Increased role of an unregulated private sector can inflate healthcare costs. The need is to make up the absence of public infrastructure in under-served areas

Health sector reforms in India have mostly given a push for a larger role of the private sector to curb the inefficiencies of the Government healthcare systems. Talks about the privatisation of the health sector have been going on for quite some time now. This year, the Union Budget gave a further push to this sector with the introduction of publicly-financed health insurance as a substitute. However, the allocation of Rs 2,000 crore for health insurance under the scheme does not seem to get along with the promise of a comprehensive national health insurance scheme with coverage up to five lakh rupees per family for 10 crore poor families. Earlier, in 2016 too, the Government had estimated one lakh rupees coverage per family and had proposed a much higher allocation.

However, insurance, as a substitute for public infrastructure, can never be effective unless the following eco-system is prevalent within the economy.

First, a sound competitive policy and an effective enforcement mechanism is imperative for the successful participation of the private sector. India has a well-established competition commission. However, the focus of the commission is more on the industries than on the health sector. The country also has a large number of sectoral regulatory bodies but none for the health sector.  Time to time, the private hospitals hog the headlines for charging exorbitant bills from patients. While in some cases, the judiciary has been able to provide relief to the aggrieved patients, it is just humanly not possible for all to approach the judiciary as the process itself is not only time consuming but also requires great deal of money. Unlike other countries, India has taken recourse to the power of the market without any judiciary reform, which is the pillar for market economy.

Second, the economic environment should usher in competitive forces leading to a reduction in healthcare costs. This is the premise on which the Niti Aayog built its argument, that providing comprehensive national health insurance scheme would not be an expensive proposition. Unfortunately, privatisation of the health sector does not seem to suggest this trend. On the other hand, it seems that there is a cartelisation tendency in pricing among private healthcare providers. Repetitive useless tests, exorbitant billing of medicines, non-transparent billing are exhibited by many big players in this sector. In this context, it must be mentioned that the competition commission has not been very effective in preventing the cartelisation trend in the economy.

For instance, many cases of cartelisation (tyre sector and  cement), which were initiated in the last century by the Monopoly and Restrictive Trade Practices Commission (MRTPC), which is the parent body of competition commission and is now under the purview of the competition commission, are still languishing without any logical conclusion. One hardly come across cases where competition commission has been successful in proving cartelisation and action has been taken against the firms practising the same.

Third, if we have an ineffective competition body to prevent cartelisation, malpractices and competitive forces do not usher in by the market forces. The only way to prevent exorbitant medical costs is by making the public health infrastructure strong. These are reflected if one compares health cost expenditure from latest round of NSSO's health and family welfare survey for two contrasting States, viz Madhya Pradesh and Kerala.

As per the survey, Madhya Pradesh is a State with weak public health infrastructure; whereas Kerala is one State with an efficient public health infrastructure. As Table I indicates, private health cost is 1.84 times that of public health cost in Kerala in rural areas. By contrast, private health cost in Madhya Pradesh is 2.43 times that public health cost in Kerala in rural areas. In urban areas of Kerala, private health turns outs to be 1.42 that of public cost in Kerala. Again, in Madhya Pradesh, private health cost in urban area is nearly 2.8 times than that of Kerala. The message is clear: Efficient public health infrastructure can force the private sector cut down their cost.

In sum, an increased role of the unregulated private sector can inflate healthcare costs and push up insurance premiums which will have to be ultimately be paid by the Government. This will put pressure on the public exchequer. Assuring the private sector a market by paying the poor's medical bills through insurances may help expand markets and revenues but not adequately make up for the absence of public infrastructure in under-served areas.

(The writer is Senior Fellow, National Council of Applied Economic Research)