Modi govt needs to perform a balancing act to woo private investment in healthcare

By Kapil Khandelwal

  • 02 Aug 2018
Modi govt needs to perform a balancing act to woo private investment in healthcare
Credit: Thinkstock

The Indian government wants to introduce the world’s largest healthcare reforms. The publicly-funded initiatives that constitute ‘Modicare’ are aimed at improving affordability and access to healthcare, apart from attracting participation from the private sector in this endeavour. Financial sustainability will be key on both counts.

While several proposals of the policy have been welcomed, many of them have also been criticised. Globally, private healthcare players have faced a squeeze owing to numerous pressures, including the rise of value-based care and healthcare consumerism. This has sometimes led to the closure of healthcare facilities apart from lopsided development of the overall healthcare system.

Let’s take the example of the US’ Patient Care and Affordable Care Act, better known as Obamacare. Since it was implemented in 2010, several hospitals have shut down, especially in rural areas where the legislation sought to create maximum impact.


The story in India will not be very different. In any country, the implementation of any healthcare policy reform needs to strike a balance between demand and supply. This is with a view to ensuring that granting access to affordable healthcare is financially viable for service providers without cracking the backbone of the system.

Demand and supply
On the demand side, the policy is expected to address the healthcare requirements of the rural and urban poor. Assuming that 20% of India’s population of 1.3 billion is covered with some sort of insurance and healthcare expenses reimbursement, this leaves close to a billion people who are paying out-of-pocket. The real issue is the bottom 20% and the next layer of 20% above that - half-a-billion Indians - that need some sort of policy intervention.

The same demographic and epidemiological models cannot be applied to this section of Indians as compared to the top 260 million who are covered by insurance. This represents a looming healthcare crisis.


On the supply side, serving this impacted population of 0.52 billion would require millions of beds across the country in the private sector and incremental clinical manpower of close to 25-30 million overnight to get the reformed policy well-balanced and executed through private sector operators from day one. It is a pipe dream but not impossible.

An estimated 80% of the surgical workload in India occurs in 18 cities. Private-sector operators prefer running their tertiary facilities in larger urban hubs as it helps aggregate demand, operate efficiently and are financially sustainable for investors.

Unfortunately, some of the social impact investments in providing no-frills low-cost healthcare in India have failed in the past. Moreover, a recent CRISIL report states that private sector healthcare networks require Rs 4,700 crore to build


their referral networks in 2018-19 alone.

The funding environment is tight given the current supply of growth capital. Much of the growth in investments in referral healthcare infrastructure in India in the private sector has been lagging in the last few years. Separately, there has been consolidation and exits of among some private sector operators owing to financial imprudence in some cases.

So the issue of large-scale healthcare migrations to urban centres still remains. Under Obamacare, people in rural areas had to travel over 30 km to get access to secondary healthcare. In India, the distance and the number of people may be higher. How do we tackle the three-headed hydra of healthcare policy that balances affordability, accessibility and financial sustainability?


Seeking solutions
Innovation in Indian healthcare delivery models has been slow. There is a need to build chains of standalone daycare diagnostic and surgery centres, freestanding emergency care centres and satellite facilities including step-down and rehab centers in the next 30 most populated centres.

Another area where most the successful healthcare reforms and systems operate is by implementing efficient gatekeepers to healthcare access. India has a broken system of primary care and family medicine practices. Nor are there efficient healthcare financing and insurance products that are co-funded by the state governments that address this area, given the strait-jacketed approach by the health insurance regulator in approving such innovative health insurance products.

The point here is that care is denied or delayed given the inefficiencies in the insurance administration, and that leads to higher mortality rates with increased hospital admissions and length of stay.


Let us understand that healthcare may be a social good and the private sector has to operate freely with a profit motive and full financial sustainability. Most healthcare reforms across the world recognise this and try to maintain an equitable balance in ensuring financial sustainability of the healthcare operators, allowing them to innovate into different care delivery formats to ensure coverage and lower cost of operations at scale.

If the scope for innovation and profitability of healthcare operators is curtailed, then investments in private healthcare operators would suffer a similar fate. The best healthcare reform policy for India could be to nationalise all the private sector hospitals in India in the same way that banks were nationalised in 1969.

Kapil Khandelwal is managing partner of Toro Finserve, a healthcare infrastructure fund.

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