Privatisation and corporatisation

Rama V. Baru

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HEALTH care in India has undergone significant structural changes in recent years with the increasing involvement of the corporate sector. While private health care, in the form of small and medium enterprises like nursing homes, has been prevalent in India for several decades, the entry of the corporate sector is relatively new. This phenomenon has triggered changes in other areas such as medical equipment import policy and health insurance. These trends will clearly have an impact on the structures of health care provisioning, both in the public and private sectors, redefine consumer perceptions of what constitutes good quality care and alter preferences in terms of services desired. The already prevalent bias in favour of curative care as against a more holistic public health perspective will get further accentuated.

Private health care services in the country have grown and diversified during the last two decades. These consist of a range of players who provide services in both rural and urban areas. They include individual private practitioners who provide primary level care, owners of small and med ium nursing homes who mainly provide secondary care and a few large corporate hospitals that provide tertiary level care. Apart from the growth of private sector in provisioning medicare, the pharmaceutical, insurance, equipment and computer software corporations have become important players in the health sector.



Any analysis of privatisation of the health sector would be incomplete if it did not include the impact of this development on the public sector. The decade of the ’90s saw several state governments restructure their secondary level hospitals with loans from the World Bank. This project is being implemented in Punjab, Karnataka, Andhra Pradesh, West Bengal, Maharashtra and Orissa under the aegis of the Bank’s state health systems project. As a part of the restructuring exercise, a considerable amount of money has been invested in renovation of buildings, purchase of equipment and supply of strip packaged drugs. The restructuring exercise also involves the introduction of user fees as a source of revenue to finance the secondary level hospitals.

This paper looks at the process of privatisation by studying the entry of market forces into the provisioning of medical care in relation to the rise of pharmaceutical, medical equipment, health insurance and computer software corporations. The emerging shifts in the public sector are examined against the backdrop of changes in the private sector in heath care since all the major players are inter-related with it at several levels.

While equipment and pharmaceutical corporations were active as suppliers of drugs and equipment to the public sector in the past, it is only during the latter part of the ’90s that they have become partners in the promotion of tertiary, specialist hospitals along with health insurance and software corporations. These corporations sell their products not just to the private sector but also to public hospitals.

Though the late ’80s witnessed a significant growth of the corporate sector, the distribution of the private sector across states remains uneven. A bulk of the private sector consists of individual practitioners, both trained and untrained, followed by nursing homes and hospitals which are owned by a single owner or in partnership. Private practitioners, in both rural and urban areas, nursing homes and hospitals are mainly located in urban areas. A few studies have looked at the background of some of these practitioners. The findings reveal that they are normally from the communities in which they live and have spent some time with compounders to pick up the necessary skills for practice. This category also includes practitioners trained in the indigenous systems and homeopathy. There seems to be an extensive referral network between the private practitioners, chemist shops, specialists, nursing homes and even large hospitals.



The growth of the private sector is uneven across states with some like Kerala, Andhra Pradesh, Maharashtra, Punjab, Gujarat and Tamil Nadu having a higher number of beds compared to the public sector. Between 1970 to 1990 there has been a steady accretion to total bed strength in the private sector. In 1973 private beds constituted 22.3% of total bed strength which rose to 28.9% during the early ’80s and accounted for 37% of the total in the early ’90s. The under-reporting of private institutions and bed strength is well known and hence the proportion of private beds to total bed strength may in fact be higher.



During the late ’80s a majority of the hospitals and nursing homes had a bed strength ranging from 5-100 beds. Located in urban areas these facilities were owned by doctors in single owner or partnership enterprises. In some states the smaller enterprises had spread to towns and even villages. A majority of hospitals during the late ’80s had a bed capacity of less than 25 with an average of 10 beds. Only 7% of such hospitals had a bed capacity of 75 or more.1 The hospitals and hospital beds in the private sector are skewed towards urban areas which accounted for 65%, the remaining 35% being in rural areas.2

Thus, the larger enterprises form only a small proportion and are mainly registered as private limited companies, public limited companies or as trusts. They provide tertiary level specialist care and their scale of operation is much higher than in the case of smaller enterprises. An earlier study that had explored the social background of owners of private hospitals in Hyderabad, revealed that the promoters of small and medium nursing homes were from upper caste backgrounds and a majority of them belonged to families of traders, cultivators and professionals. Among the private and public limited hospitals the owners belonged to the rich peasant and landlord classes, many of whom had links with non-resident Indian doctors based in the US or had worked abroad. These larger enterprises offer specialist services which are dependant on high technology medical equipment.



The growth in imports of medical technology has made health care a profitable business venture. Since the late ’80s, there has been a steady increase in the import of medical equipment. Data on the value of imports for a variety of medical equipment and radiological apparatus shows a steady increase from the mid ’70s to the early ’80s. There was a steep increase during the mid ’80s coinciding with official policy to liberalise import of equipment as an incentive to the private sector. While there was a slump in imports during the early ’90s, there was a gradual recovery from 1993 and a sharp increase during 1996-97. The 1997-98 budget further slashed import duties and this only encouraged increased import of medical equipment.

