PUBLIC HEALTH IMPROVEMENTS THROUGH PRIVATE INNOVATION

By Dipan Patel

Executive Summary:

In a nation where the cost of healthcare is unaffordable for 80% of the population, public health policy must be restructured to be inclusive of the latest business and technological advancements. In India’s tech capital, Bangalore, Narayana Hrudayalaya (NH) care centers have devised dynamic innovations that have allowed for the very poorest to have complicated medical procedures performed for little or no cost. Among the pioneering business practices are the incorporation of telemedicine procedures and a supportive insurance scheme targeted towards low-income patients. By adopting and further developing the practices developed by NH, public hospitals across Rajasthan and other states can better serve those who simply cannot afford to receive healthcare at today’s prohibitive prices.


Statement of Issue:

One need not travel far within India to realize how appalling the conditions of public health care centers can be within this expansive nation. For a great majority of Indians, these care centers, if within reach, are their only option for medical attention. When the cost of basic healthcare is unaffordable for 80% of the population, public health policy must be restructured to be inclusive of the latest business and technological advancements.

As India produces the largest number of children with heart disease in the world and 18% of Indians over the age of 30 are diabetics, having a cardiologist, diabetologist, and neonatologist in as many small villages as possible is imperative.1 Although roughly 75% of Indians live in rural villages, more than 75% of India’s doctors have based their practice in urban and semi-urban areas. As a result of this disparity, most of those in rural India lack access to basic health care facilities. The fact that India’s national government spends only 0.9% of GDP on public health programs and that most of this spending rarely reaches remote areas does not help an already dire situation. Furthermore, when the poorest of Indian villagers are faced with no choice but to visit more urban or semi-urban hospitals, they often spend much of their earnings on travel and accommodation costs. The Indian Institute of Public Opinion learned that 89% of rural Indian patients have to travel 8 km to access basic medical treatment – the rest have to travel even farther.2

Given that more than 95% of illnesses do not require operation, telemedicine could provide the necessary connection between specialists and patients. Much of disease management is based on patient history, data of body fluid, and images – all these can be transferred live via satellite connections.

History of Problem:

The healthcare sector in India has been severely impacted by many major economic adjustments that have been implemented relatively recently in India’s rich history. Among developing nations, India is part of a group that began adopting serious structural reforms to liberalize their economies in the early 1990s. These reforms, among other impacts, opened the nation to more trade and pressured the national government to reduce its budget deficit of approximately INR 1.3 billion.3 As the government began to reduce its expenditures, the healthcare sector began to feel the negative affects of the reduction in spending.4 Though the Indian healthcare system receives financial backing from national, state, and local governments, states are responsible for the creation of sound policies and bear the largest burden, approximately 90%, of public health costs. States must remain dependent on national government contributions to their healthcare sectors since disease control programs, immunization plans, nutrition schemes, and certain components of primary healthcare all fall within the jurisdiction of the national government.5

Though the national government maintains oversight for certain programs, its financial support for state programs has been steadily diminishing. Between 1974-82, health sector grants from the national government to state governments comprised of 19.9% of the states’ healthcare expenditure. Between 1982-89 and 1992-93, this contribution fell to 5.8% and 3.3% respectively. Currently, the government of India spends 0.9% of its GDP on public health initiatives. Perhaps as a result of these significant reductions in government assistance, the private healthcare sector has recently experienced immense change. There is an estimated demand-supply gap of some 3.6 million beds in India. As this is an estimate, it fails to take into account the potential customers who could demand more healthcare if they deemed it affordable.6 NRI (non-resident Indian) involvement is a recent trend that has emerged and seems poised to boost the quality and capacity of the Indian healthcare system.

Though this should not be a permanent funding model, the funds from Indians primarily in the US and the UK have been highly supportive of the development of healthcare facilities in India. Between August 1991 and August 1997, around $100 million (Rs. 3600 million) in foreign direct investment was approved by the Foreign Investment Promotion Board for project proposals in the healthcare sector. Relying on these funds is not necessarily a sustainable practice since first, for a given year, the national government may not accurately predict just how much NRI contributions will amount to and second, a relationship of dependence is created between India and its generous NRIs, when instead India should attempt to more efficiently channel money from its national/state/local budgets, encourage foreign investment, and institute sustainable health care projects in both the public and private sector that bring more investment into the healthcare sector. Also, most of the funds that come from abroad are channeled into New Delhi to help develop more super-specialty and diagnostic centers.7 While this is good, it fails to spread the NRI wealth across the nation or distribute it based on a needs-based assessment.

