India Transformed

by Rakesh Mohan

  China

  India

  Engineering

  20,006

  12,220

  Sciences

  32,753

  13,701

  Social Sciences

  3001

  1734

  Humanities

  4038

  2527

  Total

  59,798

  30,182

  Source: National Science Foundation, Science and Engineering Indicators, 2016.

  While most private institutions are of poor quality, with no research facilities and a dearth of qualified faculty, a few new private institutions supported by philanthropy appear to promise higher quality and standards. But they too will not be the answer to the scale of the challenge. The problem is that successful higher-education institutions need to limit their growth in student enrolment to preserve their brand equity, one reason why the best higher-education institutions in the United States have seen their endowments grow much faster than the numbers of their students. And second, the knowledge-creation function of high-quality higher-education institutions requires large public resources to fund research. University research is a public good and even institutions such as Harvard get about half their budget from public research grants, underscoring the need for the Indian government to sharply increase funding for research with competitive research grants for both public and private higher-education institutions.

  Rather than fritter away limited public resources by setting up an IIT in one town, a central university in another and an IIM in a third, higher education needs to be integrated into urbanization strategies. The drivers of ‘smart’ cities will be creativity and innovation, which are increasingly rooted in higher education, but there are high threshold effects in the concentration of talent. India needs to stop creating new institutions and, instead, expand enrolment in its best institutions, doubling or even tripling in the best central-government institutions with creative land-use strategies.

  At the same time, India needs to embrace disruptive technologies in higher education via MOOCs (Massive Open Online Courses).14 MOOCs will not solve all problems, but with 4G technologies becoming accessible across India, they can considerably alleviate the desperate need for quality teaching. And at least in professional education—where rent-seeking behaviour has been most manifest—India needs to move to common exit exams (as has been the case for decades in accounting) to ensure that architects, doctors, lawyers, programmers, etc. at least have a common minimal body of knowledge before they are allowed to practise. To achieve this, there needs to be major governance reforms in professional bodies, and their roles should be restricted to setting standards and establishing professional norms.

  These initiatives, while promising, are unlikely to fundamentally turn around the sector anytime soon, unless the country’s political leadership is much more cognizant of the deeply troubling consequences for the country’s future. Indian higher education has been massively shortchanging its youth, many of whom have illusory credentials, relatively large student debt and big aspirations, but neither the skills nor the jobs commensurate to their expectations. As the mind-numbing growth of higher education in India continues unabated, in the absence of wide-ranging reforms, something will have to give—and it probably will not be pleasant.

  20

  Healthcare in India: A Fork in the Road

  Nachiket Mor, Diva Dhar, Sandhya Venkateswaran1

  Wonder whether India could have achieved more during the last twenty-five years, and if a clear path ahead can be seen for the healthcare sector. Today, a child is almost three times less likely to die before completing five years of life, and a mother is half as likely to die while giving birth, than in 1990. But the experience of the last twenty-five years demonstrates that leaving the provision of healthcare to the invisible hand of the market is not the solution to achieving better health outcomes. In all high-performing healthcare systems, governments act purposefully to finance, plan and deliver healthcare services.

  Introduction

  Over the last twenty-five years, significant progress has been made in the health of India’s population. In 1991, of the 30 million children born in the country, over 2 million died before their first birthday, and 1,00,000 mothers died giving birth. By 2015, this number had more than halved for both mothers and children,2 and a child born in today’s India is expected to live ten years longer than a child born in 1991.3 Moreover, India has established itself as a credible, cost-effective manufacturer of medicines, supplying over 20 per cent of the world’s generics and about half the vaccines sold globally.4 In addition, it has rapidly become a destination for medical tourism, with the industry growing at an estimated rate of 30 per cent in 2015.5 The improvement in health outcomes has coincided with a period of higher economic growth and changes in health policy, both of which were driven in part by the economic reforms of 1991.

  While these achievements are worthy of celebration, India’s healthcare system faces a number of challenges. Nearly 1 million children still die before their first birthday6 and many infectious diseases, such as malaria and tuberculosis, have still not been eliminated. Around 7 per cent of households fall below the poverty line each year7 as a result of health shocks and high out-of-pocket (OOP) expenditures on health. India also has one of the highest rates of open defecation in the world,8 which is especially damaging to children’s health in densely populated areas.9 There is also a growing disease burden arising from non-communicable diseases (NCDs).10

  The central premise of the 1991 reforms was that a reduced role of the state would allow the economy to function more efficiently and lead to an increased rate of growth and poverty reduction. In the healthcare sector, while other countries were allocating (if only gradually) greater proportions of their budgets to healthcare, India kept tax-based funding mainly static at around 1 per cent of GDP,11 choosing instead to allocate higher amounts to other development and income-transfer programmes. Using these limited resources, India built a modest-sized public health delivery system. The system focused on maternal and child health, and the control of infectious diseases, leaving the rest largely to the invisible hand of the market. As a result, the growing private sector that emerged was unduly focused on secondary and tertiary care and, in response, instead of reviewing its overall approach to health, the government introduced several underfunded insurance schemes, which sought to enable the poor access to high-end private care.

