October 20, 2013

People’s Democracy

(Weekly Organ of the Communist Party of
India (Marxist)


No. 42

October 20,




Importance of Public Services in


Amit Sengupta


IN India
as well
as in many developing countries, there is wide acceptance that
the present
healthcare system needs serious reforms. There is, however,
very limited
consensus on the shape and extent of reforms that are
necessary. Universal
Health Coverage (UHC) has become a buzzword in health and
development sectors,
and is being proposed as the solution. The catch lies in the
fact that there is
no real consensus on what UHC really means. Proponents of UHC
schooled in neo-liberal
economics propose that UHC is all about securing finances for
health services,
and in allowing a form of insurance based delivery of
services. UHC models
being proposed, and in many cases being implemented, often
appear to be
premised on an understanding that if finances can be obtained
the delivery of
services will take care of itself. Further, in many situations
it is proposed
that given the existing preponderance of the private medical
sector in many
countries (like in India),
it is logical to allow a major role for the private sector.


What this
entirely misses is that there are extremely important reasons
why public
provision of healthcare services has distinct advantages over
private provision;
even when through an insurance based model the cost of care is
borne by the
government. This is a debate that is being played out in the
case of the
Rashtriya Swasthya Bima Yojana (RSBY) at the national level
and in state level
schemes such as the Arogyasri scheme in Andhra Pradesh.




faith in the ‘efficiency’ of private health services is
related to the
complexity in measuring the quality and efficacy of health
services. Usual
measures of health outcomes – e.g. child mortality, life
expectancy, etc –
cannot be linked directly to healthcare services, as they
often depend more
fundamentally on other determinants of health (poverty,
nutrition, employment,
environment, gender roles, etc). In fact, evidence suggests
that most of the
continuing gains in life expectancy in the developed
capitalist world have come
from a continued deepening of preventive practices such as
better housing and
hygienic conditions in habitations, availability of safe
drinking water,
improved sanitation and sewerage disposal facilities, etc. In
contrast, a
modest 10-15 percent is thought to be attributable to
healthcare. Further,
existing measures of health coverage (and thereby the
efficiency of services)
tend to focus on de jure rather than de facto access
to services,
or simple counts of the number of people incurring
particularly high healthcare


method of measuring ‘efficiency’ is by quantifying subjective
perceptions such
as ‘patient satisfaction,’ ‘behaviour of health workers’ and
collecting crude
criteria such as waiting time at clinics and hospitals. Such
measures often
place public health services at a disadvantage as private care
providers are
more adept at addressing these concerns, although they may not
always be
relevant as regards the actual quality of care. Patients, on
the other hand,
are rarely in a position to correctly judge the quality of
services, given the
huge information gap that exists in the case of medical care.


evidence to
assess the impact of primarily insurance based schemes (which
can often be
publicly funded but care provision is through private
providers – as in the
RSBY scheme in India)
is particularly difficult and methodologies designed to
collect good evidence
are generally lacking. Many evaluations of UHC schemes end up
measuring the
impact on ‘out-of-pocket’ expenses incurred but do not measure
the quality and
depth of services offered. As a consequence, the evidence base
to show its
positive impact on health outcomes remains extremely thin,
with huge
methodological challenges. For example, some evaluations of
the much acclaimed
‘Seguro Popular’ scheme in Mexico
reported no effect on self-reported health indicators and did
not report change
in general patterns of service use.


The most
basic argument
for pooled financing and insurance (the hallmark of UHC) is
that it reduces
financial risk. However, insurance also opens up new
opportunities for
consuming expensive high-technology care that permits health
improvements that
are valued by the patient – especially since the private
provider is able to
exploit its informational advantage. It is still an open
question, however,
whether insurance (of any form) reduces financial risk. A
large 2005 study of China’s health
insurance schemes indicates that it may, to the contrary, be
associated with
increased risk of large out-of-pocket payments. Further, there
is virtually no
data that compares the relative merits of approaches that are
premised on
predominant public delivery of services versus those that
follow a
private-public mix with predominant private sector delivery of




There are,
clear structural reasons why market-driven healthcare and
competition do not in
fact promote efficiency or quality. Market competition does
not make for better
care as most patients neither have enough knowledge to make
informed choices
about the relative quality or merits of different healthcare
providers nor are
they able to assert any right to negotiate on price and
quality, especially
when care is urgent, when sickness results in vulnerability,
or when illiteracy
and poverty are prevalent – a situation called information
asymmetry in the
healthcare ‘market.’


systems often have very high transaction costs that are
necessary to
manage or regulate the market. Similar issues arise in the
management of public
contracts with private providers, especially with those
motivated to maximise
income by manipulating data. To counteract this, large amounts
of money need to
be spent on systems designed to catch out contracted providers
in a ‘cat and
mouse’ game of detection and deception.


