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Public Healthcare Space: Evaluating Three Fresh Edicts

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Medicines constitute a significant cost component of modern healthcare systems across the world. However, in India the situation is even worse, where as per recent studies, drugs contribute as high as around 70 percent of the total treatment cost. This is mainly because overall healthcare system in the country is fundamentally different not just from the developed world, but also from many other developing countries like, China, Brazil, South Africa and Thailand, to name a few.

In most of those countries significant expenses towards healthcare including medicines are reimbursed either by the Governments or through health insurance or similar mechanisms. However, the Indian situation is just the reverse, where around 72 percent of overall healthcare costs, including medicines, are private or Out of Pocket (OoP), incurred by the individuals/families.

According to a recent report, ‘about 38 million people in India (which is more than Canada’s population) fall below the poverty line every year due to healthcare expenses, of which 70% is on purchase of drugs’, as stated above.

In this context, it is worth noting that for patented drugs, the Drug Policy of December 2012 clearly articulates that Government of India will follow the approach of price negotiation with the respective companies. Unfortunately, work done in this so important area by the concerned authority, so far, has been rather superficial, if not shoddy. Most of the patented products, which are prohibitively expensive, continue to remain out of reach of a vast majority of patients in india.

Expenditure towards healthcare – a fundamental need:

Expenditure towards healthcare in India, which is largely private, highly exploitative and thus expensive, is absolutely essential for all, either to be able to earn a living for a family or for maintaining a reasonable quality of life.

According to an ‘Access Survey’ conducted by IMS Consulting Group in 2012, ‘Out Patient (OP)’ treatment costs in private care is ~2-3 times that of public and in case of ‘In-Patient (IP)’ care it is ~4-8 times the cost of Public care.

Focus has not been just enough:

Since 1970, the Government of India and various States have been adopting  measures including, National Health Mission (NHM), Rashtriya Swasthya Bima Yojana (RSBY), Drug Price Control Order (DPCO), besides others, to make healthcare in general and medicines in particular affordable and accessible to the common man. However, these measures though essential, have not delivered quite well when measured against the set objectives. This keeps on happening, due to lack of accountability and inefficient Government control over the processes involved together with fast increasing exploitative mindset in the private healthcare space, over the last several decades.

Health being a State subject inequity in access:

Health being a State subject in India, there has been large variations in public healthcare spend within various States of the country. Some of the poorer States have low  per capita public healthcare expenditure and some of the richer states incur significantly more, leading to huge inequity of access, especially among the poorer sections of the society. (Source: IMS Consulting 2012)

Three fresh edicts:

In the above backdrop, the decision of the Government of India to increase the National Health Expenditure Budget from 1.2% to 2.5% of GDP in the 12th Five Year Plan of India in 2012 has the potential to be a game changer in the public healthcare space of India.

It is envisaged that this decent increase in the budgetary allocation will help initiating the process of Universal Health Care (UHC) to ensure free access to essential health services for every citizen of the country, including cashless in-patient and out-patient treatment for primary, secondary and tertiary care.

Probably as a precursor to UHC, the Government of India has announced three fresh edicts:

1. Budgetary clearance for ‘Free distribution of essential medicines’ by the States

2. Notification for operationalizing the new ‘Central Medical Services Society (CMSS)’ to streamline the drug procurement system 

3. Announcement for implementation of ‘Standard Treatment Guidelines (STGs)’ 

The above edicts are indeed laudatory, as these measures, if taken effectively in tandem would also help maximizing overall productivity of the public healthcare delivery systems, immensely.  This is expected mainly because, the process would require avoidance of unnecessary medicines and diagnostics tests, chain of multiple doctor visits starting from GPs, specialists to super specialists, besides simultaneous re-engineering of below par public healthcare delivery systems of the country.

1. Budgetary clearance for free distribution of essential medicines by the States:

Late 2012, the Union Government made its first major move by formally clearing Rs. 13,000 Crore  (around US$ 2.2 billion) towards providing free medicines for all through government hospitals and health centers. The State Governments under National Health Mission to utilize this fund for purchase and free distribution of essential medicines. Some State Governments are already in the process of implementing this scheme, though effective implementation of the same, across the country, still remains a challenge.

This new scheme, I reckon, has also the potential to hasten the overall growth of the pharmaceutical industry, as poor patients who could not afford will now have access to essential medicines. On the other hand, rapidly growing middle class population will continue to favor branded generic drugs prescribed by the doctors at the private hospitals and clinics.

Some people are apprehending that generic drug makers will have brighter days as the project starts rolling on. This apprehension is based on the assumption that large branded generic players will be unable to take part in this big ticket drug procurement process of the Government, which seems to be imaginary at this stage.

However, in my view, it could well be a win-win situation for all types of players in the industry, where both the generic-generic and branded-generic businesses could continue to grow simultaneously.

That said procedural delays and drug quality issues, while procuring cheaper generics, might pose to be a great challenge for the Government to ensure speedier implementation of this project. Drug regulatory and law enforcing authorities will require to be extremely vigilant to ensure that while sourcing cheaper generic drugs, “Public health and safety” due to quality issues do not get compromised in any way.

POTENTIALITY: Significant increase in access to medicines and simultaneous sharp reduction on OoP expenses.

2. Operationalization of CMSS for drug procurement:

Recently this year, the Union Health Ministry issuing the final notification reportedly has made the drug procurement system through Central Medical Services Society (CMSS) formally operational.