Since the early 1980s, there has been a significant effort from the private sector to increase its involvement within the health care sector. Companies such as Apollo, CDR, Wockhardt, Medinova, Duncan, Ispat, Escorts, Mediciti, Kamineni, Parkway, Jardine, Nicholas, and Sedgwick are among the companies that have contributed to the corporatization of the healthcare sector. Though most companies seem to focus on the upper-middle income segment of the population that can afford private health care, there are ways companies can better cater to the poorest Indians. As companies currently create special insurance schemes for the Indian market, they should not forget about those at the bottom of the pyramid. Also, most of these companies however, have focused their operations in India’s metropolitan areas.8 By shifting their focus to India’s rural segment of its population and working with the government of India, firms can operate profitably.

Given the high-tech nature of the medical equipment industry, India has been trying to attract investment from MNCs following liberalization. Modern diagnostics equipment dependent on mostly foreign technology has a high obsolescence rate of around 5 years and thus must be replaced often.9 The reduction on import duties on individual components and the high rates of import duties on high-tech finished products (such CT scanners), have encouraged companies to assemble imported components in India. Thus, greater than 50% of total imports of medical equipment (INR 2800 million of INR 4500 million) compromise of locally assembled medical electronics (such as X-ray, ultrasound, CT scanners, patient monitoring equipment, etc.) with the remainder constituting other electronic medical products (such as sterilizers, endoscope accessories, etc.).10

Critique of Existing Policies

What is clear is that the current system of policies and delivery mechanisms have not been able to provide healthcare to all those who desperately need it. Approximately 135 million Indians do not have access to health services. One has to wonder how ambitious the Bhore Committee was when they came together to decide upon one health center for every 20000 people in 1946. Today, there is one primary health care center for every 31000 people. To make matters worse, existing public health facilities operate with a drug budget of INR 1 per capita. State governments have recognized this problem and have started favoring private sector involvement as a means by which to improve.11

Purohit describes two distinct strategies that have become prominent, the first of which is to attract philanthropic private investment without adjusting the bureaucracy of the health management systems in existing facilities. Spending performed by private companies can be claimed as exempted under tax laws. Tamil Nadu, a state in southern India, has applied this strategy. By creating a special division in the state’s Department of Health and Family Welfare, the government has concentrated on providing staff, medicines, and management while the private investors have focused on construction work, maintenance, and providing necessary equipment. These efforts have created a social obligatory pressure on firms providing capital, by creating an environment that rewards donors. In addition, these programs depend on the profitability of companies and a cooperative interaction between the public and private sectors. Attracting private investment on a philanthropic basis provides only two key incentives for a private firm, tax deductions and future profitability. If there is a market fluctuation, this could cause a firm to pull its funds out of the hospital project/program. This potential instability is an issue that states must consider when choosing a private partner.12

The second strategy has been using government funding to allow a private sector entity to handle the management of public sector facilities working on a not-for-profit basis. The state of Maharashtra appointed a committee in July 1997 that created guidelines for transferring primary health care facilities to NGOs. This committee recommended that a grant be provided from the state to specific NGOs capable of taking on these operations. Under this approach, the money that is collected from medical fees is placed into a separate account that is used by the NGO for repairs and upkeep costs. Some states, such as Rajasthan, Punjab, and Himanchal Pradesh, contract specific services within public hospitals to private firms. These services include general sanitation services, laundry, and kitchen services. This has helped cut costs and allowed hospitals to restructure their budgets more efficiently.13 Though with this strategy, one needs the right delegation of power within the bureaucratic framework and mechanisms for coordination. Profitability with some government support and regulation is a much more incentive-based approach that could attract firms interested in participating in an emerging market.

Policy Recommendation

• Public-Private Partnership (PPP)
The point of this brief is to recommend the adoption of public-private partnerships similar to those mentioned above but with important changes. The first aspect that public partners should incorporate more into their practices through their working with a private entity is the increased usage of telemedicine as a means to diagnose and monitor patients in remote locales. ISRO, the Indian Space Research Organization, has taken strides with initiatives aimed at exploring the possibilities of telemedicine applications. One of their goals is making specialized procedures possible to perform via satellite between a base hospital and remote areas of India. Places as far as Port Blair, Andaman and Nicobar islands, Leh, Jammu and Kashmir, and Lakshadweep have been linked to private hospitals in India by satellite technology provided by ISRO. In the span of 15 months, ISRO’s telecardiology program connected 19 remote locations in India and provided specialized care for more than 5000 patients with heart related issues.14