  In the following paragraphs, we chronicle the principal reforms in the healthcare sector since 1991. We examine how India has fared between states as well as internationally. Our interstate and international analyses identify wide variations in health expenditure and health outcomes. We explore health system design features associated with achieving better outcomes in other countries, setting them on a path to achieve Universal Health Coverage (UHC). Furthermore, we look ahead and identify opportunities for India’s health system to change direction, given the lessons and experience from the twenty-five years since the reforms. This leaves us to consider: could India have achieved more during this period, and can we see a clear path ahead for its healthcare sector? Are there strategic design shifts that could help pave India’s way to UHC?

  In all high-performing healthcare systems, we see that governments play a significant role in their organization. In doing so, they have knowingly placed limits on customer choice; regulated prices; enforced prepayment by citizens over fee-for-service models; used resources to augment their tax-based funding; and encouraged the development of government-owned or non-profit purchasers that buy healthcare from integrated government or private providers. The underlying rationale for these approaches is to overcome market imperfections, such as information asymmetries, which exist between providers and consumers, and the fact that even well-informed consumers behave poorly with regard to their own healthcare.12

  Changes in the Public Health Sector

  While the overall government expenditure as
a proportion of GDP has remained largely unchanged over the last twenty-five years, there have been a number of key reforms that have had a considerable impact on the functioning of the public health system. We discuss a few landmark initiatives here.

  The National Rural Health Mission (NRHM), launched in 2005, was one such measure. Key NRHM programmes, such as the Janani Suraksha Yojana (JSY), a conditional cash-transfer scheme to encourage institutional delivery, came to dominate the healthcare landscape from 2005–14. During this period, public-sector health infrastructure expanded, the proportion of institutional births in the public sector dramatically increased and, while there are continuing concerns relating to attribution, during this period, most states showed a reduction in their infant mortality rate (IMR) and maternal mortality rate (MMR).13

  The NRHM signified a shift away from more traditional vertical programmes—which were ‘fragmented and inconsistent’, such as family planning in the 1960s and early 1970s, and diarrhoeal disease in the late 1980s and early 1990s—to more integrated and comprehensive interventions.14 However, the NRHM focused largely on maternal and child health with a small financial resource base. As such, the public-sector programme was not equipped to deal with the epidemiological transition, which took place during this period. The system was faced with a dual burden, as the leading causes of death shifted from communicable diseases to NCDs like ischemic heart disease, stroke and cancer, particularly cervical cancer.15

  During the post-1991 period of reforms, government spending on health remained low.16 In 2002, it reached an all-time low of 0.98 per cent of GDP.17 Though it went up nominally during the NRHM period, even now it remains at 1.4 per cent of GDP, far behind other BRICS18 countries and a number of other developing countries (see Table 2). At this level, public expenditure constitutes less than one-third of the country’s total expenditure on health, currently at 4.7 per cent of GDP.19 The majority of expenditure on health is therefore OOP through point-of-service (POS) payments made by individuals seeking healthcare.20

  Growth of the Private Health Sector

  Post-1991, central and state governments introduced policies to promote private investment in healthcare, which included the shifting of subsidies, like cheap land, and concessions for equipment.21 The imposition of taxes and duties on drugs and high-tech medical equipment were removed, and preferential allowances were given to doctors to set up private practices and nursing homes.22 In 2001, facility surveys estimated that, nationwide, the private sector included as many as 93 per cent of all hospitals and 64 per cent of all beds.23 The utilization of private healthcare also increased significantly during this period. Nationally, the percentage of private outpatient cases grew from 64 per cent in 1995 to 74.5 per cent in 2014.24 This expansion varied across states; for example, the percentage of private outpatient cases in 2014 in Bihar was 91.5 per cent, compared with 57.8 per cent in Himachal Pradesh.25 Private-sector growth provided the people of India access to a wide range of healthcare services that the government was unable to provide through the public sector.

  However, given its competitive, highly fragmented and demand-led character, the private sector has primarily focused on providing secondary and tertiary care. It has been unable to develop a high-quality health system capable of providing primary-care-led integrated care, which is essential for promoting wellness and well-being at the population level. This outcome is not surprising. Healthcare, unlike other goods and services, suffers from a number of structural infirmities, which make unfettered markets unsuitable for arriving at first-best outcomes. These include: (a) a lack of knowledge of one’s own health status; (b) a high level of price elasticity in the primary healthcare domain and a low level for secondary and tertiary care; (c) significant positive externalities or spillover effects, such as from vaccinations and population-wide reduction of disease burdens; (d) information asymmetry between the physician and patient; and (e) the unpredictability in healthcare expenditures at the level of the individual.26 Later in this chapter, we argue that purposeful intervention by the government is required to overcome these challenges.