During 1998, several multinational corporations like Dickinson, Siemens and Philips set up units for the manufacture of medical equipment ranging from syringes to ultrasounds and scanners. Several multinational companies either collaborated with their Indian counterparts or relocated some of their operations for assembling equipment. This trend was earlier observed in the pharmaceutical industry in Hyderabad. Due to the absence of a public sector in the manufacture of medical equipment, India has relied on imports, which have increased over the years. The ’90s saw a growth of the small scale sector alongside larger units for production of medical equipment. With an increase in imports there was no system for registering or regulating this sub sector. The only conditionality imposed by the government on private hospitals importing medical equipment was that they offer a certain percentage of their services free of cost to the poor.

The first corporate hospital in India was set up at Chennai in 1987 by the Apollo group. This venture was the first of its kind in the country since all other large, speciality hospitals in Mumbai and other cities were essentially promoted as trusts. Historically, big business groups had established hospitals as trusts or societies and not as corporate entities. This was mainly because companies funding charitable trusts could secure tax exemptions while being seen as contributing to welfare. The Tata group and the Hinduja brothers had established hospitals in Mumbai, and more recently the Modis, Nandas, Goenkas, Singhanias, Chabbarias and Oberois have also invested in the health care business.



Apart from the big business houses, several regional business groups in the southern states of Andhra Pradesh, Tamil Nadu and Karnataka have also entered the health care market. All these hospitals are multi-speciality institutions and essentially offer tertiary care. Most of the corporate hospitals in the three southern cities of Hyderabad, Bangalore and Chennai are promoted by local doctor entrepreneurs in collaboration with non-resident Indian doctors. The establishment of Apollo marked the entry of non-resident Indian doctors into medical care and signalled a recognition of a hospital as a corporate enterprise. This generated pressure from the private sector in favour of government subsidies for such enterprises in the form of subsidised sale of government land and duty-free import of medical equipment. It marked a change in the organisational form of private investment in health care, the shift taking place from single owner enterprises and nursing homes to corporate enterprises.

Among the corporate hospitals, the Apollo group promoted by Pratap C. Reddy during the late ’80s, has emerged as the largest private health care corporation in Asia. At present it manages hospitals with a total bed strength of 2600 in Chennai, Hyderabad, New Delhi, Ahmedabad and Baroda. Apart from investments in hospitals, the group runs hotels and the Indian Hospitals Corporation which is a consulting firm for designing, constructing and professionally managing hospitals. In December 1999, the company decided to merge all its subsidary and related companies in order to expand operations by mobilising capital from European, American and Japanese medical manufacturers to finance new ventures. The group needs this large financial input in order to promote hospitals in Bangladesh and the Middle East.



The approval to the Insurance Bill by the Lok Sabha has provided further impetus for privatisation. The promoter of Apollo hospitals in an interview opined that the recently liberalised health insurance sector will be the engine of growth for health care in India (The Hindu, Delhi, 16 December 1999). His vision for the future of this group includes setting up of satellite clinics, medium sized hospitals in order to bridge the gap between primary and secondary care, a network of diagnostic centres and the provision of telemedicine services. Escorts, another health care company, has expanded its operations, though the scale of its operation is smaller than that of Apollo. It too has promoted the idea of satellite clinics and mobile clinics in rural areas in order to screen patients for cardiac problems.

Apart from providing medical care, some of these corporate hospitals have diversified into medical and paramedical education and the training of hospital administrators. However, no standards have been followed in setting up these institutions and there is need for a clear cut policy direction with regard to this development.

The experience of corporatisation does not offer a picture of unmitigated success. Some promoters of corporate hospitals have faced financial problems and are unable to keep pace with the rising cost of care provision. As the promoter of Malar Hospitals in Chennai pointed out, ‘Managing a corporate hospital is not a viable proposition especially in view of the high cost of equipment and manpower.’ Hence, even corporate hospitals have sought government subsidies for financial viability. This demand appears excessive given the fact that the government already offers a number of financial concessions to corporate hospitals in the form of subsidised sale of land, reduced import duties and tax concessions for medical research.



The government has laid down some conditions for providing subsidies which require hospitals to treat a certain percentage of both out patients and in patients free of cost. During the last two years the Delhi government investigated the extent of compliance and on finding non-compliance by major corporate hospitals as well as smaller enterprises has taken the matter to court. An official committee headed by a CBI deputy director recently found that the rate of compliance of private hospitals to tax exemption guidelines on import of medical equipment is almost negligible. ‘According to highly placed sources in the health ministry, the ministry of finance had issued a notification as per which the customs duty payable on expensive medical equipment was waived. The customs duty exemption scheme was crafted to facilitate the state of the art private health care.’ (Observer, Delhi, 26 November 1999).