• Telemedicine
The initial successes of ISRO’s telemedicine initiative in addition to technological advances in India, such as the increasing usage of fiber optic cables and expansion of bandwidth, have encouraged ISRO to create a dedicated satellite, named HealthSAT, which would be capable of providing telemedicine capabilities beyond rural India and into poor and/or remote areas of Asia and Africa. In the year 2006, the government of India allocated approximately INR 103 billion for public health expenditures. HealthSAT is projected to cost between INR 600 million and INR 1 billion or about 1% of this budget. Terminals that would be required to link patients in villages to doctors in city hospitals are expected to cost about INR 0.5 million each. Such a system would greatly save potential patients the immense travel and accommodation costs that are often prohibitive for many villagers who need high quality, specialized care. A typical terminal consists of a personal computer with customized medical software connected to specific medical diagnostics instruments, including but limited to an ECG reader, an X-ray machine, or an X-ray scanner. This terminal is used to send digitalized versions of medical images and diagnostic details to specialist doctors through satellite-based Internet connection. When this information is received at the base hospital, an experienced doctor examines the reports and diagnostics data and interacts with the patients and doctor at the remote location to recommend appropriate treatment through a video-conferencing interface. Doctors seem to require only limited training to get the system running and hospital technicians can maintain the equipment. Though short term and contemporary applications of this technology includes teleconsultations and post-operation check ups, the long term applications of a more refined and sophisticated technological standard could allow for once novel procedures that could be made possible with telerobotics such as telesurgery.15

• Spreading Awareness
To complement telemedicine practices, the Narayana Hrudayala (NH) hospital in Bangalore, has implemented practices that can be incorporated into a public-private partnership between Rajasthan and NH. Though NH specializes in cardiac care, there are practices that are pioneered by Dr. Devi Shetty, the founder of the hospital that can be applied to any new primary healthcare center. Among the biggest problems that Dr. Shetty believes that plague developing countries public health systems, is the idea of healthcare being associated with affluence. A paradigm shift is necessary to change this misconception since it leads to providers assuming that the poor are not viable customers and the poorest customers assuming they cannot afford quality healthcare. At the NH hospital, 75% of its beds are reserved for the poor and no one is turned away based on an inability to pay for a procedure as 60% of all treatments are completely subsidized by the wealthier 25% who opt to pay full price for their procedures.16 To aid in the removal of this misconception, radio broadcasts could be used to spread the message of affordability to the poorest of those in Rajasthan and beyond. As a popular means of transmission of information in villages in India, successfully creating a regular broadcast program or segment between popular programs could significantly increase the likelihood of villagers actually mustering the courage to seek quality health care.

• Continuous Investment in Technology
Additionally, technological advances have had a significant impact on NH’s success. As technology itself becomes cheaper and more scalable, NH has been able to cut cost and give the savings back to the poor. One of these programs is NH’s own telemedicine program that has treated 21,000 heart patients since its inception in 2001. Recently, as a result of heavy usage and relentless innovation, the transmission time of ECG data was cut from 48 to 3 minutes by ISRO. The impact of such dramatic improvements in technology literally dictates the operation capability of hospitals17Thus, the continual support from government agencies, such as ISRO, and private partners interested in developing this technology will be key in ensuring even greater drops in price for the usage of such technology and more widespread adoption.

• Application of Economies of Scale
Dr. Shetty immediately realized that the power of the poor lies in their numbers and thus found inspiration for a micro-health insurance plan, named Yeshasvini, which has insured 2.4 million farmers for the equivalent of 10 cents per farmer per month. In addition to a specially tailored insurance program, NH also believes in low margins, large volumes (to apply economies of scale), and cost cutting efforts to best ensure that savings are passed on to the poor. As a more concrete example, diagnostics equipment, operation theaters, and labs get used constantly to reduce the unit cost of each part of the value chain. The hospital does not sign long term contracts with vendors and since it buys in bulk, it maintains a 30-35% discount on much of its equipment and supplies. Also, the hospital remains open 7 days a week to reap the highest return possible from their capital investments. Another difference between a traditional perception of business practices and NH is the belief that one can build successful businesses without relying on stock markets and pressure from stakeholders other than the poor, the public, and/or private partners involved in a given project. Rather than having equity, NH believes in using internal funds, debt, and donations, as they believe these instruments are better suited for the long-term view necessary to successfully run a service business.18

