Health Sector Reforms in India

IT would require a very brave person to argue that India has a functioning health care system. The country’s health sector has been the topic of several screaming headlines in the media in recent months. As horror stories of scandals, scams and denial of health care continue to make headlines, it is clear that a deep malaise affects the system.

At the heart of this malaise is the fact that India has one of the most privatised health systems in the world. While public funding on health has stagnated at just One per cent of GDP over the last two decades, huge out-of-pocket expenditures are incurred to access health care. Estimates indicate that over 70 per cent of health care costs are paid for directly by patients. Catastrophic expenditures on health care (i.e. expenditure that is in excess of 10 per cent of family expenditure) are a cause for an estimated 4 crore people being pushed below the poverty line every year. In spite of some progress made through implementation of the National Rural Health Mission (NRHM), huge gaps continue to exist in infrastructure creation and human resource utilisation and retention.

Nature abhors a vacuum and the private medical sector has moved in to fill the gap left by a non-existent or poorly performing public system. It has grown enormously over time and covers 60 per cent of in-patients and 80 per cent of out-patients. In spite of some sporadic attempts, the private sector remains largely unregulated. Costs in the private sector has grown by 300 per cent in the last two decades. Not only is private care expensive, it is often of poor quality and there are frequent allegations of unethical practices. The private sector is also undergoing a transformation, with large corporate run hospital chains forming an important segment of private care, especially in urban areas. In contrast, there is a huge pool of untrained and unqualified private providers, who are often the only source of medical care in rural areas. While public systems remain under-resourced, the private sector (especially the large and organised corporate controlled private sector) benefits from indirect subsidies it receives from the government.


The present state of the public health system is a result of decades old neglect by successive governments. The major issues that need to be addressed include issues of resources – both financial and human, and provisioning, i.e. mechanisms for making health care accessible to all. There is substantial global evidence as regards practices that help in building a good health care system. The positive examples – UK, France, Costa Rica, Cuba, Sri Lanka, Thailand in recent years — straddle different situations, political systems and economic contexts but have one thing in common – they are all primarily built around the concepts of public financing and public provisioning of health services.

It is important, however, to understand that each country has to build systems that are tailored to its specific situation and needs. Models of public financing can include tax-based collection, a mix between tax-based collection and co-payments by citizens and employers, etc. In India it is difficult to consider a sustainable financial mechanism unless it is almost entirely drawn from tax revenue. Collection of co-payments from the work-place is almost impossible to implement, given that less than 7 per cent of the Indian work force is in the organised sector. The bottom line is that public funding in health care must increase from the abysmal 1 per cent of the GDP to at least approach the level recommended by the WHO (5 per cent of GDP).


Another key component of a health system is the availability of trained human resources, who are also deployed appropriately. In India a range of issues need to be addressed in this regard – medical education, the optimum mix of specialists and super-specialists and general physicians, the optimum mix of physicians and health workers, etc. The Indian education system is skewed heavily and favours the production of physicians, and further, specialists and super-specialists amongst them. Largely this is determined by ‘market forces’, and not by health needs. The situation is compounded by the rapid increase in private medical colleges, which often provide low quality of education and at the same time privilege people who can pay to receive education. Unless a strengthened public system challenges the ‘market based’ principles of the health sector, such distortions will continue to plague the Indian health care system.

While the services of specialists and even super-specialists are underutilised in urban areas, the deficit of specialists is as high as 80 per cent or more in the public health system, especially in rural areas. On the other hand, we subsidise the medical care needs of countries in Europe and North America by exporting trained physicians, most of whom are trained at public cost. The rapidly growing industry of medical tourism in India, now harnesses highly trained Indian medical professionals to treat rich medical tourists from developed nations. While our public health system remains grossly understaffed, we do not train an adequate number of other health workers. While we are unable to utilise doctors and super-specialists churned out by the medical education system, the proportion of other health workers to physicians in India, is much lower than in countries with much better health services – Thailand and Malaysia for example, within Asia.

To adequately address our needs, human resource development in health must be based on: increased public funding for medical education; a major expansion of training and deployment of different kinds of health workers whose skills are suited to the tasks they need to perform; and restructuring of health systems with judicious task shifting to ensure that physicians and specialists are deployed in situations where their skills are best used.


