It was always measly

Post-liberalisation, public funding in health care has reached a nadir

By Amit Sengupta
Last Updated: Sunday 07 June 2015

It was always measly

-- India embarked on its present path of economic liberalisation relatively late. The infamous Manmohan Singh budget of 1991 set the trend that was followed in the following decade and a half. Among other things, liberalisation involved savage cuts in budgetary support to the health sector. In the last 15 years there has been a fall, in real terms, in expenditure on health care both by the centre and the states -- though it has been much more pronounced in the latter case.

Expenditure patterns in health care have always been grossly skewed in favour of urban areas. Economic liberalisation has further distorted this picture with the axe on investment falling first on rural health services. Expenditure on salaries constitute an inordinately large proportion of health care expenditure in India. About 70-80 per cent is spent on them, and this trend is most distorted in case of rural hospitals and primary health centres. Faced with limited funds -- while salaries still require to be maintained at previous levels -- the burden of cutbacks is increasingly placed on supplies and materials. So a skeletal health care structure survives today and it is incapable of contributing in any meaningful manner to amelioration of ill-health. This has become a major factor in the disruption of the rural primary health care system.

Public sector expenditure on health care was always measly in India. In 1990, it spent only 1.3 per cent of its gross domestic product on the health sector. By 2002, this had further declined to 0.9 per cent. While the central budgetary allocation has remained stagnant at 1.3 per cent of total outlay, the budgetary allocation to health in state budgets (which account for over 70 per cent of total health care expenditure of the country) has fallen from 7 to 5.5 per cent. In reaction to this, desperate state governments are queuing up in front of the World Bank for aid. This is even more disastrous for, World Bank-aided projects come with strict conditionalities, like cost recovery.
A bane called cost recovery Cost recovery measures are the lynchpin of the World Bank-sponsored policies in the country, in spite of irrefutable evidence that such schemes always result in the exclusion of the poorest. The case for user fees uses the particularly seductive argument of equity. Seen in abstract, it appears to make sense that those who can pay should, and the benefits be shared by those who cannot. But user fees do not work in this manner in the real world. The concept is rather used to legitimise the withdrawal of the state.

Moreover, we should never forget that the user fee argument is being advanced in a situation where public funding of health care expenditure has fallen from 22 per cent in the early nineties to 16 per cent in 2000. Already, India has one of the most privatised health systems in the world (see table: Poor comparison). To harp on user fees, while not arguing for a quantum jump in health care expenditure by the state, further lets it off the hook.

Poor comparison
Public sector funds as a per cent of total health care spending
USA 44
UK 96
Spain 70
Norway 82
Japan 80
Germany 78
France 76
Canada 72
Vietnam 20
Pakistan 23
Nigeria 28
Myanmar 16
India 16
Georgia 13
Ethiopia 36
Burkina Faso 31
Source: World Health Organization Report 2000
The concept of user fees uses the model of cross subsidisation -- some pay more to subsidise expenditure for those who pay less or nothing. This model has been used successfully in infrastructure sectors such as power, telecom and air transport. For it to be successful, there is an assumption that a majority of users are part of the public funded system. In the health sector in India this is far from the case. Public facilities are utilised by those who do not have any other recourse or a powerful elite who can milk the public-funded system. To expect that the latter to pay for public utilities is unrealistic. In fact, as we move towards greater privatisation, those who can pay (even to a limited extent) move increasingly to the private sector. This further undermines the quality of care in the public-funded system, as the relatively vocal sections have lesser stakes in it.

It should also not be forgotten that the whole argument in favour of private participation in physical infrastructure (such as power and telecom) was built around the claim that it would free scarce resources for social infrastructure -- such as health and education. Instead, we see a rolling back of the state in these sectors. Any mechanism of cross subsidy requires an arbiter who consciously works in favour of the poor. To believe that the present Indian state is going to play this role is like living in a veritable fool's paradise.
Concessions galore The cuts in public health expenditure have gone hand in hand with increasing concessions to the private sector. It is estimated that the private health care industry -- including drugs, diagnostics, private consultations, and hospitalisation -- has a turnover of approximately Rs100,000 crores. This makes it, by far, the largest unregulated sector of the economy!

The private sector thrives on a host of direct and indirect subsidies from the government. Thus, after providing medical education at a very nominal cost, the government provides concessions and subsidies to private medical professionals and hospitals to set up private practice and hospitals. The government also provides incentives, tax holidays and subsidies to the private pharmaceutical and medical equipment industry. There are also generous exemptions in taxes and duties for importing medical equipment and drugs. Also, the highly profitable private hospital sector is allowed to function as trusts, which are exempt from taxes. Moreover, medical and pharmaceutical research and development is largely carried out in public-funded institutions but the major beneficiary is the private sector.

The nineties have seen another transition in the private health sector. Earlier, the private sector consisted of individual practitioners and private hospitals and nursing homes run by medical professionals. Today the organised corporate sector has entered the area. As the practice of medicine becomes more technology intensive, the role of the medical professional is becoming much narrower. Control of technology has thus become the key factor in determining who or which entity controls private medical care. Corporate entities, given their ability to invest in "state of the art" medical technologies, are fast wresting control of the medical care "industry." Henceforth, the return on investment made by such corporations will determine the kind of care provided. As corporates try to maximise profits, they will attempt to further push up medical costs by introducing high cost technologies and expensive diagnostic aids and medicines. This is not merely an imaginary futuristic scenario. In the us, this approach to medical care has lead to health care costs being the highest in the world.

Besides, there is the government's newfound fascination with health insurance. Wary that a total collapse of the public health infrastructure would also affect the more vocal sections of the people -- the elite and the middle class -- health insurance is viewed as a useful ploy to placate such people. And when the government today talks of health insurance, it means private health insurance. All countries with a developed health care infrastructure provide health insurance, but in most the major share is that of the government. For example, in Japan, France, Canada, England and the Netherlands the whole or majority of the population is covered by government-funded health insurance. The only large country where private health insurance is dominant is the us -- a country with the most inefficient and expensive health care system in the developed world.

It is foolhardy to argue that health services would improve in India if the government sector were replaced by the private sector. Global experience shows that private health care serves to drive up costs, is inefficient, and is prey to corrupt practices.

Amit Sengupta is the co-convenor of the New Delhi-based organisation, Jana Swasthya Abhiyan

Subscribe to Weekly Newsletter :

Comments are moderated and will be published only after the site moderator’s approval. Please use a genuine email ID and provide your name. Selected comments may also be used in the ‘Letters’ section of the Down To Earth print edition.