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Public Private Partnership (PPP) in Indian Health Care

Article  in  SSRN Electronic Journal · November 2012

DOI: 10.2139/ssrn.2186897

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(i) Title of submission: Public Private Partnership (PPP) in Indian Health Care

(ii) Name of the author: Dr. R Ramakrishnan

Principal /Director
(iii) Mailing address:
College : Agni School of Business Excellence,
NH45 Morepatty, Dindigul 624802 India

Residence: 5/7 Padmavathy Colony, Near Thiagraraja Polytechnic,

Salem 636 005

(iv) E-mail address of Author: ramakrish54@gmail.com or ramakrish54@yahoo.com

(v) Phone number(s) College : +914551-203180

Mobile +919952669656
Residence : +91427-4040492

Electronic copy available at: http://ssrn.com/abstract=2186897

 Public Private Partnership (PPP) in Indian Health Care

Health sector is the lifeline for a nation's wellbeing. It is the sum total of the health of
its citizens, communities and settlements in which they live. In the Indian Constitution1, Health
care is provided for in the Directive Principles along with other social and economic rights like
education, livelihoods etc. It is one of India’s largest sectors, in terms of revenue and
employment, and the sector is expanding rapidly.

The Indian healthcare sector has emerged as one of the most challenging sectors as well
as one of the largest service sector industries in India. According to rating agency Fitch (2012)2
it is expected to reach US$ 100 billion by 2015 with an annual growth of 20%. It is expected to
create 40mn new jobs and $200bn increased revenues till 2020 and can be expected to become
a $280bn industry by 2020 with an annual increase of 14% according to Indian Brand Equity
Foundation (IBEF)3

The large domestic market is complemented by the inflow of medical tourists.

According to “Booming Medical Tourism in India”, by RNCOS4, India's share in the global
medical tourism industry will reach around 3 per cent by the end of 2013 and is expected to
register a CAGR of 27% during 2011-15. The Number of medical tourists has increased almost
20 folds from 10,000 in year 2000 to about 180,000-200,000 in year 2006 and the same trend

1 http://www.cehat.org/humanrights/caselaws.pdf
2 HealthCare_Outlook_Fitch_030212 downloaded from
http://www.moneycontrol.com/mccode/news/article/article_pdf.php?autono=662043&num=0
3 The emerging role of PPP in Indian Health Sector Policy paper prepared by CII in collaboration with KPMG taken from
www.ibef.org/download/PolicyPaper.pdf
4 http://www.rncos.com/Market-Analysis-Reports/Booming-Medical-Tourism-in-India-IM123.htm

Electronic copy available at: http://ssrn.com/abstract=2186897

continues. The industry is fragmented with a large number of independent, privately run
hospitals and healthcare centers.

On the other hand the health care delivery environment in India has distinctive
challenges. Inadequate infrastructure and a constrained health care delivery work process further
intensify the complexity. It is estimated that 15% of India’s population still has no access to
health care services, either due to lack of availability or economic reasons. Moreover, 75% of the
qualified doctors practice in urban areas and 23% in towns, while only 2% practice in rural areas.

The health care system in India consists of public sector, private sector, and an informal
network of care providers (also known as voluntary health system). The very size, scale, and
spread of India is a huge challenge that many well intended guidelines and regulations had just
gone haywire. The Indian Health sector operates in a largely unregulated environment, with
minimal controls on the type of services to be provided by whom at what cost and in what
manner. This is further complicated by the usual Indian tendency to lack of standardization and
minimal compliance though there are norms and guidelines.

There are two Indias that one can see in the Indian Health care sector
- a country that provides state of the art medical care to middle-class Indians and
attracts medical tourists; and
- another where a majority of its own citizens cannot afford or even get access to
basic healthcare.

We are also living under two shadows in India: the familiar one of infectious diseases
like malaria, tuberculosis, etc., and the new and growing cases of non-infectious chronic diseases
like cancer and coronary diseases.

