Dispatch from India: Private sector responding to new health care consumers

By Jay Srinivasan

Editor's note: The current issue of Health Affairs released next week focuses on health care in India and China.

As with most parameters within the Indian economy these days, the health care industry is huge but that doesn't tell you much.

The fact is that health care in India is a broken system whose fault lines are fast being papered over by the rapidity of change, influx of big capital, drive of entrepreneurship and the relative ease of staking positions and targeting opportunity in an economy on fire. Combine that with the government's involuntary relinquishing of idealistic heights due to resource constraints and its abysmal record and you get an industry that is overwhelmingly in the hands of the private sector. Maybe the private sector can redeem the industry after six decades with little to show by the government.

In 2006, health care spending was a little over 5 percent of India GDP, or over $30 billion. This includes provider services, manufacturing, and retail pharmacy, with delivery and pharmaceuticals accounting for 75 percent of the total. According to Ernst & Young, spending could well be between 5.5 percent and 8 percent of GDP and employ 9 million people by 2009.

Currently, India has more than 15,000 hospitals (compared to about 7,000 in the US) with over 870,000 beds. There are 162 medical colleges, about 750,000 nurses, and 500,000 physicians. But don't get taken in by all those numbers. As I said, India boasts big numbers, but the devil's in the details. Per capita expenditure is low and the share of government in health care delivery is less than 20 percent and falling. Over 80 percent of the market, therefore, is in the private sector that is fragmented, of varying quality, ill-regulated, and characterized by practices that would make a US regulator pass out. The average Indian consumer accesses these services at his own peril, unless they happen to be in urban areas and belong to the educated middle and upper classes to be able to discern quality differences and pay for them.

Government provision of health care in the country is largely in the hands of the state governments, with the federal agencies limited to family welfare and disease control programs. The former is responsible for primary and secondary care with limited specialty care. Provider services are through public and community health centers, district hospitals, and individual GP practices of indifferent quality in the rural areas; a huge network of privately-owned nursing homes providing mostly secondary care in the semi-urban and urban areas; and a rapidly growing clutch of deep pocketed and well-endowed private corporate tertiary care hospitals (or, to describe them in their own words, "super specialty") in the metropolitan areas. Of these, over 80 percent of hospitals have less than 30 beds (often called nursing homes), about 10 percent have between 30 and 100 beds, 5 percent between 100 and 200 beds, and 1 percent with over 200 beds. The private corporate hospitals, not surprisingly, fall in the 6 percent segment for the most part and compare with the best in the world, but their share of total private ownership is about 10 percent.

Strangely for a country that is still largely poor, there has been a rise in lifestyle diseases that has reflected on services, especially in urban areas: cancer (2.5 million cases with 700,000 new cases every year); diabetes (40 million cases); HIV/AIDS (5.1 million cases); TB (14 million cases); cardiovascular, and CNS. Increasing wealth and changing lifestyles are said to be the cause. For these and other reasons, share of tertiary care in the total health care pie is 15 percent to 20 percent and growing at a faster rate than the rest.

This picture would be grim if not for an ironic confluence of a consumerist, fast food and convenience foods lifestyle on the one hand and an image conscious, healthy lifestyle appreciation on the other. If that sounds paradoxical, it is. The notion of health consciousness is restricted to the white-collared middle and upper-middle classes in the urban areas who increasingly work for large companies, both Indian and foreign, and draw much of their aspirations from the increased wealth and awareness. But, for a variety of reasons, bad health practices are now spreading across the social spectrum that is worrisome. Over on the employer side, a red-hot economy and a growing skills shortage has meant high attrition rates and compensations that are increasingly getting out of hand. Combine the two trends on the employer and employee sides and you have the possibility of a heady brew: an opportunity for employers to creatively design benefits programs with health care forming an important part of it and for employees to take charge of a crucial aspect of their lives and direct their consumerist, choice-seeking, philosophy to health care.

That is still fiction, of course. We have just begun to see the emergence of health care insurance (about 1 percent for the nation as a whole, but about 20 percent to 30 percent among the white collar in the metropolitan centers) and though out-of-pocket expense still forms the bulk of health care spending in the country, there is not much of price competition even if there is choice. Basically, one pays what is charged. In this environment lies the possibility of congruence in interests between employers in the organized white collar segment, empowered employees, an insurance industry seeking targeted opportunity, and a provider community of willing and progressive entrepreneurs sensing an uncontested space for a branded, accredited, quality rated, concept. In such a world, consumers are encouraged to make informed health care decisions, shop for products and services among the multitude of providers and payers who have opted to participate in a supermarket setting, and intermediaries providing the important functions of educating, mediating, and facilitating selection and delivery.

This dreamland may just have a chance in India as there are no entrenched interests as yet unlike in the United States and, therefore, few structural impediments to design a workable and innovative system. Insurance is minimal but is seeking to enlarge its space; employers are resistant to involving themselves too deeply in defraying the costs of employee health and thereby reduce participants to becoming mere cogs in the wheel; and consumers are becoming savvy enough to entertain the thought of seeking value that aligns with their health care needs. Imagine if these were dominant factors in the US of the 1950s: the health care industry may well have evolved very differently. What the country needs to give all this a push in the right direction are enabling legislations that permit some kind of tax-shielded health savings such as Medisave in Singapore or HSA in the US. In short, India can learn from, and sidestep, the structural handicaps holding back health care reforms in the United States.

Such a market economy of choice, quality, and price obviously will work only with a limited population set -- those of the educated middle class. While this might seem like pampering an already well-off segment, the idea is to let market forces work for one segment that does not greatly need government support and thereby relieve it of responsibilities -- and release funds in the process -- to focus on the vulnerable poor.

It is important to note why India might entertain such an idea in the first place: funding for nationwide health out of general revenues have been miserably inept and its efforts largely bypassed by every segment of society. Social insurance of a sort barely exists outside of a small privileged few falling within the purview of the Employees State Insurance Scheme (ESIS); and private insurance, left unchecked, might just begin to replicate the problems one experiences in the US. In the meantime, the out-of-pocket regime flourishes with serious repercussions to the patients and their families. In this scenario, only the provider and manufacturer segments gain. A supermarket of quality providers rated by neutral third parties that enables consumer choice in service packages and price would appear to be just what the doctor ordered.

Jay Srinivasan is a health care consultant currently based in Bangalore and Chennai, India. He worked for more than a dozen years in the U.S. health care industry.