• Collaboration
Finally, collaboration with government (at all levels), NGOs, universities, and other organizations is key to gaining as many perspectives as possible while attempting to cater to the poor. NH’s past projects have included partnership from state governments, NGOs, and MNCs such as Hewlett-Packard, and ISRO. In this approach, one can hold each specific experts, be it a surgeon, manager, or other representative from an organization, responsible for specific junctions in the model from conception to delivery. To add to their list of already impressive operations, NH’s partnerships have allowed it to use vans equipped with echocardiography, defibrillators, and other equipment, which is taken to villages on weekends and used in rural schools converted into temporary heart hospitals. In this “mobile” capacity, NH has treated around 50,000 patients in Bangalore and Kolkata.19

Conclusion
Recent developments in India’s economy have provided both hope and direction for private sector involvement within traditionally exclusively public health facilities. Projects such as Narayana Hrudayala and telemedicine programs have been on the minds of both doctors in the field and entrepreneurs evaluating an emerging market. By bringing both public healthcare professionals and private innovations together, one can easily imagine the possibilities for fruition. As a matter of proof, over the last 5 years, the propagation of telemedicine and cutting edge changes in business models have allowed for greater access to public health facilities for those at the bottom of the economic pyramid. Much more can be done by the adoption and continual support of private innovation and its application within the public arena.

References

Photo courtesy of World Bank Photo Collection, © noborders 2, parrothanging

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5 responses to “PUBLIC HEALTH IMPROVEMENTS THROUGH PRIVATE INNOVATION

  1. Dipan, very interesting and thorough report. Hopefully the technology will continue to spread. It’s such an important subject and very interesting to read about especially as the US begins to reform its own health care. I really like your proposal and agree that a joint public private approach is the most efficient way to approach the problem. As nice as it would be to try to build more health facilities, I think telemedicine is definitely a smarter and quicker way to address the extreme lack of health care. CNN has interesting stories about virtual doctors in the US:

    http://www.cnn.com/2009/HEALTH/01/15/ep.trends.in.ehealth/index.html

    http://edition.cnn.com/video/#/video/health/2008/12/28/cohen.turn.your.head.click.cnn

  2. Dipan,

    Great analysis!

    In this article you did not mention the quality of doctors. do you think that’s an important factor? Armed with telemedicine, uneducated doctors in remote areas will make things only worse, as they will reach and treat more patients. In developing countries such as India, where the average doctor in rural areas is no better than a half qualified nurse in the city. I think educating doctors should also be a priority.

    Thanks.

  3. @ Tara: Thank you for your feedback and those interesting links!

    @ George Donahue: You bring up an extremely important point in mentioning quality of doctors. I too believe that thoroughly educating and auditing doctors in the developing world should be a high priority. Currently, I do not have concrete data on that point, but I am sure there is some truth the contention that there are self-christened “doctors” in India who cause more harm than good.

    Ideally, properly trained doctors would gain a broader reach in their practice by working with technicians–who require relatively minimal training–in rural settings to help administer telemedicine related procedures.

  4. Hey….

    The corruption levels in india scale different heights when it comes to the quality of doctor’s… you see there is a direct link between every Socio Economic issue that india is facing… Admission to a medical college in India is done on the basis of entrance examinations which only pertain to say 30 out of 80 seats for example that the college has, so considering that more than half of them are done in a manner other than a common entrance test is appalling.. but the question here is how then are the remaining seats filled?

    Reservations for minorities and backward classes are through backdoor admissions -wherein one pays to get admission into a college. This is not only restricted to medical arena but all other professional courses offered by most universities and also esteemed colleges.

    The problem herein is that most of the people who get these seats do not get them because of their expertize of scores but because of their minority background, which is unfair to the masses…The prevailing reservation system in India is due to the “VOTEBANK system” as, it is these minorities and backward classes that consist of a majority of the Indian population and politicians turn a blind eye to the consequences of the reservation system…..it is the civilian population that suffers in turn…as the availability of good doctors in cities is scarce and very expensive..leave alone the rural areas…and thats probably why there are so many quacks…poverty has a large role to play in all of this..India is still a developing country

    However, what i fail to understand is why is getting medical help in the US ..which is a developed country so hard ?…why is it that every medical institution denies treatment to people who do not have medical insurance?…monetary gain seems like the prima facie aim here..which is surprising..if such basic amenities aren’t available to people then on what basis is the US called a developed nation?

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