The large widespread health infrastructure that has been set up throughout the country
seems to be non-functional and unresponsive in many parts. Analysis of available qualitative and
quantitative data clearly shows extremely uneven health and development progress in various
parts of the country.

The structure of the health care system in India is complex as includes various types of
providers practicing in different systems of medicines and facilities. The providers and facilities
in India can be broadly classified by using three dimensions:

1. Based on Ownership

The Public sector: run by central government and state governments like
government hospitals (GH) , dispensaries, clinics, primary health care centers
(PHC) and sub-centers, and paramedics;

The not-for-profit sector run by charitable institutions, missions, churches,
trusts and other voluntary organizations(VHS)

The organized private sector, including general practitioners (having at least a
bachelor's degree or equivalent in medicine), private hospitals and small
private hospitals (popularly known as nursing homes), registered medical
practitioners, dispensaries and other licensed practitioners; and

The private informal sector, including practitioners not having any formal
qualifications (e.g., faith healers, herbalists, priests, tantriks, hakims, and
vaidyas).
2. Based on the Systems of medicine

Allopathic,

homeopathic,

Ayurvedic

Unani

Other traditional and indigenous systems; and
3. Types of organization

Multi Specialty hospitals,

Hospitals

Dispensaries,

Clinics

Others
These dimensions are interdependent and overlapping in nature.

Health care is also distinguished by the wide range and diversity of services that are
covered by the term. Care may involve prevention or treatment of disease; treatment may be for
acute or chronic problems; health problems may be exclusively individual or have collective
dimensions; be specific to particular groups (e.g., children or women) and, increasingly, health
care includes attention to broader aspects of well-being.

The government is the largest provider of healthcare in the country especially at the
primary and secondary care levels. It is also the largest buyer of healthcare services at the tertiary
and quaternary care levels. The private sector investments in healthcare have been driven by free
market economy in the last few years. The pricing of services rendered by them are greatly
influenced by the cost of investment with the result that most of these services have remained
out-of-reach to most of Indians

India’s healthcare spend is significantly low when compared to the global, developed and
other similar emerging economies. The Indian healthcare spend is less than half the global
average in percentage terms when compared on a “percent of GDP” basis.5

5
Ibid 3
 The Planning Commission of India6 has estimated an increase in infrastructure spending
from 4.1% to 8.5% of the country’s gross domestic product (GDP) to sustain growth and poverty
alleviation targets. This translates into a $500- billion investment requirement across sectors
during 2007–2012. The ability of the public sector to meet the above requirement is constrained
by a high public debt that averaged 81.5% of GDP from 2002 to 2008 and rising fiscal deficit.

The Constitution of India divides health-related responsibilities between the central and
the state governments. While the Central government maintains responsibility for medical
research and technical education, state governments shoulder the responsibility for infrastructure,
employment, and service delivery. The concurrent list (in the 9th schedule to the Constitution of
India) includes issues that concern more than one state, e.g., preventing extension of infectious or
contagious diseases among states. While the states have significant autonomy in managing their
health systems, the central government exercises significant fiscal control over the states’ health
systems.

Due to the limited public infrastructure spending, private investments could play a pivotal
role in bridging infrastructure investment deficits. The private sector is expected to contribute
around 29% of the total requirements for 2007–20127.

At the same time due to the prevailing situation in the government sector, there has been
an unprecedented growth of the private sector, in both primary and secondary health care all over
the country. Given the current ethical standards of the medical profession and free market
technology-driven operational principles, the private sector generally does not provide quality
health care at a reasonable cost. Before this sector becomes a public menace, it is necessary to
introduce participatory regulatory norms.