The drug procurement for different flagship program, of the Government like National Health Mission, will now be done through the CMSS.

The notification says:

  • The CMSS will be responsible for procuring health sector goods in a transparent and cost-effective manner and distributing them to the States/UTs by setting up an IT enabled supply chain infrastructure including warehouses in 50 locations.
  • The main objective of CMSS is to ensure uninterrupted supply of health-sector goods to the state Government, which will then maintain the flow to the govt. health facilities such as district hospitals, primary health centers and community health centers.
  • All decisions on procurement will be taken by the CMSS without any reference to the Ministry of Health and Family Welfare.
  • The Ministry will be responsible only for policy decisions concerning procurement and for monitoring its performance.
  • The CMSS will also assist the state governments to set up similar organizations in states to reform their procurement.
  • The Government has appointed the Director General and other key persons to run the organization, which will look to eliminate deficiencies in the existing system of purchasing medicines, vaccines, contraceptives and medical equipment for all government’s flagship program.
  • At present, the ministry procures drugs departmentally and through agents, drawing flaks and raking controversies at regular intervals.

This seemingly transparent drug procurement process for public use, would prompt tough price negotiations with the manufacturers for purchase of medicines leading to significant reduction in drug prices, as evidenced already in the States like, Tamil Nadu and Rajasthan.

POTENTIALITY: Significant reduction in public healthcare costs, especially for medicines.

3. Announcement for implementation of Standard Treatment Guidelines (STGs):

Another recent news that Standard Treatment Guidelines (STGs) for 20 disciplines will soon be put in place in India is indeed a breath of fresh air. The centers of excellence for healthcare, both public and private, for around 1.2 billion population of the country, are still rather limited.

STG is usually defined as a systematically developed statement designed to assist practitioners and patients in making decisions about appropriate cost-effective treatment for specific disease areas.

For each disease area, the treatment should include “the name, dosage form, strength, average dose (pediatric and adult), number of doses per day, and number of days of treatment. STG also includes specific referral criteria from a lower to a higher level of the diagnostic and treatment requirements.

For an emerging economy, like India, formulation of STGs would ensure cost-effective healthcare benefits to a vast majority of its population.

STGs, therefore, will provide:

- Standardized guidance to practitioners

- Cost-effective ‘health outcomes’ based services

The Ministry of Health is now reportedly mulling to streamline in a phased manner the disease treatment procedures and protocols by introducing STGs in 20 disciplines under the ‘Clinical Establishments Act’ of the country. These disciplines are Cardiovascular, Endocrinology, ENT, Gastroenterology, General Surgery, Interventional Radiology, Laboratory Medicine, Obstetrics and Gynecology, Organ Transplant, Pediatrics, Oncology, Urology, Nephrology, GI Surgery, Medicine Respiratory, Medicine Non-Respiratory, Critical Care, Ophthalmology, Neurology and Orthopedics.

The National Council for Clinical Establishments (NCCE) is the apex body under the Clinical Establishments Act. STGs, therefore, will be binding on all hospitals and establishments registered under the Clinical Establishments Act 2010.

The Council has already deliberated on the draft STGs prepared by the experts in the respective disciplines of medicines. Surgical intervention in cardiovascular diseases reportedly will assume priority while implementing the STGs.

It is expected that the first of the STGs will be announced soon.

Currently only Uttar Pradesh, Mizoram, Sikkim, Rajasthan, Arunachal Pradesh, Himachal Pradesh and Jharkhand, apart from all Union Territories, have adopted the Act. Again, health being a State subject in India, all the States of the country will need to enforce this Act to make the initiative successful. However, states like West Bengal have their own Clinical Establishment Act, while Tamil Nadu has its own STGs.

Incidentally, putting STGs in place has been one of the long-standing demands of many, including the medical insurance companies. This is mainly because, laid-down protocols will make the hospitals avoiding unnecessary procedures on insured patients, thereby reducing the cost of treatment significantly.

POTENTIALITY: Huge reduction in healthcare cost, avoiding wastage in every step of any disease treatment. This could also help the medical insurance companies containing hospitalization costs, hopefully leading to reduced insurance premium.

Conclusions: 



All these three edicts of the Government, do promise a huge potential to help containing the overall cost of treatment in general and the costs of medicines in particular.

Effective implementation of these important initiatives would call for a significant change in mindset of all concerned. Doctors, hopefully, would also avoid using those expensive drugs having no significant improvement in ‘health outcomes’ over the cheaper alternatives.

STGs would initially need to be encouraged not just through self-regulation of the medical profession, but by the pharmaceutical industry and other allied interested parties in this area, as well. If ‘self-regulation’ does not work, stringent regulatory measures must be enforced by the Government to protect patients’ health interest.

No doubt both the Union and the State Governments of India would still have lot to chew in pursuit of ensuring affordable healthcare in general and medicines in particular, to all.

That said, would expectations of crafty implementation of these edicts, at least, flicker a ray of hope in an otherwise gloomy and exploitative overall healthcare environment of the country?

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Humongous Pharma Corruption: China Ups The Ante…and India?

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In the ‘pharma bribery’ related scandal in China, many postulated that the Chinese Government has cracked down selectively on Multinational Corporations (MNCs) to extend unfair business advantages for its local players.

Media reports of September 2013 indicate that in all probability the intent of the Chinese Government is not to spare homegrown corruption in this area. The country appears to be taking tough measures against both global and local perpetrators of such criminal acts, which have spread their vicious tentacles deep into the booming Chinese pharmaceutical industry.

