The High Cost of India’s Private Health-Care Boom

UPSC Syllabus: Gs Paper 2- Issues relating to development and management of Social Sector/Services relating to Health

Introduction

India’s private health-care expansion has improved access to specialised treatment, advanced technology and tertiary care, but it has also created a serious affordability gap. Treatment in private hospitals costs far more than in public facilities, while many public hospitals still lack adequate specialists, diagnostics, medicines and infrastructure. The challenge is therefore not only to control rising private health-care costs, but also to balance private investment, effective regulation, health-care financing and stronger public provision.

Current Status of Health-Care Costs and Financing in India

1. Rapid rise in health-care costs: Health-care costs increased by 105% during 2012–25, exceeding the 98% rise in consumer prices over the same period.
2. Growing per capita health expenditure: Nominal per capita health expenditure rose by around 75% to ₹6,373 by 2022–23, although the real increase was about 20%.
3. Sharp public-private cost gap: Average hospitalisation costs ₹50,508 in private hospitals, almost eight times the ₹6,631 charged in public hospitals.
4. High childbirth expenses in private facilities: Average out-of-pocket expenditure for childbirth is ₹37,630 in private facilities, compared with only ₹2,299 in public facilities.
5. Reduced out-of-pocket share: Out-of-pocket expenditure fell from 64.2% in 2013 to 43.4% in 2023, as government and insurance spending increased.
6. Greater role of government and insurance: Government spending rose from 28.6% to 43.7%, while social security and private insurance spending also increased during 2013–23.
7. Change in payer, not necessarily in costs: Lower out-of-pocket spending mainly shows that others are paying more, not that health-care services have become cheaper.
8. Large differences across States: Per capita expenditure ranged from ₹2,189 in Bihar to ₹13,116 in Keralam, reflecting differences in income, disease burden and public services.

Why Is Private Health Care Becoming Increasingly Expensive?

1. High cost of hospital infrastructure: Land, advanced equipment, intensive care units, laboratories, digital systems and trained personnel require substantial and continuous investment.
2. Expensive specialists and premium facilities: Corporate hospitals compete for senior specialists, sophisticated technology and premium infrastructure, creating a high-cost treatment ecosystem.
3. Pressure to recover investment: Hospitals facing high salaries, costly equipment and investor expectations may seek higher revenues to recover their operating and capital costs.
4. Revenue-linked institutional incentives: Revenue targets, procedure-linked incentives, higher occupancy expectations and greater revenue per bed can influence institutional behaviour.
5. Limited public capacity increases dependence: Public hospitals cannot meet the full demand for secondary and tertiary care, forcing many patients towards costly private providers.
6. Investment remains necessary: Private equity, foreign investors and other private players can provide capital, technology and managerial capacity to expand hospital networks.

What Are the Major Challenges of India’s Private Health-Care Boom?

1. Patients face information asymmetry: Doctors and hospitals know more than patients, who usually cannot independently judge whether tests, procedures or longer admission are necessary.
2. Risk of excessive medicalisation: Financial incentives can encourage more tests, follow-up investigations, hospital admissions and medicines than a patient may actually require.
3. Clinical decisions may be shaped by incentives: Procedures such as Caesarean sections, angioplasties and intensive-care admissions need safeguards where systems reward higher intervention volumes.
4. Investment may create market concentration: Acquiring existing hospitals can reduce competition and raise pricing risks without necessarily adding new beds or health-care capacity.
5. Growth remains concentrated in profitable markets: Investors may add high-end facilities in metropolitan areas instead of expanding services in underserved districts and rural regions.
6. Public concessions may lack clear obligations: Investors receiving concessional land, tax benefits or other support may need enforceable duties regarding affordable beds or public insurance participation.
7. Patients face a difficult service choice: They often choose between under-resourced public facilities and private hospitals that provide advanced care at a much higher cost.

Limitations of the Existing Health-Care Financing and Insurance Model

1. Insurance changes who pays, not the cost of care: Rising government and insurance spending has reduced out-of-pocket expenditure, but health-care costs themselves continue to rise.
2. Fee-for-service payments can increase treatment volumes: When providers are paid for individual services, financial incentives may encourage more procedures, tests and other billable treatments.
3. Provider and insurer incentives remain misaligned: The conventional insurance model can create cost-inflating incentives because providers benefit from more treatment while insurers seek to control expenditure.
4. Insurance does not ensure affordable or adequate care: Without strong public provision and regulation of private providers, expanded insurance can transfer public funds to private hospitals without reducing costs.
5. Outpatient expenses remain insufficiently covered: Consultations, medicines and diagnostic tests form a large part of household spending, making their exclusion a major gap in health protection.
6. Alternative financing models need to be explored:Cooperative facilities and the Accountable Care model can better align provider incentives with prevention, early treatment and lower curative costs.