The health sector already has large and vibrant private sector presence - both in formal
and informal markets. In some states of India, private sector provision of health care is as high as
70%.8 The health services markets (to a great extent) have evolved into two distinct streams:
private sector provision for those who can afford to pay for health services, and public sector
provision for those who have limited means. The private sector provision that caters to the upper
end of the market is already based on a self-sustaining revenue mode and is highly
commercialized. The public sector provision that caters to the lower end of the market or to the
poor has limited scope for revenue generation. This may limit the scope for models based on
cross-subsidy

The health care system in India pre–dominantly is catered to by the private sector Private
Sector contribution to the healthcare sector at ~75 percent is amongst the highest in the world in

6Improving Health and Education Service Delivery in India through Public–Private Partnerships - PPP KNOWLEDGE SERIES under the ADB–
Government of India PPP Initiative taken from http://www.pppinindia.com/pdf/health-education-delivery-india-ppp_adb_dea.pdf
7 Ibid 6
8 Ibid 6
percentage terms. Public spending, on the other hand, is amongst the lowest in the world and is
~23 percentage points lower than the global average9

Health is the critical sector for achieving overall equitable human development in the
country. India’s health spending (4.1% of GDP) is much lower than the spending of Organization
for Economic Co-operation and Development (OECD) member countries. The private sector can
bridge the investment deficit and improve the efficiency and outreach of service delivery.
However, there are some challenging sectoral issues that constrain its ability to enter through
Public–Private Partnership (PPP) modalities.

Several constraints exist in the health sector in India. The major challenges for the health
sector include

Accessibility and coverage in rural areas,

Ineffective management of existing infrastructure,

Inadequate number and quality of health care professionals.

There is no single definition of Public Private Partnership (PPP). PPP broadly refers to
long-term, contractual partnerships between public and private sector agencies, specially targeted
towards financing, designing, implementing and operating infrastructure facilities to provide
services that were traditionally provided by the public sector.

Partnership between the public and the private sectors for a common goal is not a new
concept or practice used globally. Public Private Partnership (PPP) in health and healthcare
sectors is a comparatively new initiative globally. In countries like the UK, Germany, Canada
etc. the governments, through widely different mechanisms, are ‘buying’ healthcare services
from the private sector on behalf of their civil societies and make it available to them.
Some of the key areas where private sector contribution can prove very beneficial are10:

9 Emerging Trends in Healthcare- A Journey from Bench to Bedside 17 Feb. 2011 prepared by KPMG and ASSOCHAM taken from
www.kpmg.com/IN/en/.../Emrging_trends_in_healthcare.pdf

Infrastructure Development - Development and strengthening of healthcare
infrastructure that is evenly distributed geographically and at all levels of care

Management and Operations - Management and operation of healthcare facilities for
technical efficiency, operational economy and quality

Capacity Building and Training - Capacity building for formal, informal and
continuing education of professional, para-professional and ancillary staff engaged in the
delivery of healthcare

Financing Mechanism - Creation of voluntary as well as mandated third-party financing
mechanisms

IT Infrastructure - Establishment of national and regional IT backbones and health data
repositories for ready access to clinical information

Materials Management - Development of a maintenance and supply chain for ready
availability of serviceable equipment and appliances, and medical supplies and sundries
at the point of care

According to Bhate (2011)11The learning’s indicate that the best PPP should be built up on the
following tenets:
• Transparency: All the processes of selecting, designing, costing and awarding contract
to an individual or agency for partnership should be transparent. Monitoring of its
implementation and its outcome should also be transparent and information should be
available to the people immediately.
• Impartiality between public and private sectors: A PPP project should be designed
and implemented with utmost concern that it does not compromise public health
priorities. If not done carefully it will weaken the public sector’s capacity to uphold
regulations. If there is any shift with a bias for private against public health sector under
the guise of partnerships, there is a danger of displacing the marginalized and may
therefore be in conflict with the fundamental concept of equity in healthcare.
• PPP as a part of social responsibility of the public sector: PPP does not mean
renouncing of responsibility by the public health sector. Failure of the state in such
partnerships may result in a laissez-faire attitude, prejudicial to the civil society
particularly the interest of the vulnerable groups.
• Value for money: After all, it is public money which is spent for providing public
goods/services and so whether it is for or not-for-profit, it should be reasonably good
both in content and its quality for the money spent. There were gaps found in good
quality services at reasonably high cost in its economic sustainability. A low cost, good
quality model is designed and implemented on BOT (Build-Operate-Transfer) mode.
However, its post transfer O&M (operating and maintenance) costs are not included. This
makes it a ‘no value for money’ project and hence it can become socially useless. The
costing of a project should be able to balance between its current investment and its long
term cost and needs.