study calculated the administrative costs involved with
insurance overhead,
employers’ costs to manage healthcare benefits, hospital
administration and
costs incurred by practitioners (e.g. billing), and
administrative costs of
long-term care facilities in the US. The study estimated that
in 1999, as much
as 294.3 billion dollars were used for administrative costs,
representing 31.0
percent of healthcare expenditures in the country. Transaction
costs tend to be
much lower in more public systems, for example the transaction
costs in the
National Health System of the UK in the mid-1970s, before it
began to be
converted into a market, were estimated at between 5 and 6
percent of total


systems are
more efficient also because they ensure economies of scale in
the purchasing,
supply and distribution of drugs and equipment. In Tamilnadu,
for example,
pooled purchasing of medicines as undertaken by a public
sector entity has
driven down medicine costs significantly and other states are
engaged in
duplicating the model.


National or
district level public health systems for administration,
staffing and training
are able to reduce management costs of multiple private
providers. Provision at
scale also enables specialisation: a full range of products
and services can be
offered at a lower cost than if provided by individual
operators. Public
systems are best placed to avoid wasteful capital investment,
duplication of
equipment and services, and an emphasis on frills that are far
too common in
private hospitals in a competitive market environment. These
are avoided when
hospitals provide only what they need to, rather than add-ons
that will give
them an edge over the competition.




systems also
perform tasks that are not directly linked to providing care.
These include
maintaining disease surveillance systems, providing
immunisation to the entire
population, vector control measures, health promotion
activities such as ante
natal and school health check ups, etc. A public system that
integrates these
functions with healthcare delivery is best placed to secure
better health outcomes.
Public health is based on systematic applications of the most
technologies applied at population scale and systematic
monitoring and data
collection. For instance, vaccine coverage must be
comprehensive in order to
achieve herd immunity in the community or disease eradication,
depends on
universal protection applied systematically and rigorously.
Even the control of
communicable diseases not currently close to eradication, such
as malaria, will
often be characterised by mass action benefits if coverage
levels are very


It can be
that an array of private providers could offer the public
health services
mentioned above if robust regulatory mechanisms impose
conditions that mandate
private providers to do so to ensure high levels of coverage
of vaccines and
immunisation among their patients, to provide preventive
health services at the
community level, emergency services, and the like. In
practice, however, public
goods such as mass coverage, public awareness, community
outreach, and emergency
services are more effectively provided through public
programmes rather than
the sum of highly regulated private programmes. Poor people
may have formal
access to public health services, but unless there is outreach
into their
communities — that is best ensured by an integrated public
system rather than
fragmented private programmes (such as through the deployment
of trained
community health workers) — they might in fact not be able to
get reliable
access to such services.




If health
are to provide care to a whole population, there are
significant marginal costs
involved in delivery to the most inaccessible or the most
sections of the population. The costs of delivering care to
geographically remote
or sparsely distributed populations can be much higher than
the concentrated
delivery of care in urban settings. Provision of health
services for those with
pre-existing chronic conditions is often relatively more
expensive as is the
treatment of rare diseases.
For example, data from
suggest that one percent of that province’s patients – most of
them elderly
with multiple chronic conditions – consume 34 percent of all
spending and almost 50 percent of all hospital and long-term
care costs. This
is not an isolated instance; in rapidly aging societies a very
high proportion
of healthcare needs are concentrated in the last few months or
years of life.
Public systems can
absorb these marginal costs and
spread it across an entire population. Private systems, on the
other hand,
would find such costs to be unacceptable and would attempt to
avoid care
provision to people who live in underserved areas, who are
disadvantaged, or
those who suffer from conditions that require expensive care
or long-term care.
Public systems, thus, promote equity while even the best
designed private
systems risk undermining it. Finally, competition harms
collaboration between
different providers, often an important ingredient of good
quality care,
especially in relation to referrals between different kinds of
specialists or
between different levels of the healthcare system. Groups of
private providers
often work in cartels and referrals are determined by


The argument
health systems in LMICs should leverage the already dominant
private sector is
clearly misplaced. If the public sector is nearly moribund –
because it is
deeply under-funded – the private sector will fill up the
space ceded. The
large out-of-pocket expenditures and private provision in low
income countries
is mainly a reflection of the paucity of public services,
especially for the
poor, forcing the middle and upper classes to go directly to
private providers,
while the poor are left without reliable basic services. This
reality is
unfortunate, and not a convincing case for private provision,
but rather should
serve as a call to action to bolster the deeply under-financed
public sector (Sachs
J D,
Achieving Universal Health Coverage in Low-Income
Settings, Lancet,
Vol 380, September 8, 2012).