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at: Public Private Partnership (PPP) in Indian Health Care

Article in SSRN Electronic Journal · November 2012

DOI: 10.2139/ssrn.2186897



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Ramakrishnan Ramachandran Classic Consultants Chennai India Ramakrishnan Ramachandran Classic Consultants Chennai India


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

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College :


Dr. R Ramakrishnan

Principal /Director

Agni School of Business Excellence, NH45 Morepatty, Dindigul 624802 India

5/7 Padmavathy Colony, Near Thiagraraja Polytechnic, Salem 636 005

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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 Constitution 1 , 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

of 14% according to Indian Brand Equity Foundation (IBEF) 3 The large domestic market is complemented

The large domestic market is complemented by the inflow of medical tourists. According to “Booming Medical Tourism in India”, by RNCOS 4 , 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


2 HealthCare_Outlook_Fitch_030212 downloaded from























Electronic copy available at:

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

is less than half the global average in percentage terms when compared on a “percent of

The Planning Commission of India 6 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 2007–2012 7 .

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

7 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 average 9

is ~23 percentage points lower than the global average 9 Health is the critical sector for

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 are 10 :

9 Emerging Trends in Healthcare- A Journey from Bench to Bedside 17 Feb. 2011 prepared by KPMG and ASSOCHAM taken from /Emrging_trends_in_healthcare.pdf

- 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) 11 The 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

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


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

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: