The growth of the Indian economy, with India's changing demographic profile, rise of middle class, shift in the disease patterns and growing awareness of health and fitness are the main factors driving the growing demand for healthcare services in India. The demand for healthcare services in the country has grown from Rs 25,000 crores in 1991 to Rs 175,000 crores in 2006, indicating a compounded annual growth rate (CAGR) of more than 16 per cent . In addition to in-patient and out-patient services in hospitals, this growth has been propelled by ancillary sectors such as retail pharmaceutical, medical and diagnostic equipment and supplies.
While the demand for healthcare in India has been growing rapidly, there is a serious and conspicuous mismatch between demand for and supply of healthcare infrastructure and services, with demand far outstripping the supply and this mismatch is only likely to get worse, unless concrete actions are taken by Government and fully supported by private sector.
The contribution of high standards of health and universal access to quality healthcare infrastructure to the economic growth of a country is significant and yet India falls woefully short on various key health indicators. For example, India's life expectancy is still low at 68.6 years. India's hospital beds per 1000 population stands at a little over 0.7 as against Russia's 9.7, Brazil's 2.6, China's 2.2 and the world average of 3.96. India is currently estimated to have about 600,000 doctors and 1.6 million nurses. According to WHO norms for developing countries, this translates into a resource gap of 1.4 million doctors and 2.8 million nurses. Government spending on healthcare is estimated at only about 0.87 per cent of GDP as compared with US, UK, etc who spend as much as seven percent of GDP on healthcare
The above facts underline the urgent need for India to gear up investments and resources towards improving the healthcare infrastructure that will lead to improvement in the health levels and productivity of our masses. As an illustration, if India has to increase the number of beds per 1,000 population to only 1.7 (compared to the current level of 0.7), it needs to create capacity of over a million new beds. Whilst India's overall expenditure on health is comparable to most developing countries, its per capita health expenditure in absolute terms is considerably lower in comparison to countries such as China, Brazil, Malaysia, Russia, UK and the US.
The share of the private sector in healthcare spending is as high as 78 per cent in India, most of which is out-of-pocket which brings untold misery to poor families.
As per a recent report produced by Technopak Advisors, India needs additional beds of 1.1 million immediately, 3.1 million in 2018 and 2 million in 2028. Similarly, our beds/1000 population ratio needs to improve from 0.7 to 1.7 immediately and then to four and five in 2018 and 2028 respectively.
Clearly, the Indian Government neither has the financial strength (with rising fiscal deficits) nor the appetite for such large scale investment in the Healthcare sector alone. With the Government expected to pitch in with only 15-20 per cent of additional investment required in healthcare, the majority of the required investment will need to come from the private sector. As per the available statistics, several major Indian healthcare players have planned expansions that will entail investments of over Rs 25 billion over the next three to four years. Foreign players such as Singapore General Hospital, Pacific Healthcare Holdings, Singapore and Parkway Group Healthcare PTE Ltd, Singapore are also expected to set up base in India to capitalize on the vast opportunity in this sector. Despite these known investments, there still remains a huge gap in the private sector investment in Indian Healthcare. However, to attract private players in this sector, as enumerated below, the government needs to come out with a clear policy framework for private sector participation and to incentivize the private sector to invest in Healthcare with a view to building infrastructure and creating the much needed capacities.
Much the same as the physical infrastructure, India's technical infrastructure in terms of medical manpower is also a major concern. India is currently known to have approximately 600,000 doctors and 1.6 million nurses. This translates into one doctor for every 1,800 people. The recommended WHO guidelines suggest that there should be 1 doctor for every 600 people. This translates into a resource gap of approximately 1.4 million doctors and 2.8 million nurses. In order to reach 1 doctor per 1,000 people by year 2012, India will need 450,000 additional doctors. Further, in order to maintain the doctor/nurse ratio of 1:2, 500,000 additional nurses will have to be trained by 2012. In order to bridge this gap, the government should seriously consider providing tax incentives to encourage private sector investment in healthcare capacity building, education and training.
All the above benefits/ concessions, meant largely for new PPP or private ventures, are cash neutral for the government with no impact on the country's budget deficit and yet they are very effective in addressing the fundamental issue of capacity building.
In summary, healthcare is poised to be a new driver of growth for the economy. Given the geographical access required for delivering care and the fact that infrastructure has to be spatially distributed, it has the potential to create pan India job opportunities across a number of towns and villages. Unless there is a sustained effort from the government in terms of reforms and fiscal benefits for tackling the infrastructure problems in healthcare the gap will only increase.
The PPP model in healthcare is the most ideal solution to resolve many of the woes faced by the healthcare industry today. Simply put, the PPP model will require the Government and private parties to enter into a PPP agreement under a well defined framework. Typically, the government contribution would come in the form of land at concessional rates and assistance in obtaining regulatory clearances from a multiple of ministries and departments. The private players will invest in the infrastructure on a build, own and operate (BOO) basis. The government will not interfere in the pricing mechanism which will be determined by the private players based on market forces of supply and demand. However, the government would insist on buying back some capacity to service identified beneficiaries, typically below-the-poverty line (BPL) population, at a transparent and fixed pre-agreed price. Government will also regulate the operations of such PPP hospitals such that the minimum defined healthcare delivery standards are maintained, particularly for the treatment of BPL patients.
This model can be a 'win-win' solution for the government, private sector players and beneficiaries. Government can demonstrate achievement through the spread of universal and affordable healthcare across the country, private players can achieve economies of scale and earn reasonably attractive returns and beneficiaries can avail quality healthcare at affordable prices. The government is therefore well advised to put in place a model PPP framework in healthcare on a top priority basis.
This should be followed by one or two quick pilot projects within a period of 12 months to demonstrate success and doability. Designed and implemented collaboratively and judiciously between the government and private sectors, the PPP model(s) has the potential to radically change the healthcare landscape in India.
(The Author is head of markets and healthcare services, KPMG India)