Reforming the health care sector


Published October 27, 2014 in The Hindu as part of a series from the Takshashila Institute and the Hudson Institute's August 2014 conference, Shaping India's Growth Agenda: Implications for the World.

APPLICATION: While the public sector has played a critical role in research, the private sector has developed this knowledge into new medicines. Picture shows a drug store in Vijayawada.

Obamacare and other such examples make a compelling case for seeking the right combination of roles for the public and private sector in health reform in India

Nail or screw? Which is best to join pieces of wood? In carpentry, the answer is that each offers benefits depending on the application. With health care reform, the choice of public or private sector financing, delivery and regulation is subject to a more polarised discussion. Advocates proclaim that one or the other is always superior. The sharp division of views, and the political friction it causes, can paralyse needed movement toward health care reform.

As India joins many other nations, including recently the United States, in debating how best to reform the health care sector, it is critical that we are thoughtful carpenters. We do not have to choose between the public and private sectors but can use each where its application is best. The new government has initiated discussions which could shape new policies and initiatives. The official announcements are broadly of two types. One, there is articulation for increasing government-provided infrastructure at multiple levels, including primary health centres, speciality hospitals, medical colleges and more. Second, the Prime Minister announced his intention to introduce a universal health insurance, perhaps along the lines of Obamacare. During the previous government’s tenure, there were a few calls for a British or Canadian style universal health service both financed and provided by the government.

Strengths of public sector

How do we know when to reach for the hammer or screwdriver as we design health care reforms? We can start by recognising the strengths of public sector approaches. The government can tax and distribute revenues in a manner that can lessen health care access disparities that might otherwise exist. This redistributional ability of the public sector is consistent with the popular view that health care is a right, not a privilege.

Thus, many countries give the public sector a dominant role in funding health care. Even in the U.S., often thought of as a bastion of private sector, nearly half of health care expenditures come from government. There is also a very strong argument for the public sector in funding and delivering health care services where their benefits are realised by those who do not incur their costs. An example is public health campaigns such as vaccination drives. We all benefit when our neighbours don’t carry communicable diseases. Public sector entities also have an important role in policing the health sector to root out fraud and certify quality. While private entities undertake self-regulation, participation is usually voluntary. In contrast, public entities can insist that, for example, doctors meet licensing standards and that pharmaceuticals are safe. At the same time, proponents of a strong public sector role in health care reform must acknowledge that the private sector has its strengths.

The private sector has a better opportunity than the public sector to match supply to demand. Whereas government delivered health care often has shortages of doctors and other providers or even denial of care, private sector health care can increase supply by quickly adjusting incentives for providers.

The private sector also has a proven record for innovation in the delivery of care and in the creation of techniques, tools, and products that improve and preserve health. The entrepreneurial spirit involves risk taking wherein capital is accumulated and risked on the development of health care improvements.

One example is the medical products sector. While the public sector has played a critical role in basic research, the record is clear that it is only private sector companies that have had the incentive to take risks to develop this knowledge into new medicines, vaccines, and medical devices.

Lessons from a mixed approach

Thus, even a cursory review of the benefits of each sector reveals that health reformers must sort their options with care for the gains that are possible by employing each. The recent experience in the U.S. with the health reform that has come to be known as Obamacare offers an example. While still highly controversial, the programme provides lessons in a mixed public-private approach. The law relies heavily on the government to provide financing to ensure that access to care is not limited to the wealthy. It also contains a large new public sector role in establishing and policing the rule of competition among health care insurance providers and private employers that provide insurance to their workers.

At the same time, Obamacare relies primarily on private sector competition in insurance provision and in health care delivery. Even ostensively public sector programmes such as Medicaid that provide health care to the poor are increasingly being delivered by competing private sector companies. The law also largely eschews government price setting in favour of allowing the competitive market to establish prices.

This experience and that of others around the world make a compelling case for seeking the right combination of roles for the public and private sector in health reform. It should help the carpenters of Indian health care reform to choose their tools wisely.

Ian D. Spatz is principal in the U.S.-based Rock Creek Policy Group, LLC

Modi one year on : HEALTHCARE


India is set to become the most populous country in the world, surpassing China by 2050. In order to reap the benefits of its large population, India will need to provide healthcare to the masses. The Indian healthcare system cannot keep pace withconsistent population growth and increased life expectancy (up 5 years in the last decade). The Indian government needs to increase its resources and commitment to the healthcare sector in order to provide for its rapidly growing population.