The report names the following domestic companies:

  • Sino Biopharmaceutical Ltd has set up a team to investigate allegations broadcast on the state television that its majority-owned subsidiary had paid for illegal overseas trips for doctors to Thailand and Taiwan.
  • Privately held Gan & Lee Pharmaceuticals investigating allegations of spending around US$ 130.75 million to bribe doctors to promote their pharmaceutical products over five years.

More MNCs under investigation:

At the same time, international media are reporting names of more and more big global pharma players allegedly involved in this humongous scam, as follows:

  • In July 2013, the British drug maker GlaxoSmithKline (GSK) was allegedly involved in around US$ 490 million deceptive travel and meeting expenses as well as trade in sexual favors. Chinese authorities detained four senior executives of GSK in China to further investigate into this matter.
  • In the same month Chinese police reportedly visited the Shanghai office of another British pharmaceutical major AstraZeneca for investigation related to this scam.
  • In August 2013, Sanofi of France reportedly said that it would cooperate with a review of its business in China after a whistle-blower’s allegations that the company paid about US$ 276,000 in bribes to 503 doctors in the country.
  • Again in August 2013, a former employee of the Swiss pharmaceutical major Novartis has reportedly claimed that her manager urged her to offer ‘kickback’ to doctors to increase use of the cancer drug Sandostatin LAR. She had about US$ 105,000 budget for payments to doctors who prescribed at least 5 doses, aiming for 50 doses in all. She filed the compensation claim of US $817,000 after resigning from the company.
  • In the same month, another whistleblower has reportedly made bribery allegations involving Eli Lilly of the United States and US$ 4.9 million in purported kickbacks to Chinese doctors.
  • In September 2013, media reports indicated that the Chinese authorities are investigating the German pharma major – Bayer over a “potential case of unfair competition”.
  • Another very recent report of September 17, 2013 states, Alcon Eye Care division of Novartis is investigating allegation of fabricated clinical trials to bribe doctors. The report says Alcon outsourced the trials to a third-party research company, which in turn compensated doctors with “research payments”. It is claimed by the whistleblower that Alcon used funds earmarked for “patient experience surveys” on lens implants to bribe doctors at more than 200 hospitals. One doctor received about US$ 7,300, for studying 150 patients. Alcon allegedly spent more than US$ 230,000, on such studies last year.

This list of pharmaceutical companies involved in alleged serious malpractices to boost their sales and profits in China is probably not exhaustive.

However, only time will unravel whether this juggernaut of scams will keep moving unabated despite all high voltage actions, bulldozing patients’ interest.

Crack down on food companies too:

Crack down of the Chinese Government on alleged malpractices has reportedly extended to milk products’ companies too.

Again in August 2013, Mead Johnson Nutrition and Danone were among six dairy companies ordered to pay a combined 669 million Yuan by the Chinese Government for price fixing of their products.

Global industry lobby has a different view point:

In an interview with the BBC, an expert from APCO Worldwide, considered as the giant of the lobbying industry said:

“China’s behavior was very worrisome for foreign companies. They don’t know what’s hitting them right now. The government is resorting to its traditional “toolbox” of coercive methods, including shaming and ordering people to confess that they’ve done wrong so that your penalties can be minimized. They’re just treating foreign companies the way they’ve treated their own for many years, and this is the way the Party does things.”

He continued, “What may be going on is they’re telling foreign companies and they’re telling private companies here: Behave yourself; remember we’re the Party, we’re in charge.”

This is seemingly an interesting way of pooh-poohing serious allegations of bribery and other malpractices by the pharmaceutical companies in China without even waiting for the results of the pending enquiry.

However, such comments coming from an industry lobbying organization or any Public Relations (PR) Agency is not uncommon. That’s their business.

Possible reasons for crack down:

Experts opine that China has a high drug price problem. This is vindicated by the fact that while most developed nations of the world spend not more than 10-12 percent of their healthcare budget on medicines, in China it exceeds 40 percent. This huge disparity is believed to have prompted Beijing’s crackdown on the industry, especially the MNCs that dominate the Chinese pharmaceutical industry with newer drugs. The powerful National Development and Reform Commission (NDRC) of China has already said that it is examining pricing by 60 local and international pharmaceutical companies.

Some other reports point out, low basic salary of the doctors at the 13,500 public hospitals in China, who are the key purchasers of drugs, is the root cause of corruption in the Chinese healthcare industry.

According to McKinsey with estimated healthcare spending of China nearly tripling to US$1 trillion by 2020 from $357 billion in 2011, the country is increasingly attracting pharma and medical equipment companies from all over the world in a very large number.

The fall out:

A recent media report indicates that Chines crackdown on the widespread pharma bribery scandal in the country is quite adversely affecting the sales of both global and local players, as many doctors in the Chinese hospitals are now refusing to see medical representatives for fear of being caught up in this large scam.

Drug expenditure is even more for healthcare in India:

Several studies indicate that Out Of Pocket Expenditure towards Healthcare in India is one of the highest in the world and ranges from 71 to 80%.

According to a 2012 study of IMS Consulting Group, drugs are the biggest expenditure in the total Out Of Pocket (OOP) spend on healthcare as follows:

Items Outpatient/ outside Hospital (%) Inpatient/ Hospitalization (%)
Medicines 63 43
Consultation/Surgery - 23
Diagnostics 17 16
Minor surgeries 01 -
Private Consultation 14 -
Room Charge - 14
Others 05 04

Despite these facts, India has remained virtually inactive in this critical area so far, unlike China, except some sporadic price control measures like, Drug Price Control Order (DPCO 2013) for essential drugs (NLEM 2011), which covers around 18% of the total pharmaceutical market in India.