What Has the Parliamentary Standing Committee Recommended?

1. Standardised treatment package rates: Rationalised package rates can bring greater uniformity to hospital charges while reflecting the actual operating costs of treatment.
2. Mandatory price disclosure before treatment: Patients should receive clear cost estimates and full price information at admission to prevent unexpected or excessive billing.
3. Regulation of routine procedures and diagnostics: Capping charges for selected procedures and diagnostic services can help curb arbitrary pricing in private health care.
4. Cross-subsidisation by large corporate hospitals: Hospitals earning from medical tourism, foreign patients and wealthy individuals should support poorer patients through affordable treatment.
5. Regulated beds for public insurance beneficiaries: Large private hospitals should reserve beds at regulated rates for Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana beneficiaries.
6. Review of foreign investment in hospital acquisitions: Foreign direct investment rules should be examined where acquisition of existing hospitals may reduce competition or increase excessive pricing.
7. Stronger public health infrastructure: Public facilities should expand capacity, recruit specialised personnel and follow Indian Public Health Standards for reliable services.
8. Better protection against excessive billing: A fast-track ombudsman, uniform adoption of the Clinical Establishments (Registration and Regulation) Act, 2010, and tiered quality assurance have been proposed.

Why Are These Measures Not Sufficient on Their Own?

1. Room tariff caps cannot control total treatment costs: Capping room charges addresses only one part of the bill and may not make the overall treatment affordable.
2. Hospitals may shift costs to other services: If one component is capped, hospitals can increase charges for diagnostics, procedures or other services to recover revenue.
3. Hotel-based tariff comparison has limitations: Hospital rooms include nursing, infection-control and emergency support, making direct comparison with three-star hotel tariffs incomplete.
4. Price regulation needs strong enforcement: Package rates and price caps require transparent cost data, independent audits, credible benchmarks and penalties to prevent evasion.
5. Overly restrictive investment rules may affect capacity expansion: Unpredictable regulation can discourage private and foreign investment and slow the expansion of needed health-care infrastructure.

Way Forward

1. Focus on the total treatment cost: Package rates, transparent estimates, standardised billing and audit mechanisms should regulate the full cost of care.
2. Use Diagnosis-Related Groups for hospital payments: Diagnosis-Related Groups can provide predetermined payments based on diagnosis and procedures instead of paying separately for every service.
3. Encourage greenfield investment in underserved areas: India should support new hospitals and medical manufacturing while scrutinising acquisitions that reduce competition or raise pricing risks.
4. Link public support with affordability obligations: Investors receiving public concessions can be required to provide affordable beds or participate in public insurance schemes.
5. Make public hospitals a credible alternative: Public facilities need specialists, diagnostics, medicines, modern amenities and cashless treatment for insured patients.
6. Strengthen primary and preventive care: Early detection and treatment can reduce dependence on expensive hospital care and prevent diseases from becoming more serious.
7. Align insurance with appropriate treatment: Schemes, including Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana, should reward necessary and appropriate care rather than higher procedure volumes.
8. Invest in wider determinants of health: Safe drinking water, nutrition, women’s education, clean air, hygiene and physical activity can reduce future demand for curative treatment.
9. Increase and better distribute public spending: Public investment must rise without shifting excessive responsibility to fiscally weaker States, which could widen regional inequalities.
10. Integrate all parts of health-care reform: Investment, staffing, medicines, referral systems, insurance design and price regulation must progress together for lasting affordability.

Conclusion

India must balance private investment, effective regulation and stronger public health care. Price caps and insurance expansion alone cannot control rising costs or ensure affordable treatment. Public investment must create reliable health-care alternatives, while financing and regulation should align provider incentives with patient needs. The ultimate goal should be a system where every citizen receives necessary, appropriate and affordable care.

Question for practice:

Discuss the key factors behind the rising cost of private health care in India and the measures needed to make health care more affordable.

Source: The Hindu; epw