Currently, India only allocates about 1% of its GDP to address healthcare challenges, whereas China dedicates 3% and the US spends about 8.3%. Low government expenditures combine with high levels of wealth inequality to create high out of pocket payments for a large sector of the population without access to public hospitals. In India there are only seven hospital beds and 6.5 physicians per 10,000 people. 

India’s existing healthcare workforce is largely underutilized and woefully inadequate compared to the scale of the need. As India’s population continues to grow, the resource and personnel gaps will expand as well. The National Skill Development Corporation (NSDC) estimates that by 2022, India’s healthcare sector will require about 7.4 million workers.

Additionally, India’s healthcare infrastructure lacks both availability and quality of resources. India has the highest number of people in the world who practice open defecation, which accounts for a full 48% of its population. Sanitation issues associated with open defecation cause diarrheal diseases and reduce the clean drinking water supply. As it stands, more than 21% of India’s communicable diseases are water-related. Beyond building up hospitals and personnel staff, the government also needs to improve access to basic sanitation and clean drinking water.   

The growing and transitional nature of the Indian population presents India with new challenges in the field of disease control. Based on sheer numbers and lack of good quality medical supplies, it is becoming more difficult to control the outbreak of existing infectious diseases. India is a top producer and exporter of vaccines, yet it is home to one-third of the world’s unimmunized children. At our March 2014 conference, Dr. Kristina Lybecker explained that with increases in life expectancy, chronic and non-communicable diseases which hardly registered in India before are becoming increasingly prevalent.

Ahead of Modi’s election, Lybecker offered several concrete suggestions to guide the new Prime Minister’s hefty health mandate. Lybecker first emphasized the need to build up India’s healthcare infrastructure by improving sanitation services, increasing access to safe drinking water, and adding more healthcare workers to the labor force. She called for government policies to promote healthy lifestyles and preventive care, including greater vaccination coverage. Lybecker also stressed the importance of developing and increasing the availability of quality generic medicines. Finally, she recommended a multi-stakeholder approach to creating and implementing health policy and bringing women into the efforts as agents of change in Indian healthcare.


As part of Modi’s campaign, the BJP announced its intent to provide all Indians with government health insurance. To accomplish this, the BJP promised to set up an umbrella regulatory body for healthcare and reorganize the Ministry of Health and Welfare by combining internal departments and improving delivery systems. The incoming government also hoped to elevate the practice of yoga and traditional Ayurvedic medicine. Finally, they also talked about using technology like the ubiquity of cell phones to create "telemedicine" and "mobile healthcare" and raise awareness and define standards.

Following Modi’s election in 2014, BJP Finance Minister Arun Jaitley professed the government’s scheme to achieve “Health for All,” which would be realized primarily through the Free Drug Service and the Free Diagnosis Service initiatives. As part of the scheme to improve access to diagnostic services, Jaitley planned to set up four new All India Institute of Medical Science (AIIMS) like institutions in Andhra Pradesh, West Bengal, Maharashtra, and Uttar Pradesh; as well as two National Institutes of Ageing at existing AIIMS in New Delhi and Chennai. The government also announced plans to encourage the development of, and access to pharmaceuticals by creating new drug testing laboratories and providing central assistance to the state-level Drug Regulatory and Food Regulatory Systems. Towards the goal of effective universal health care, Minister Jaitleyproposed the establishment of fifteen Model Rural Health Research Institutions to focus on identifying and serving the needs of local populations.

 In early August 2014, Prime Minister Modi affirmed his goal of providing health insurance for allIndians. The plan was meant to begin initial stages in April 2015, and include coverage for all citizens by March 2019. Other provisions are to include: offering free generic drugs in public hospitals, upgrading health services infrastructure, and employing contract doctors, nurses, and specialists to offset the deficit in health workers. Initially, implementation of such a scheme was estimated to cost around $26 billion over the next four years; once all are covered, health assurance would cost the government $11.4 billion annually.

However, since its announcement nearly a year ago, Modi’s universal health insurance plan has failed to take off and faced considerable obstacles and cutbacks. By the time the plan was presented to Modi in January 2015, costs had been cut down to $18.5 billion over 5 years; yet this still posed too much of a strain on funds to be approved.