Universal Healthcare (UHC): A possible answer?

Another interesting study titled, ‘The Cost of Universal Health Care in India: A Model Based Estimate’ concludes as follows:

The estimated cost of UHC delivery through the existing mix of public and private health institutions would be INR 1713 (USD 38) per person per annum in India. This cost would be 24% higher, if branded drugs are used. Extrapolation of these costs to entire country indicates that Indian government needs to spend 3.8% of the GDP for universalizing health care services, although in total (public+private) India spent around 4.2% of its GDP on healthcare (2010) at 11% CAGR from 2001 to 2010 period.

Moreover, important issues such as delivery strategy for ensuring quality, reducing inequities in access, and managing the growth of health care demand need be explored.

Thus, it appears, even UHC will be 24% more expensive after a public spend of staggering 3.8% of the GDP towards healthcare, if branded drugs are used, which attract huge avoidable marketing expenditures, as we have seen in the Chinese pharma industry scandal.

High marketing costs making drugs dearer?

A recent article, captioned “But Don’t Drug Companies Spend More on Marketing?” vindicates the point, though the drug companies spend substantial money on R&D, they spend even more on their marketing related activities, legally or otherwise.

Analyzing six global pharma and biotech majors, the author highlights that SG&A (Sales, General & Administrative) and R&D expenses vary quite a lot from company to company. However, in this particular analysis the range was as follows:

SG&A: 23% to 34%
R&D: 12.5% to 24%

SG&A expenses typically include advertising, promotion, marketing and executive salaries. The author says that most companies do not show the break up of the ‘S’ part separately.

In the pharmaceutical sector all over the world, the marketing practices have still remained a very contentious issue despite many attempts of self-regulation by the industry. Incessant media reports on alleged unethical business practices have not slowed down significantly, across the world, even after so many years of self-regulation. This is indeed a critical point to ponder.

Scope and relevance of ‘Corporate Ethical Business Conducts and Values’:

The scope of ‘ethical business conducts and value standards’ of a company should not just be limited to marketing. These should usually encompass the following areas, among many others:

  • The employees, suppliers, customers and other stakeholders
  • Caring for the society and environment
  • Fiduciary responsibilities
  • Business and marketing practices
  • R&D activities, including clinical trials
  • Corporate Governance
  • Corporate espionage

That said, codes of ethical conduct, corporate values and their compliance should not only get limited to the top management, but must get percolated downwards, looking beyond the legal and regulatory boundaries.

Statistics of compliance to codes of business ethics and corporate values are important to know, but perceptible qualitative changes in ethics and value standards of an organization should always be the most important goal to drive any business corporation and the pharmaceutical sector is no exception.

Foreign Corrupt Practices Act (FCPA): A deterrent?

To prevent bribery and corrupt practices, especially in a foreign land, in 1997, along with 33 other countries belonging to the ‘Organization for Economic Co-operation and Development (OECD)’, the United States Congress enacted a law against the bribery of foreign officials, which is known as ‘Foreign Corrupt Practices Act (FCPA)’.

This Act marked the early beginnings of ethical compliance program in the United States and disallows the US companies from paying, offering to pay or authorizing to pay money or anything of value either directly or through third parties or middlemen.

FCPA currently has some impact on the way American companies are required to run their business, especially in the foreign land.

However, looking at the ongoing Chinese story of pharma scams and many other reports of huge sums paid by the global pharmaceutical companies after being found guilty under such Acts in the Europe and USA, it appears, levy of mere fines is not good enough deterrent to stop such (mal)practices in today’s perspective.

China acts against pharma bribery, why not India? 

Like what happened in China, many reports, including from Parliamentary Standing Committee, on alleged pharma malpractices of very significant proportions, which in turn are making drugs dearer to patients, have been coming up in India regularly, since quite sometime.

Keeping these into consideration, abject inertia of the government in taking tough measures in this area is indeed baffling and an important area of concern.

Conclusion:

The need to formulate ‘Codes of Business Ethics & Values’ and more importantly their effective compliance, in letter and spirit, are of increasing relevance in the globalized business environment.

Unfortunately, as an irony, increasingly many companies across the world are reportedly being forced to pay heavy costs and consequences of ‘unethical behavior and business practices’ by the respective governments.

Intense quarterly pressure for expected business performance by stock markets and shareholders, could apparently be the trigger-points for short changing such codes and values.

There is, of course, no global consensus, as yet, on what is ethically and morally acceptable ‘Business Ethics and Values’ uniformly across the world. However, even if these are implemented in country-specific ways, the most challenging obstacle to overcome by the corporates would still remain ‘walking the talk’ and ‘owning responsibility’.

That said, to uphold patients’ interests, China is already giving the perpetrators of the ongoing humongous pharma scam a ‘run for life’, as it were, despite what the industry lobbyists have been laboriously working on for the world to believe. Today, common patients’ in India being in a much worse situation for similar sets of reasons, should the domestic regulators not now wake up from the ‘deep slumber’, up all antennas, effectively act by setting examples and bring the violators to justice?

