Healthcare in India July 2014

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India’s Healthcare System
Life expectancy in India has more than doubled since
independence, to 65 years, from just 32 in 1950.
The infant mortality rate has been cut by two-thirds since
Smallpox and guinea worm have been eradicated,
the spread of HIV/AIDS has been contained,
and the World Health Organization has declared India
Yet for all of that, India’s healthcare system in many
respects is on life support.
The country trails behind sub-Saharan Africa,
Bangladesh and Nepal on numerous health fronts,
despite higher per-capita income and two decades of
spectacular economic growth.
Inequities in the availability and outcome of care abound, determined in
large part by gender, socioeconomic status and geographical location.
And most Indians seeking care are confronted by two unpalatable
choices—a public health system that is almost entirely free but of poor
quality if it is accessible, and a largely unregulated private-sector system
that provides world-class service to some but too often charges ruinous
prices, dispenses inappropriate or unnecessary care, and is riddled with
practitioners with little or no formal training. The costs of these failings
fall disproportionately on the poor, especially women and children, but
are borne by all.

High rates of infectious diseases compete with a large and growing
burden of chronic illness. Cardiovascular disease has become a major
cause of morbidity and mortality, more than a million deaths a year are
attributed to smoking, and nearly 65 million Indians are known to have
diabetes. Mental illness and occupational health and safety suffer from

Some experts are of the view that Four key steps are
necessary to reach that goal.
First, the government must embrace the idea of tax-funded universal
coverage, as opposed to contributory or subsidized private insurance
Second, it must incentivize preventive care by setting up more robust
primary-care facilities, especially in underserved rural areas.
Third, it must pursue substantive public-private partnerships with
trustworthy private actors; this step should be supported by a stronger
regulatory framework from the central government.
Fourth, it must encourage state governments to function as laboratories
to produce better outcomes.

To take these steps, India will have to double its funding
for public health programmes to at least 2.5% of gross
domestic product (GDP). Financed by general taxation, the
additional resources should be used to strengthen the delivery of primary
healthcare, improve the quality of services, and promote more equitable
access, especially for poor and marginalized communities. Ailing status
At the heart of India’s health care shortcomings is money. The

Constitution makes the states responsible for the
provision and delivery of health services, with the cost
shared by the states and the central government (the
central government contributes 36%).

But with few exceptions, neither level of government has assigned a high
priority to spending in this area.

In per capita terms adjusted for purchasing power,
India’s public expenditure on health is $43 a year,
compared with $85 in Sri Lanka, $240 in China, and
$265 in Thailand. In terms of GDP, India spends only
1.2%, a rate that hasn’t budged in more than a decade
and is one of the lowest in the world. The comparable
rates are 1.5% in Sri Lanka, 2.7% in China, and 3% in
India’s low spending has put the financial burden on
individuals. Out-of-pocket spending—69% of total health
expenditure—is among the highest in the world and much
more than in Thailand (25%), China (44%), and Sri Lanka (55%).
Millions are driven into poverty every year by large medical expenses.
Almost every country that has achieved universal health coverage or is
working towards it has done so through the public assurance of
comprehensive quality primary care for all. But though treatment in
public facilities in India is nearly free (except for a small user fee), it is
often not available or is of poor quality.
Only 22% of the population in rural areas and 19% in urban areas use
government facilities for out-patient care. Even for in-patient care, only
around 42% in the villages and 38% in the cities utilize government
facilities. The facilities tend to be understaffed, underfunded and terribly
managed. The better ones tend to be overcrowded.
A severe shortage of doctors, nurses and midwives is made that much
worse by big geographical gaps in availability. Rural areas are especially
poorly served. Complaints are common about distant locations,
inconvenient hours, high staff absenteeism and the insensitivity of many
health workers.

The government’s failure to deliver quality care has led
to a rapid expansion of the private sector, which today
accounts for 93% of all hospitals (up from 8% in 1947),
64% of all beds, and 80% to 85% of all doctors. But that
sector has major systemic shortcomings as well. For
starters, it is unevenly distributed, highly fragmented,
and mostly unregulated. It also fluctuates wildly in
At one end are quacks, practitioners with little medical knowledge or
formal training. At the other end are world-class hospitals that cater to
both Indians and foreigners who can afford to pay for often expensive
care. In between are small private clinics and other hospitals, which can
be for-profit or not-for-profit. Informational asymmetry (allowing the profitoriented doctor to cheat the patient by prescribing unnecessary
medicines or unwanted treatment) renders private markets in healthcare
grossly inefficient. While some private providers offer good quality
services at affordable prices, costs in general tend to be unreasonably

A majority of Indians, especially in rural areas, are at the
mercy of self-declared doctors who have not completed
their schooling and have picked up their skills by
working as assistants to pharmacists or real doctors.
Even within the formal private sector, overdiagnosis and overtreatment
are common, as is faulty treatment.
Many private practitioners sell substandard and counterfeit medicines,
prescribe unnecessary drugs and tests, receive commissions for
referrals, order unnecessary hospital admissions and manipulate the
length of stays.

Towards universal coverage The central government,
and some state governments, have taken a number of

steps over the past decade to improve the situation, but
much more needs to be done.
First, the central government and the states, as well as the influential
middle class, should fully embrace the concept of universal health
coverage. The principal approach of the government so far has been to
provide—as far as possible, however limited it may be—universal
access to free primary care; to rely on insurance mechanisms to offer
cashless secondary and tertiary care to the poor and to a small set of
privileged government employees; and to leave the rest of the
population to buy healthcare in the private market. This approach has
perpetuated a fragmented, inefficient, iniquitous and expensive system
of care. Policymakers have to recognize that neither private healthcare,
even if properly subsidized, nor commercial health insurance subsidized
by the state can meet the challenge of universal coverage. The interests
of providers, consumers, and insurance companies are simply not
aligned to maximize returns to consumers. Serious incentiveincompatibility problems arise when insurance companies deny use,
medical practitioners induce demand or encourage overuse, and
patients themselves misuse services (commonly referred to as the moral
hazard problem). Available

evidence from across the world
points out that insurance schemes incentivize tertiary
care and neglect primary and preventive care, especially
when they cover only hospitalization costs. As a result, it
is also not clear whether improved health can be
counted as one of the real benefits of commercial
insurance. High administrative costs tend to reduce considerably the
amount that can be devoted to health care per se out of the premiums
paid. There is also overwhelming evidence to suggest that commercial
insurance suffers from a lack of oversight to check medical malpractice.
For all of those reasons, a true system of universal coverage is needed
and it ought to be primarily funded through taxes. Much more public
discussion on specifics is required to build a national consensus to push
this through.

The second step that must now be taken is for both the central and state
governments to give top priority to ensuring the basics of governmentprovided primary care. These services, such as universal immunization,
can greatly reduce morbidity, lower the costs of curative care, and
reduce the need for tertiary care.
Third, recognizing the fiscal constraints that governments face, the
central government and the states need to find new ways to engage the
private sector, especially with regard to tertiary care. At the same time,
the central government must put in place a regulatory and development
framework for improving the quality, performance, equity, efficiency and
accountability of healthcare delivery across the country.
Finally, the central and state governments must spend more on health,
with a significant portion earmarked for primary care. Flexible new
mechanisms for transferring funding from the central government to the
states are needed. With the additional money, the states should
customize strategies to meet the health needs of different groups and
communities. They should also draw up blueprints for universal
coverage and begin experimenting with pilot programmes. Learning by
doing is the only way forward. In the ultimate analysis, strong political
commitment and effective stewardship are desperately needed to help
India rise from its sick bed.

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