked whether the money to provide viability gap funding to private hospitals under PMJAY will come from the PMJAY budget, Saxena said: “The question of budget does not arise because it is up to the states themselves to avail of the scheme that already exists under the Department of Economic Affairs.”

Industry status for private health sector

The health ministry guidelines also call for the private health sector to be given the status of “industry” to help private players access soft loans and viability gap funding.

The guidelines are applicable to three models of hospitals – doctor-owned hospitals with 30 to 50 beds, doctor-manager partnership multi-speciality hospitals with 100 beds, and multi-speciality hospitals with more than 100 beds.

“Earlier, till 2017, healthcare had industry status but no one availed of the funding and so [the status] was withdrawn,” said Saxena. “Now, a state government can go to the department of economic affairs armed with the health ministry guidelines and ask for this to be restored.”

Thomas of the Association of Healthcare Providers, however, expressed some reservations about healthcare being categorised as an industry. “We have been asking for relaxation of building tax and so on, which will happen only if healthcare is categorised as an industry,” he said. “But most of our mission hospitals that are not-for-profit do not pay income tax and this will stop if it becomes an industry.”

Private sector push

The Modi government has consistently pushed for greater privatisation of healthcare. In 2017, the NITI Aayog and the health ministry proposed a model to increase the role of private hospitals in treating non-communicable diseases by allowing them to bid for 30-year leases over parts of district hospital buildings and land to set up hospitals with 50-100 beds.

In March, shortly after the announcement of Ayushman Bharat, NITI Aayog’s chairman Rajiv Kumar said it would bring in a “huge supply side response” and that “the healthcare market will expand hugely”.

But the experience in India has shown that incentives to the private sector have often not translated into better health services. For example, many charitable hospitals in Maharashtra have been given subsidies on medical equipment, land, utility bills and income tax exemptions without meeting the required obligations of reserving at least 20% of their beds for free or concessional treatment for poor patients.

Another example is that of Indraprastha Apollo hospital in Delhi that was leased land in 1994 for 30 years for the nominal rent of Re 1 per month on the stipulation that it reserves 40% of outpatient treatment and 33% of inpatient beds for patients from Economically Weaker Sections. The hospital, however, did not meet these requirements and was fined by the Delhi High Court in 2009 and directed by the Supreme Court in 2010 to meet its obligations to poor patients.

Due to many such instances from across the country, public health experts are wary of such schemes.

“There is a good chance that corporate hospitals will use this to tap into tier 2 and tier 3 cities only to stream patients into their higher centres,” said Professor T Sundararaman, who teaches at the School of Health Systems Studies at the Tata Institute of Social Sciences. “They can continue to provide most of their services to non-PMJAY patients. There is no cap on their charging any rates for non-PMJAY patients or penalty for denying care to an eligible beneficiary. The experience is that empanelled hospitals choose to avoid patients whose disease conditions have low profit margins.”