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

 

Increasing Healthcare Consumption in India with equity

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Along with the economic progress of India, healthcare consumption of the population of the country is also increasing at a reasonably faster pace. According to McKinsey India Report, 2007, the share of average household healthcare consumption has increased from 4 per cent in 1995 to 7 per cent in 2005 and is expected to increase to 13 per cent in 2025 with a CAGR of 9 per cent, as follows:

Share of Average Household Consumption (AHC) (%)

Household Consumption 1995 2005 E 2015 F 2025 F CAGR %
1. Healthcare

4

7

9

13

9
2. Education & Recreation

3

5

6

9

9
3. Communication

1

2

3

6

 12
4. Transportation

11

17

19

20

7
5. Personal Products and Services

4

8

9

11

8
6. Household Products

2

3

3

3

 5
7. Housing & Utilities

14

12

12

10

 5
8. Apparel

5

6

5

5

 5
9. Food, Beverages & Tobacco

56

42

34

25

3

(Source; McKinsey India Report 2007)

From this study, it appears that among all common household consumption, the CAGR of ‘healthcare’ at 9 percent will be the second highest along with ‘education’ and ‘communication’ topping the growth chart at 12 percent.

As per this McKinsey study, in 2025, in terms of AHC for ‘healthcare’ (13 percent) is expected to rank third after ‘Food & Beverages’ (25 percent) and ‘transportation’ (20 percent).

Thus, over a period of time AHC for ‘healthcare’ shows a very significant growth potential in India. Hence, this important area needs much greater attention of the policymakers to help translate the potential into actual performance with requisite policy and fiscal support/incentives.

Sectoral break-up of the Healthcare Industry:

According to IDFC Securities 2010, the sectoral break-up of the US$ 40 billion healthcare industry is as follows:

Industry

%
Hospitals

50
Pharma

25
Diagnostics

10
Insurance & Medical Equipment

15

(Source: IDFC Securities Hospital Sector, November 2010)

Therefore, as per this above report, the top two sectors of the healthcare industry are hospitals with 50 percent share and pharmaceuticals at 25 percent.

Public sector drives the healthcare expenditure in the developed countries:

Almost all OECD countries now provide universal or near-universal health coverage for a core set of health services, which are primarily funded by the public sector.

The report titled, ‘Health at a Glance 2011’ indicates that adjusted for purchasing power parity United States of America (USA) at US$ 7290 per capita expenditure on health in 2007, which is almost two and a half times more than the OECD average of US$ 2984, towers above other OECD countries. However, the same for Turkey and Mexico was less than one-third of the OECD average.

India and South East Asia are different:

Unlike OECD countries, according to the World Health Organization (WHO), in South East Asia, except Thailand and Indonesia, healthcare is primarily driven by private expenditure, as seen in the following table:

Public and Private Expenditure on Health as % of Total

Country

Public %

Private %
Laos

17.60

82.40
Cambodia

23.80

76.20
India

32.40

67.60
Philippines

34.70

65.30
Vietnam

38.50

61.50
Malaysia

44.10

55.90
Indonesia

54.40

45.60
Thailand

74.30

25.70

Source: World Health Statistics 2011, World Health Organization (WHO)

In India, the critical healthcare industry is heavily dependent on private sector investments, where the total public expenditure on health is just around one third of the country’s total expenditure for the same, though in the 12th Five Year Plan period the the government is likely to increase its health expenditure as a percentage to GDP to 2.5 percent.

Healthcare – a more sensitive sector in India:

According to an article titled, ‘Financing health care for all: challenges and opportunities’, published in ‘The Lancet’ dated February 19, 2011 ‘Out of Pocket’ expenditure on health in India (78 per cent) is one of the highest as compared to its neighboring, except Pakistan (82.5 percent). The details are as follows:

Country ‘Out of Pocket’ expenses (%)
1. Pakistan

82.5
2. India

78
3. China

61
4. Sri Lanka

53
5. Thailand

31
6. Bhutan

29
7. Maldives

14

Such a high out of pocket expenditure for health in India, makes ‘affordability’ of healthcare products and services so sensitive to all concerned.

Just Hospital oriented health insurance plans are not adequate enough:

The above article from ‘The Lancet ‘also indicates that 74 per cent of the total healthcare expenditure goes for only outpatient or in-clinic treatment of the patients. Only 26 per cent of healthcare expenditure goes for inpatient treatment in the hospitals.

Thus coverage of only expenditure towards hospitalization by the health insurance companies will not be able to provide significant benefits to most of the citizens of India.

Further, the article says that from 1986 to 2004, there has been three times increase in the average real expenditure per hospital admission, both in the government and private hospitals.

Threefold increase in the drug prices from 1993-94 to 2006-07 was mentioned as the key factor for cost escalation in the medical care in India.

Private healthcare sector needs more fiscal incentives and lesser cost of capital:

As indicated above, private healthcare players will increasingly play a very significant role to increase healthcare consumption with equitable span across the population of India. To encourage them to spread their wings in the semi-urban and rural areas of the country effectively, lucrative fiscal/ financial incentives along with the availability of low cost capital, are absolutely necessary.

It is worth mentioning that the growth of rural middle class population is now faster than ever before and much more than their urban counterpart.

Exploitation of the patients must stop:

Unfortunate and deplorable incidences of exploitation of patients, mainly by the private players, are critical impediments to foster growth in quality healthcare consumption within the country.