The growth of the private medical sector in India has not been based on any planned attempt to address health needs. Being ‘private’, by definition the sector has to function in accordance with the logic of the market. The market (for all goods and services) does not, in the long term, allow the survival of the ‘inefficient’ entrepreneur. In the medical sector the efficient entrepreneur is not necessarily one who provides the best service, but often the one whose profit margins are the healthiest.

The logic of the market, in the medical care sector, has produced a situation where now huge corporate chains are replacing smaller players. It has brought in its wake more centralisation of services, and a higher degree of pooling of skills and expertise in fewer centres. This goes against the established tenets of public health and primary health care, where it is understood that better health outcome is a function of a wide spread of facilities and care providers, across the entire population.

India is one of the few large countries in the world (except for the United States, which by all evidence has one of the most wasteful and inefficient health systems) where the private medical sector is so large and organised.  While we aspire to be counted among the most powerful nations of the world, it would be instructive to look at the experience of most of the developed world in the health sector. Across Europe, Canada and Japan, the private sector is tightly regulated and functions within a broader vision of health care. Thus, while we need to build and develop a public system, we also need to regulate the private sector in a manner that locates its functioning within well defined public health goals.

All the above measures, of course, have to be accompanied by a vastly strengthened public health care system that is accessible to all and provides comprehensive health care to all.


Recently, the government has declared its intention to remedy the present situation by initiating major reforms in the health system. While there is broad agreement that immediate and urgent measures are necessary to remedy the situation, several areas of disagreement remain. There are differing perceptions regarding the concrete contours of a restructured health system in India. These relate to both, how such a system is to be financed, and how the actual provision of health services will be structured. While there appears to be a broad consensus that public financing needs to be expanded, there are differences in views as regards the quantum and source of such funding. For example, we now have considerable experience as regards one model of financing and provisioning – the social health insurance schemes such as the Rajeev Gandhi Swasthya Bima Yojana (RSBY) at the national level and several similar schemes at the state level. Largely, these schemes provide limited cover for in-patient care, depend on public financing and are largely dependent on private provisioning. By and large these schemes harness public resources but out-source actual services to private institutions. This is done with the plea that we do not have adequate public facilities. So, instead of using the finances to build public facilities, public money is being used to create a captive clientele for the private sector. This is not a unique model – we see the same neoliberal model in operation in the case of other public utilities such as water supply and electricity.

As a lead up to the formulation of the Twelfth Five Year Plan, the government had set up a “High Level Expert Group’ (HLEG), tasked with the formulation of a plan for Universal Access to Health Care (UAHC). The HLEG has made several well intentioned recommendations, including:

  • Increase in public expenditures on health from the current level of 1.2 per cent of GDP to at least 2.5 per cent by the end of the 12th  plan, and to at least 3 per cent of GDP by 2022. (though inadequate in our view, there is at least a positive recommendation to increase public expenditure)
  • Ensure availability of free essential medicines by increasing public spending on drug procurement.
  • Use of general taxation as the main source of healthcare financing.
  • Advise not to use insurance companies or any other independent agents to purchase health care services on behalf of the government.
  • Reorientation of health care provision to focus significantly on primary health care.

The Planning Commission of India has used inputs from the HLEG report and from other committees to develop its first draft ‘Report of the Steering Committee on Health for the 12th Five Year Plan’. Unfortunately this draft report betrays a clear attempt to dilute the positive recommendations of the HLEG report and to imbue the recommendations with an entirely different ‘spin’. The attempt is to pay lip service to the report on one hand, but institutionalise the public-private partnership model of health care delivery, on the other. The report is replete with references to the private sector, and to how important it is to make it part of the country’s health system.

While agreeing that, “Equally worrying is the growing reliance on private providers..” the Planning Commission draft goes on to argue that “With 80 per cent of doctors, 26 per cent of nurses, 37 per cent of beds and 80 per cent of ambulatory services, the private sector has to be partnered for health care delivery”. The draft, further goes on to assert that, “In order to spur competition, and make the providers responsive families need to be provided a choice to opt for a health provider from a panel of public, private or not-for profit providers”.

A feature of new-liberal economics has been to promote primitive accumulation of capital through the privatisation of public services. The Planning Commission’s intent is clearly to follow this prescription. It is not designed to promote health care access but to use the health care sector as another medium of capital accumulation by the private sector. These proposals need to be exposed for