The trajectory of Modi’s universal health care initiative is symptomatic of a larger pattern; ambitious health plans hampered again and again by financial concerns. Just six months into his first year, the Ministry of Finance ordered a 20% cut to Modi’s 2014-2015 health care budget and India’s HIV/AIDS program suffered a 30% cut. In January 2015, the Union Ministry of Health and Family Welfare released a Draft National Health Policy casting doubt as to whether it would be possible toensure health as a fundamental right in India, given the current level of development of economic and health systems. Initially, the Ministry recommended a 4 to 5 percent of GDP increase in government health funding to reach millennium development goals; however, the recommendation was quickly revised back to 2.5%, a more “potentially achievable target.” Yet when the 2015-2016 budget came out in February, health care expenditures were slashed once more, down 17% from the previous year’s budget. Experts have raised concerns over the effect of these cuts on efforts like India’s tuberculosis control program, which seeks to treat the two million cases of tuberculosis in India every year.

While the Modi government has been forced to recalibrate its large-scale health plans, incremental advances have been made in various subsectors of the health industry. Modi took a significant step towards preventive medicine access in July 2014, when he announced that four new vaccines would be added to India’s Universal Immunization Program (UIP.) These vaccines will target Rotavirus, Rubella, Japanese encephalitis, and polio. As of September 2014, India is also working with Australiaon development of a potential new malaria vaccine.

Additionally, In July 2015, Modi added 39 drugs to a list including over 500 drugs that are price-controlled, in an attempt to make antibiotics more affordable. Whether or not price caps truly contribute to accessibility is questioned by the healthcare research firm IMS Health, which argues that price caps actually benefit high-income rather than low-income patients.

In October of his first year in office, Modi launched his major sanitation drive, Swachh Bharat, or “Clean India.” The goal of the program is to provide toilets to over 60 million homes in India by the 150th anniversary of Mahatma Gandhi’s birth in 2019. This measure is a step towards eliminating the myriad health problems associated with poor sanitation and waste disposal, such as: diarrheal deaths, hepatitis A, and malnutrition. Since the Swachh Bharat program began, Modi’s government has succeeded in building over 5.8 million toilets. However, many remain unused, due to a failure to effectively communicate the benefits of latrines and incentivize their usage.

In keeping with the Modi government’s emphasis on holistic health policy, India launched National Mental Health Day on October 10th, 2014, part of “Mental Health Action Plan 365.” This plan is the first policy on mental health the Indian government has established. Previous stand-alone laws regarding the mentally ill, such as the 1912 Indian Lunacy Act and the 1987 Mental Health Act, were few and far between, with an emphasis on caretaker issues rather than patient well-being. Health Minister Harsh Vardhan explained that the aims of the new policy are to destigmatize mental health issues, increase understanding, and extend access to mental health treatment, especially for the impoverished. The plan is intended to provide information and training on mental health issues to general practitioners and fund the opening of departments of psychology and psychiatry across the country.

Modi has also demonstrated his commitment to elevating the benefits of yoga on a national and international level. In November 2014, India established a Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homeopathy systems (AYUSH), to promote awareness and use of traditional medicine. On June 21, 2015, Modi’s proposal at the UN for an International Day of Yoga came to fruition, with 191 countries and 40,000 individuals participating.

 India has looked to expand international bilateral cooperation on health issues as well, and with the United States in particular. On June 25, 2015, India and the United States inked severalMemorandums of Understanding on cancer research, environmental and occupational health prevention, and on antimicrobial resistance research.

The government has also worked to bring healthcare initiatives under the Make in India umbrella. As of late 2014, India was importing close to 70% of the medical devices it uses. In an attempt to make India’s health manufacturing more self-reliant, the Modi government has approved 100% foreign direct investments (FDI) in medical devices. This measure will support opportunities for development and capacity building in the health manufacturing sector. Recently, the Department of Pharmaceuticals has proposed the establishment of a National Medical Device Authority, to serve as a regulatory body for medical devices. If implemented, this initiative could also encourage local manufacturing and reduce reliance on imports


Despite the modest steps the Modi government has made towards increasing the level of health care available to its citizens, there are still many challenges. The persistence of unsanitary public practices such as open defecation and the long-standing stigma towards mental health issues limit the efficacy of health care advances in India. Increased investment is required, both by the government and private sector actors, to build India's healthcare infrastructure, train and equip healthcare professionals, and provide drugs.

The Modi government has the opportunity to use its smaller-scale successes as a springboard to larger reforms. The addition of more institutes likes AIIMS across the states is a step towards increased healthcare access. The continued implementation of Swachh Bharat and opening up to joint drug development with international partners are good avenues for incremental, bottom up change with large-scale benefits. Beyond these measures, India may want to look to a joint public-private sector approach to push through the kinds of sweeping reforms that PM Modi intends, without getting tied up in red tape.