In this context, ‘The Lancet’, January 11, 2011 highlighted as follows:

“Reported problems (which patients face while getting treated at a private doctor’s clinic) include unnecessary tests and procedures, rewards for referrals, lack of quality standards and irrational use of injection and drugs. Since no national regulations exist for provider standards and treatment protocols for healthcare, over diagnosis, over treatment and maltreatment are common.” Prevailing situation like this calls for urgent national regulations for provider-standards and treatment-protocols, at least for the common diseases in India and more importantly their stricter implementation across the country.

UHC will significantly improve healthcare consumption:

In October 2010, the Planning Commission of India constituted a ‘High Level Expert Group (HLEG)’ on Universal Health Coverage (UHC) under the chairmanship of the well-known medical professional Prof. K. Srinath Reddy. The HLEG was mandated to develop a framework for providing easily accessible and affordable health care to all Indians.

UHC will guarantee access to essential free health services to all. However, because of the uniqueness of India, HLEG proposed a hybrid system that draws on the lessons learnt not only from within India, but also from other developed and developing countries of the world.

UHC is expected to ensure guaranteed access to essential health services to every Indian, including cashless in-patient and out-patient treatment for primary, secondary and tertiary care. All these services will be available to the patients absolutely free of any cost.

Under UHC all citizens of India will be free to choose between Public sector facilities and ‘contracted-in’ private providers for healthcare services.

It is envisaged that the people would be free to supplement the free of cost healthcare services offered under UHC by opting to pay ‘out of pocket’ or going for private health insurance schemes, as per their individual requirements.

Conclusion:

India has already been globally recognized as one of the fastest growing healthcare markets of the world. All components in the healthcare space of the country including hospital and allied services are registering sustainable decent growth, riding mainly on private investments and now fueled by various government projects, such as:

  1. National Rural Health Mission (NRHM)
  2. National Urban Health Mission
  3. Rashtriya Swasthya Bima Yojana (RSBY)
  4. Universal Health Coverage (UHC)
  5. Free Medicine from the Government hospitals
  6. Centralized procurement by both the Central and the State Governments

Supported by newer, both public and private initiatives, like:

  • Increase in public spending on healthcare from 1.0 per cent to 2.5 per cent of GDP in the 12th Five Year Plan period
  • Increasing participation of the private players in smaller towns and hinterland of the country
  • Wider coverage of health insurance
  • Micro-financing
  • Greater spread of telemedicine
  • More number of mobile diagnosis and surgical centers

All these interesting developments adequately fueled by rising income levels and improving access to healthcare though albeit slowly at present, equitable consumption of healthcare in India, I reckon, is expected to improve by manifold in the years ahead, despite shrill voices of  naysayers of vested interests, orchestrated many a times from beyond the shores of India.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Dissapointing: No proposal of ‘Healthcare Reform’ in the Union Budget of India for 2011-12: China rolled it out in 2009.

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January 15, 2011 issue of ‘The Lancet’ in an article titled, “Learning from others” states the following:

“Having universal coverage through a public commitment does have costs, including public costs. The proportion of national expenditure on health that is met by the government is 26% in India and 45% in China. Or, to look at a related contrast, while government expenditure on health care in India is only around 1·1% of its GDP, it is around 1·9% in China. One need not be a genius to see that if the government of a country is ready to spend more on health, it could expect better results in terms of the health of the people.”

While comparing India with China, I reckon, one should take into account of larger disease burden in India as compared to China and the cost that India pays due to slow progress of reform processes in a democratic framework with open and free society and the vibrant outspoken media in the country. Further, the healthcare reform processes in China started over a decade earlier than India, resulting in a significant difference in the healthcare infrastructure, healthcare delivery and the healthcare financing systems of both the countries, over a period of time.

Access to safe drinking water and sanitation:

Access to safe drinking water in India may be comparable to other emerging economies, but sanitation condition in India needs radical improvement. According to World Health Organization (WHO, 2009) the Access to potable water and improved sanitation in those countries are as follows:

Country Drinking Water  (% population) Sanitation                     (% population)
India 89 28
Brazil 91 77
China 88 65
Mexico 95 81
South Africa 93 59

Key issues in the Public Hospitals:

The ethical issues, which the patients face, especially, in the hospitals of India, I reckon, have not been reported for China by the Transparency International.

Transparency International India (2005) had reported the following seven key issues and irregularities experienced by the patients at the Government Hospitals in India:

  1. Medicines unavailable: 52%
  2. Doctors suggest a visit to their private clinic: 37%
  3. Doctors refer to private diagnostic centers: 31%
  4. Over-prescription of medicines: 24%
  5. Bribes demanded by staff: 20%
  6. Diagnostics tests done even when unnecessary: 18%
  7. Doctors are absent: 13%

All these continue to happen in India, with no respite to patients, despite ‘Hippocratic Oath’ being taken by the medical profession and the new MCI guidelines for the doctors being in place within the country. Moreover, a miniscule spend of 1% of the GDP by the Government of India towards public healthcare of the nation, is indeed a shame.