  Growth of Insurance Markets

  The growth of the private sector increased the choice of healthcare services available. Yet, either it was entirely out of the reach of many Indians or contributed directly to the health-related impoverishment of many families.27 The parallel expansion of health insurance was seen as a mechanism to increase the level of prepayments into the system, reduce OOP payments and enable access to private secondary and tertiary care. High POS expenses at hospitals would be replaced with much more modest insurance premiums paid by a large pool.

  In 2000, citizens were permitted to voluntarily purchase private health insurance, leading to a boom in the private insurance market. In 2014, of those covered by health insurance, 26 per cent purchased it from the non-government sector.28 With a Rs 20,000-crore annual premium collected (Table 1), this sector also accounts for nearly 3 per cent of the country’s total health expenditures.29 The Employee’s State Insurance Scheme (ESIS) for white-collar workers has a design feature that requires employers and employees to contribute mandatorily to a central pool. The scheme has grown rapidly during this period and today covers over 78.9 million beneficiaries.30

  The contributory, self-financed insurance schemes were developed to allow the rich access to high-end private hospital care without experiencing financial hardship. However, the poor and the middle-income earners were left either to pay for private care on an OOP basis, which they often could not afford, or access free care within the government sector. This was seen as inequitable, particularly since the government felt that it was unable to provide the necessary healthcare services at a sufficient level of availability and quality.

  Over the years, central and state governments have sought to make available insurance schemes to the broadly defined below-poverty-line (BPL) and informal-sector populations, who otherwise would be unable to access private care. While these schemes have attracted much political attention, and have covered nearly two-thirds of the population that have government insurance,31 they only receive a nominal percentage of GDP, and have not had a discernible impact on either well-being or financial protection. In total, all government health-insurance schemes cover 214 million people (see Table 1) and in 2014, they constituted nearly 0.02 per cent of GDP.32 Since these schemes were largely outsourced to commercial insurance companies, the opportunity to build state capacity to purchase better healthcare from the public and the private sectors, an important tool for quality control, was also not realized.

  The impact of insurance on reducing OOP payments and mitigating health shocks has been limited.33 OOP payments remain high at 62.4 per cent of total health expenditure.34 In 2004, about a quarter of the population could not access health services due to financial constraints,35 and in 2011, the burden of healthcare payment forced 60 million Indians below the poverty line.36 Furthermore, since both public and private schemes as well as private healthcare infrastructure are all skewed towards secondary and tertiary care (in-patient services), they do not take into account the fact that the population needs coverage for drugs and out-patient services.37 Insurance schemes, as we currently see them, have had limited impact on the overall health status of the population.

  In countries such as Brazil and Thailand, insurance schemes have increased the level of prepayment in the health system and reduced OOPs to a fraction of India’s costs (see Table 2). In these countries, citizens pay a predetermined amount or premium upfront for a healthcare package rather than POS user fees. Thailand, which has had a UHC scheme since 2002, has managed to provide essential health services to all, improve financial risk protection, and reduce the risk of a ‘catastrophic health expenditure’.38

  While, in principle, health insurance can address the challenge of POS costs for hospitalization, the experiences of countries such as the United States offer a cautionary tale of what actually happens in an entirely free-market environment. Since, at the po
int of care, irrespective of quantity supplied, with hospital insurance, the price of care is effectively zero for the consumer and fixed for the supplier, there is excess demand and overuse of hospital services, and underuse of primary care, which has to be paid for on an OOP basis. In the US, increases in health-insurance premiums in a free-market environment for healthcare provision have thus not been accompanied by commensurate improvements in the health of the population and have, instead, led to high inflation in healthcare costs. Thailand and the United Kingdom, on the other hand, have been far more successful in containing this problem and associated rates of inflation, with the establishment of a strong, free primary care and strict gatekeeping by the primary-care physician to advanced hospital-based care.39

  India too has agreed to the principles of UHC, but is yet to develop a clear plan of action. With the exception of ESIS, its schemes have taken on the form of conditional cash transfers with the intent of allowing the poor access to the high-end private hospital sector and reduce financial risk. In the current scenario, this has further fragmented and reduced the already limited pool of funds available to the government and provided no incentive to promote overall health through a comprehensive healthcare package. This underlines the opportunity for design reforms in order to better address the needs of the population.

  Coupled with the low and almost fixed share of government expenditure on healthcare, the twenty-five years of reforms have thus essentially created a free market-oriented health system. While the government offers a reasonable breadth of maternal and child healthcare services, it provides only a minimal level of other healthcare services. In the future and as incomes rise, there is a possibility that we could see even low-income segments of the population move entirely to the private sector, even for maternal and child-health services. This would result in an even more skewed, top-level hospital-focused healthcare system with an inflated cost structure, increased levels of associated impoverishment and low levels of well-being. We look within India to better understand these trends, and outline a few key design changes to reorient India’s trajectory.