Indian Medical Care Industry: An Overview

ICRA

ICRA Sector Analysis

INDIAN HEALTHCARE SECTOR
Indian Medical Care Industry: An Overview
February 2005

Industry Comment

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 Indian Medical Care Industry: An Overview

Contacts:
Ashish Jain Manager
Rajeev Thakur Research Head
Amul Gogna Executive Director

Date February 2005

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 Indian Medical Care Industry: An Overview

TABLE OF CONTENTS
INTRODUCTION ................................................................................................................................................ 4

THE STATUS OF INDIAN HEALTH ............................................................................................................... 4

THE SIZE OF THE INDIAN HEALTHCARE SECTOR................................................................................ 5

HEALTH POLICY FRAMEWORK .................................................................................................................. 6

MEDICAL CARE INFRASTRUCTURE .......................................................................................................... 9

SIZE OF MEDICAL CARE INFRASTRUCTURE ..............................................................................................9
TYPES OF MEDICAL CARE INFRASTRUCTURE .........................................................................................10
TRENDS IN MEDICAL CARE INDUSTRY .................................................................................................. 15

PROSPECTS....................................................................................................................................................... 17
DEMAND FOR MEDICAL CARE ................................................................................................................17
EMERGENCE OF PRIVATE HEALTH INSURANCE AND ITS IMPACT ON HOSPITALS .........................................18
CONCLUSION ................................................................................................................................................... 20

ANNEXURE 1: HEALTH DELIVERY INFRASTRUCTURE FORMATS IN INDIA .............................. 21

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 Indian Medical Care Industry: An Overview

INTRODUCTION
The World Health Organisation (WHO) defines health as “not merely the absence of disease or
infirmity but rather a state of complete physical, mental and social well being”. The WHO also defines
a health system to include all the activities whose primary purpose is to promote, restore or maintain
health. Taking this integrated view of healthcare, the sector would include:

! Contract research organisations (CROs)

! Pharmaceutical manufacturers
! Medical equipment manufacturers
! Diagnostic service centres and pathology laboratories
! Medical care providers: physicians, specialist clinics, nursing homes and hospitals
! Third-party support service providers (catering, laundry)

This comment is however restricted to the medical care segment in India. It reviews the current
health status of the Indian population, the size of the Indian healthcare spending, the Government’s
approach and policies towards the sector and the size and types of medical care infrastructure in
India. Besides, the report also highlights the key trends in the sector, the outlook on demand, and the
structural and financial impact of the emergence of private health insurers in the country.

THE STATUS OF INDIAN HEALTH

Considerable progress has been made in improving the health status of the population since India’s
Independence in 1947. Table 1 compares some of the basic health indicators of India around the time
of Independence with the most recent estimates. It shows that progress has been made on all fronts.

Table 1: Basic Indicators of Health

1951 2001/2002
Demographic Indicators
Life Expectancy 36.7 65.4
Infant Mortality Rate 146 66
Crude death rate 25 8.1
Crude birth rate 40.8 25
Epidemiological Shifts
Malaria (cases in million) 75 1.79
Leprosy cases per 10,000 population 38.1 3.23
Small pox (no. of cases) >44,887 Eradicated
Infrastructure
Community Health Centres/Primary Health 725 1,63.196
Centres/Sub-centres (nos.)
Dispensaries & Hospitals (nos.) 9,209 37,684
Beds (Private & Public) (nos.) 117,198 1,027,607
Doctors (allopathic) (nos.) 61,800 605.800
Source: National Health Policy 2002, Health Information of India 2002

Another way of comparing the health status of Indian population with that of other countries is using
the Healthy Life Expectancy (HALE). It can be thought of as the expectation of life lived in equivalent
full health. The HALE estimates are made by the WHO using a methodology developed by the World
Bank and itself. The WHO has chosen HALE to judge how well the objective of good health is being
achieved in various countries. Figure 1 compares the Indian HALE with that of other countries. The

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 Indian Medical Care Industry: An Overview

Indian DALE is 22 years less than that in Japan and 11 years less than that in China indicating the
substantial scope for improvement exists.