Healthcare Reform in China:

Early April, 2009, China, a country with 1.3 billion people, unfolded a plan for a new healthcare reform process for the next decade to provide safe, effective, convenient and affordable healthcare services to all its citizens. A budgetary allocation of U.S $124 billion has been made for the next three years towards this purpose.
China’s last healthcare reform was in 1997:
China in 1997 took its first reform measures to correct the earlier practice, when the medical services used to be considered just like any other commercial product. Very steep healthcare expenses made the medical services unaffordable and difficult to access to a vast majority of the Chinese population.
Out of pocket expenditure towards healthcare services also increased in China:
The data from the Ministry of Health of China indicates that out of pocket spending on healthcare services more than doubled from 21.2 percent in 1980 to 45.2 percent in 2007. At the same time the government funding towards healthcare services came down from 36.2 percent in 1980 to 20.3 percent in the same period.
Series of healthcare reforms were effectively implemented since then like, new cooperative medical scheme for the farmers and medical insurance for urban employees, to address the situation  prevailing at that time.
The core principle of the new phase of healthcare reform in China:
The core principle of the new phase of the healthcare reform process in China is to provide basic health care as a “public service” to all its citizens, where more government funding and supervision will assume a critical role.
The new healthcare reform process in China will, therefore, ensure basic systems of public health, medical services, medical insurance and medicine supply to the entire population of China. Priority will be given to the development of grass-root level hospitals in smaller cities and rural China and the general population will be encouraged to use these facilities for better access to affordable healthcare services. However, public, non-profit hospitals will continue to be one of the important providers of medical services in the country.
Medical Insurance and access to affordable medicines in China:
Chinese government plans to set up diversified medical insurance systems. The coverage of the basic medical insurance is expected to exceed 90 percent of the population by 2011. At the same time the new healthcare reform measures will ensure better health care delivery systems of affordable essential medicines at all public hospitals.
Careful monitoring of the healthcare system by the Chinese Government:
Chinese government will monitor the effective implementation and supervision of the healthcare operations of not only the medical institutions, but also the planning of health services development, and the basic medical insurance system, with greater care.
It has been reported that though the public hospitals will receive more government funding and be allowed to charge higher fees for quality treatment, however, they will not be allowed to make profits through expensive medicines and treatment, which is a common practice in China at present.
Drug price regulation and supervision in China:
The new healthcare reform measures will include regulation of prices of medicines and medical services, together with strengthening of supervision of health insurance providers, pharmaceutical companies and retailers.
As the saying goes, ‘proof of the pudding is in the eating’, the success of the new healthcare reform measures in China will depend on how effectively these are implemented across the country.

Besides Democracy, China has something to learn from India too:

The article, as mentioned above, from ‘The Lancet’ concludes by saying that unlike China, the real progress in India has come out of public discussion and demonstration within the democratic set-up in India. One such program is distribution of cooked mid-day meals to school children and selected interventions in child development in pre-school institutions. Such programs are currently not available in China for development of proper physical and mental health of, especially, the children of the marginalized section of the society

Conclusion:
There exists a sharp difference between India and China in the critical healthcare delivery system. The Chinese Government at least guarantees a basic level of public funded and managed healthcare services to all its citizens. Unfortunately, the situation is not quite the same in India, because of various reasons.
High economic growth in both the countries has also led to inequitable distribution of wealth, making many poor even poorer and the rich richer, further complicating the basic healthcare issues involving a vast majority of poor population of India.
To effectively address the critical issues related to health of its population, the Chinese Government has already announced a blueprint outlining its new healthcare reform measures for the next ten years. How will the Government of India respond to this situation for the new decade that has just begun?

It was very dissapointing to learn from the Union Budget speech of the Finance Minister of India for 2011-12 that the perspective of our Government on the importance of healthcare for the fellow citizens of India, still remains indifferent.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

China has recently unfolded the blueprints of its new healthcare reform measures, when will India do so?

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Early April, 2009, China, a country with 1.3 billion people, unfolded a plan for a new healthcare reform process for the next decade to provide safe, effective, convenient and affordable healthcare services to all its citizens. A budgetary allocation of U.S $124 billion has been made for the next three years towards this purpose.
China’s last healthcare reform was in 1997:

China in 1997 took its first reform measure to correct the earlier practice, when the medical services used to be considered just like any other commercial product, as it were. Very steep healthcare expenses made the medical services unaffordable and difficult to access to a vast majority of the Chinese population.

Out of pocket expenditure towards healthcare services also increased in China…but…:

The data from the Ministry of Health of China indicate that out of pocketl spending on healthcare services had doubled from 21.2 percent in 1980 to 45.2 percent in 2007. At the same time the government funding towards healthcare services came down from 36.2 percent in 1980 to 20.3 percent in the same period.

A series of healthcare reforms was effectively implemented since then like, new cooperative medical scheme for the farmers and medical insurance for urban employees, to address this situation.

The core principle of the new phase of healthcare reform in China:

The core principle of the new phase of reform is to provide basic health care as a “public service” to all its citizens. This is the pivotal core principle of the new wave healthcare reform process in China where more government funding and supervision will now play a critical role.

The new healthcare reform process in China will, therefore, ensure basic systems of public health, medical services, medical insurance and medicine supply to the entire population of China. Priority will be given for the development of grass-root level hospitals in smaller cities and rural China and the general population will be encouraged to use these facilities for better access to affordable healthcare services. However, public, non-profit hospitals will continue to be one of the important providers of medical services in the country.

Medical Insurance and access to affordable medicines:

Chinese government plans to set up diversified medical insurance systems. The coverage of the basic medical insurance is expected to exceed 90 percent of the population by 2011. At the same time the new healthcare reform measures will ensure better health care delivery systems of affordable essential medicines at all public hospitals.

Careful monitoring of the healthcare system by the Chinese Government:

Chinese government will monitor the effective management and supervision of the healthcare operations of not only the medical institutions, but also the planning of health services development, and the basic medical insurance system, with greater care.