10 Ibid 3
11 Bhate P-Deosthali (2011)Private health sector report Final 26th May 2011.pmd - Cser taken from
www.cser.in/uploads/Publications/nhrcref13.pdf
 • Integration of healthcare services: The purpose of PPP is to have a team approach with
public health sector, private health sector and the civil society as key players to achieve a
common goal of building up a universally accessible and affordable healthcare system.
Any PPP project must ensure that competition and conflict of interests does not lead to
further fragmentation of an already weak healthcare system. No doubt, the project must
be designed in a way that it is mutually rewarding – economically as well as socially.
• Financially workable: Integrated projects can be cost cutters, can be for or not-for-profit
but never the less require a steady cash flow. Sharing costs, partial contribution or margin
money etc. is just an assurance about the financial capacity of the contracted agency. But
any pinch in amount, time or pace of cash flow undermines the partnership. Cutting
corners reduces both its quality and its long term sustainability.
• Fiscal clarity: NRHM (National Rural Health Mission) is in a way large scale PPP
between Government of India and the State NRHM Society. It appears on Central
Government budget but not on State Government budget.

There are some accounting controls on it but a large scale PPP may not have as it is a long term
investment and liability is transferred to future. Some clear accounting and control set ups should
be set up to make a PPP accountable.12

Many governments are confronted by fiscal constraints that force them to carefully
prioritize and restrict public expenditures. Moreover, many public health systems are already
indebted and face further fiscal pressures, such as the need to provide care to increasingly aging
populations, improve quality, or invest in often expensive medical treatment and technology
advances.
Public-Private Partnership or PPP in the context of the health sector is an instrument for
improving the health of the population. PPP is to be seen in the context of viewing the whole
medical sector as a national asset with health promotion as goal of all health providers, private or
public. The Private and Non-profit sectors are also very much accountable to overall health
systems and services of the country. Therefore, synergies where all the stakeholders feel they are
part of the system and do everything possible to strengthen national policies and programmes
needs to be emphasized with a proactive role from the Government.

In order to encourage PPP in health sector, the government needs to assume a facilitator's
role by way of aiding private sector in service delivery. The government needs to take specific
policy initiatives for increasing private sector interest and participation, such as:

Support in infrastructure set-up especially land acquisition or providing space

Offer capital and/or revenue grant e.g. viability gap funding

Budgetary provisions for capital and operating expenses of the PPP

Formulate health sector specific policies and guidelines for PPP

Capacity building within government for managing PPP projects

Ensure transparent and fair bidding process

12
http://bankwatch.org/documents/never_mind_the_balance_sheet_SHORT.pdf

Ensure a non-compete policy within a predefined geographical limit of the PPP
facilities

Buy-back a share of capacity for government identified beneficiaries

*******
 Dr Ramakrishnan Ramachandran, a baby bloomer did his PhD in Corporate Social
Responsibility and is currently the Director of Agni School of Business Excellence, NH45,
Morepatty, Dindigul, India
After working in the Government of India in the Cabinet Secretariat and Indian High
Commission Seychelles for 22 years, he worked in the manufacturing and IT sector for the next
8 years and has also done consultancy works in the field of Quality for small and medium
industries in India. He joined academics to pursue his passion –teaching.
Author of books ranging from Total Quality management to Environmental Science to
Ethics, Ramakrishnan has presented over 28 papers on various management topics. He is
continuing his research work on various topics ranging from Mentoring to Marketing as he tries
to give shape to the future managers of India. He is reachable at Cell No. +919952669656 and
ramakrish54@gmail.com
His current post doctoral research interests are Social Responsibility, Gender studies, Financial
Inclusion, Development Studies etc. His research papers can be assessed at SSRN Author
page: http://ssrn.com/author=646193
***************

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