increase its budgetary allocation
rather it pushed the burden on to
the individuals to pay for services.
Also referral services, from primary
to secondary and tertiary levels,
became the weak links, and
hospitals increasingly levied
charges for items such as drugs
and surgical supplies. As a result,
the cost of health care particularly
for the working poor continuously
increased. These processes
accelerated the flight to the private
health care services and decline
in the utilisation of public services.
Privatisation of Health Services:
Most hospitals in India were
run either by the government or
private charities and trusts till late
1970s.In the early 1980s, the state
encouraged private nursing homes,
small and medium hospitals to
supplement the government
health care. In 1991, there was a
drastic cut in the central
government budgetary allocation
for healthcare, which favoured the
establishment of private hospitals
in India. Successive governments
encouraged the growth of private
sector, in various ways, such as
releasing the prime building land
at low rates, providing exemption
from taxes and duties for
importing drugs, high tech medical
equipment, etc. In 2000, the
liberalisation of foreign investment
policy allowed Foreign Direct
Investment (FDI) in hospitals and
mobilisation of capital through
other forms like American
Depository Receipts (ADRs) and
Global Depository Receipts
(GDRs), up to 49 per cent, which
stimulated the establishment of
corporate hospitals. In 2002, the
Insurance Regulatory Development
Authority (IRDA) allowed Third-
February - 2018
Party Administrators, which made
medical insurance with cashless
hospitalisation more attractive. In
2007, the de-tariffing of general
insurance allowed the creation of
customised medical insurance
products, which further accelerated
this growth and enhanced the
acceptance of medical insurance
in India.
Thus the economic reforms
rapidly accelerated the expansion
of private and corporate hospitals
leading to commoditisation of
health in India. This reflected a shift
towards the growth of curative
(tertiary) services with a strong
commercial focus at the neglect
of primary health services. Public-
private partnership (PPP) became
one of the most appropriate
models advocated by the state in
health sector. Subsequently,
outsourcing of diagnostic, sanitary
and other services, taking over
hospital land for other purposes,
non-renewal of land leases to
charity hospitals, attempts to hand
over primary health centres to
private organizations etc, were
some major reforms that occurred
in the last two decades. These
measures have been justified by
the state as being reform measures
to increase the viability of health
care services.
Out-of-Pocket Expenditure:
Poor government spending
on health resulted in inefficient and
inadequate services, one of the
reasons why people seek private
health providers resulting in high
out of pocket (OOP) expenses.
The National Accounts and
Statistics data indicate that private
expenditure on health care in India
is about Rs.2,750 billion of which
98 per cent is OOP spending. In
addition, the public expenditure on
health care is about Rs.600 billion.
Together this adds up to a total
health expenditure amounting to
5.7 per cent of GDP of which OOP
expenses account for 78 per cent.
Further, OOP spending on
medicines is the single largest
item of expenditure for households.
About 30 million additional people
fall into poverty each year as a
result of this expenditure.
Disaggregated data shows that the
share of OOP spending on private
sector is relatively higher in India
than in most other developing
countries.
Several research studies
indicated that the cost of health
care has become a major burden
to the labouring poor, to the extent
that seeking medical assistance
to recover from illness or injuries
is also forfeited.
Due to OOP expenditure and
medical debts, it is widely
reported that there is increased
dependence on money lenders. As
a result, more than 40 per cent of
all patients admitted to hospitals
borrow money or sell assets
including inherited property and
farmland, to cover expenses, and
25 per cent of farmers are driven
below the poverty line by the cost
of their health care. Moneylenders
charge exorbitant interest rates
between 24 per cent and 60 per
cent. One can imagine the
catastrophic consequences on
the labouring poor and society’s
productivity when these rates are
applied to a major part of Rs.
10,000 crore (Rs.100 billion) being
spent every year on hospitalisation
of the poor through OOP
expenditure.
9