It has been reported that though the public hospitals will receive more government funding and be allowed to charge higher fees for quality treatment, however, they will not be allowed to make profits through expensive medicines and treatment, which is a common practice in China at present.

Drug price regulation and supervision:

The new healthcare reform measures will include regulation of prices of medicines and medical services, together with strengthening of supervision of health insurance providers, pharmaceutical companies and retailers.

As the saying goes, ‘proof of the pudding is in its eating’, the success of the new healthcare reform measures in China will depend on how effectively these are implemented across the country.

Healthcare scenario in India:

Per capita public expenditure towards healthcare in India is much lower than China and well below other emerging countries like, Brazil, Russia, China, Korea, Turkey and Mexico.

Although spending on healthcare by the government gradually increased in the 80’s, overall spending as a percentage of GDP has remained quite the same or marginally decreased over last several years. However, during this period private sector healthcare spend was about 1.5 times of that of the government.

It appears, the government of India is gradually changing its role from the ‘healthcare provider’ to the ‘healthcare enabler’.

High ‘out of pocket’ expenditure towards healthcare in India:

According to a study conducted by the World Bank, per capita healthcare spending in India is around Rs. 32,000 per year and as follows:

- 75 per cent by private household (out of pocket) expenditure
- 15.2 per cent by the state governments
- 5.2 per cent by the central government
- 3.3 percent medical insurance
- 1.3 percent local government and foreign donation

Out of this expenditure, besides small proportion of non-service costs, 58.7 percent is spent towards primary healthcare and 38.8% on secondary and tertiary inpatient care.

Role of the government:

Unlike, recent focus on the specific key areas of healthcare in China, in India the national health policy falls short of specific and well defined measures.

Health being a state subject in India, poor coordination between the centre and the state governments and failure to align healthcare services with broader socio-economic developmental measures, throw a great challenge in bringing adequate reform measures in this critical area of the country.

Healthcare reform measures in India are governed by the five-year plans of the country. Although the National Health Policy, 1983 promised healthcare services to all by the year 2000, it fell far short of its promise.

Underutilization of funds:

It is indeed unfortunate that at the end of most of the financial years, almost as a routine, the government authorities surrender their unutilized or underutilized budgetary allocation towards healthcare. This stems mainly from inequitable budgetary allocation to the states and lack of good governance at the public sector healthcare delivery systems.

Health insurance in India:

As I indicated above, due to unusually high (75 per cent) ‘out of pocket expenses’ towards healthcare services in India, a large majority of its population do not have access to such quality, high cost private healthcare services, when public healthcare machineries fail to deliver.

In this situation an appropriate healthcare financing model, if carefully worked out under ‘public – private partnership initiatives’, is expected to address these pressing healthcare access and affordability issues effectively, especially when it comes to the private high cost and high quality healthcare providers.

Although the opportunity is very significant, due to absence of any robust model of health insurance, just above 3 percent of the Indian population is covered by the organised health insurance in India. Effective penetration of innovative health insurance scheme, looking at the needs of all strata of Indian society will be able to address the critical healthcare financing issue of the country. However, such schemes should be able to address both domestic and hospitalization costs of ailments, broadly in line with the health insurance model working in the USA.

The Government of India at the same time will require bringing in some financial reform measures for the health insurance sector to enable the health insurance companies to increase penetration of affordable health insurance schemes across the length and the breadth of the country.

Conclusion:

It is an irony that on one side of the spectrum we see a healthcare revolution affecting over 33 percent population of the world. However, just on the other side of it where around 2.4 billion people (about 37 percent of the world population) reside in two most populous countries of the world – India and china, get incredibly lesser public healthcare support and are per forced to go for, more frequently, ‘pay from pocket’ pocket type expensive private healthcare options, which many cannot afford or just have no access to.

In both the countries, expensive ‘pay from pocket’ healthcare service facilities are increasing at a greater pace, whereas public healthcare services are not only inadequately funded, but are not properly managed either. Implementation level of various excellent though much hyped government sponsored healthcare schemes is indeed very poor.

Moreover, despite various similarities, there is a sharp difference between India and China at least in one area of the healthcare delivery system. The Chinese Government at least guarantees a basic level of publicly funded and managed healthcare services to all its citizens. Unfortunately, the situation is not the same in India, because of various reasons.

Over a period of time, along with significant growth in the respective economies of both the countries, with China being slightly ahead of India for many reasons, life expectancy in both India and China has also increased significantly, which consequently has lead to increase in the elderly population of these countries. The disease pattern also has undergone a shift in both the countries, mainly because of this reason, from infectious to non-infectious chronic illnesses like, hypertension, diabetes, arthritis etc. further increasing the overall burden of disease.

High economic growth in both the countries has also lead to inequitable distribution of wealth, making many poor even poorer and the rich richer, further complicating the basic healthcare issues involving a vast majority of poor population of India.

A recently published report indicates that increasing healthcare expenditure burden is hitting the poor population of both the countries very hard. The report further says that considering ‘below the poverty line’ (BPL) at U.S$ 1.08 per day, out of pocket healthcare expenditure has increased the poverty rate from 31.1 percent to 34.8 percent in India and from 13.7 percent to 16.7 percent in China.

To effectively address this serious situation, the Chinese Government has announced its blueprint for a new healthcare reform measures for the coming decade. How will the Government of India respond to this situation? It will indeed be interesting to watch.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.