The dependence on high technology medical equipment has a direct bearing on costs of medical care. The larger hospitals have mobilised capital to purchase high technology medical equipment which has pushed up the cost of medical care. This trend is not peculiar to India and has been observed in the US as well. A recent study of private hospitals in Hyderabad and Chennai shows that the cost of certain surgical procedures is higher in corporate hospitals compared to the medium and small ones. For example, in Hyderabad the median costs for hysterectomy was between Rs 14000 to 23,000 in the corporate sector while it was in the range of Rs 4000 to 6000 in smaller nursing homes. Similarly, corporates charged between Rs 10,000 to 12,000 for a caesarian section, while the cost was around Rs 6000 in the smaller nursing homes. For other specific surgical interventions the cost in corporate hospitals was roughly twice those prevailing in trust run hospitals and smaller nursing homes.3

There is a growing demand from the middle class for both public and private health insurance as individuals cannot afford such high costs. This ‘pull’ factor has definitely been responsible for attracting insurance companies into the Indian health care market. A ‘push’ factor which has forced them to view this market is the recession in the health insurance market in developed countries, particularly the United States. The passing of the Insurance Bill will definitely strengthen the bigger players in the market.



With the passing of the Insurance Bill several American companies have shown interest in tying up with their Indian counterparts. The Wockhardt group of pharmaceutical companies which manage two hospitals in Bangalore, has tied up with six leading American and UK based medical insurance companies. These include Global Emergency Services, Global Medical Management, Medex, Assist America, Bluecross and Blueshield (Financial Express, Delhi, 21 December 1999). The computer software industry has also entered the health care market. It generates software for hospital operations and, using the internet, provides web-based services. Healtheon Corporation, a US based internet firm, plans to make an additional investment of $10 million and is tying up with private hospitals and pharmaceutical companies for providing web-based services. A doctor based in Chennai has taken the initiative to even provide e-mail based doctor-patient consultations. Many of these tie-ups are currently at a nascent stage but will definitely change the character of provisioning and medical practice in the future.

Given these trends, consumer groups have voiced a need for the regulation of medical practice and private hospitals. The questions about how and who can do it, however, remain unanswered. The experience of regulation though varied is limited. Any system of regulation must deal with such parameters as registration of institutions, their physical standards, standardisation of costs, and private practice by government doctors. While attempts have been made to stop private practice, they have not been successful. Apart from framing rules for the functioning of doctors and hospitals, a regulatory framework has also to evolve a policy on the import of equipment and address the question of registration of medical equipment.



Similarly, with the passing of the Insurance Bill, a regulatory framework needs to be evolved for health insurance. The Insurance Regulatory Authority has laid down some guidelines but these need to be reviewed and debated. Basically, what is required is a systemic perspective on the issue of regulation. Merely regulating private hospitals will be insufficient because effective mechanisms need to be evolved to regulate insurance companies, as well as medical equipment, pharmaceutical and software companies.

The recent trends in privatisation have serious implications for public health at several levels. The rise of corporate hospitals has resulted in the marketing of health care as a branded product, symbolised by fancy buildings, well-appointed surroundings and high technology equipment. Indeed, as in the case of most branded products, high cost is projected as high value and made synonymous with quality care. Such developments influence the perception of consumers who associate ‘good quality care’ with high technology and plush surroundings. Although most consumers of corporate hospitals are from the upper and middle classes, the working and farmer classes also access these services since they perceive them as providing quality care. These perceptions fuel certain expectations from public and other private hospitals which may not be able to compete with these larger enterprises.

Privatisation has influenced the perception and practice of the medical professional. With an increased reliance on high technology, there is a greater emphasis on specialisation and a devalued role assigned to general practice. Higher salaries in the corporate sector have resulted in a movement of senior government doctors from teaching hospitals to corporate hospitals. This trend has been observed both in Delhi and Hyderabad where a large number of senior specialists have resigned from government service to join corporate hospitals. They cited better working conditions and salaries as two important reasons for doing so. The emergence of large private hospitals has definitely pushed up the cost of medical care and the marketing strategy has helped project the view that higher cost means better care. In an unregulated market, the consumer cannot be certain about the costs to be borne.



With the growth of private medical, nursing and technical training institutes there is concern about the quality of education and a lack of manpower planning. In Andhra Pradesh, a number of private medical colleges and nursing institutions have been established. However, most of them lack the required staff and infrastructure to train personnel. This will negatively impact the quality of training imparted to medical and paramedical personnel. A number of subsidies have been given by the government to the private sector but their monitoring and implementation is extremely poor. The conditionalities attached to such subsidies must be better enforced and private hospitals made accountable to consumers through transparency in their pricing, billing, maintenance of medical records, among other aspects.




1. Ramesh Bhat, Private Health Care in India: The Public/Private Mix in Health Care in India, International Health Policy Program, Washington D.C., 1995.

2. Ibid.

3. Rama V. Baru, Brijesh Purohit and David Daniel, Efficacy of Private Hospitals and the Central Government Health Scheme – A Study of Hyderabad and Chennai. Report submitted to Union Ministry of Health and Family Welfare, GOI, New Delhi, June 1999 (mimeo); Rama V. Baru, Private Health Care in India, Social Characteristics and Trends, Sage Publications, New Delhi, 1998.