Figure 1: WHO’s HALE Estimates for 2002

80
70
60
50
40
30
20
10
0

Brazil
Japan

Singapore

Thailand
United

Argentina

China

Iraq

India

Africa
States

South
Source: World Health Report 2004

THE SIZE OF THE INDIAN HE ALTHCARE SECTOR

India spent 5.1% of its Gross Domestic Product (GDP) or Rs 1,408 billion on health in 2003. This
makes health one of the largest sectors of the Indian economy. Figure 2 shows that in terms of
percentage of GDP, India’s estimated expenditure on health is amongst the highest among
developing countries.

Figure 2: Expenditure on Health as % of GDP in Year 2003

16%
14%
12%
10%
8%
6%
4%
2%
0%
Brazil
United

Africa

India

Singapore
Argentina

China

Thailand
States

South

Source: World Health Report 2004

Table 2 presents the per capita expenditure on health in 2001 for the same set of countries as in the
preceding chart. The per capita expenditure for each country has been converted into US dollars
using the official exchange rate and also into international purchasing power parity (PPP) dollars.

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 Indian Medical Care Industry: An Overview

Table 2: Per Capita Total Expenditure on Health in 2000

Per capita total expenditure on Per capita total expenditure Total expenditure on health
health at official exchange rate on health in international as a % of GDP in 2001
(US $) in 2001 dollars in 2001
Argentina 679 573 9.50%
Brazil 222 573 7.60%
China 49 224 5.50%
India 24 80 5.10%
Singapore 816 993 3.90%
South Africa 222 652 8.60%
Thailand 69 254 3.70%
United States 4,887 4,887 14%
Source: World Health Report 2004, World Health Organisation

The table reveals that although India compares well with other developing countries in terms of
expenditure relative to GDP, its absolute per capita expenditure compares rather poorly with that of
other countries. Thus, the absolute per capita expenditure in India is relatively low even though the
amount that the country spends relative to its income is high. Various explanations exist for this.
Some point to the modest but persistent support to develop extensive basic health infrastructure in
addition to significant support for medical education (both in establishing literary infrastructure and in
subsidising fees) and a sizeable public hospital system. Some also point out that the co-existence of
various systems of medicine may also have led to an increase in the amount of private care provided
and consequently household health expenditures. Some studies that compare expenditure on
healthcare between India with that of other countries with a similar disease prevalence rate also
suggest that Indians have a tendency to use medical treatments and spend much more per episode of
illness than their counterparts in other similar countries. Thus, Indians may be historically and
culturally heavy users of healthcare services.

HEALTH POLICY FRAMEWORK

India’s health policy has its roots in the observations of the Bhore Committee, which was appointed by
the Government of India (GoI) in 1943 and submitted its report in 1946. Its key recommendations and
the resultant policy guidelines are presented in Table 3.

Table 3: Bhore Committee Recommendations

Key Recommendation Policy guideline
No individual should lack access to medical care Establish primary healthcare as a basic right
because of inability to pay for it
Health services should be as “close to the people as Emphasise availability at doorstep
possible in order to ensure the maximum benefit to the
community to be served”
! One primary health unit per 10-20,000 population Population based health delivery infrastructure norms
with 75 beds and 6 doctors and 6 public health
nurses
! One bed per 175 population. One doctor per 1,600
and one nurse per 600 population
! One 650 bed hospital at taluka (3 lakh population)
level and one district hospital of 2,500 beds
Compiled by INGRES

Besides, special programmes for major diseases were recommended, all of which were accepted by
the GoI. This led to the development of a large network of primary health infrastructure covering the
entire country. In addition, several national health and disease control programmes were initiated to
control communicable diseases such as malaria, filaria and tuberculosis, vaccine preventable
diseases, and also some non-communicable diseases such as iodine deficiency disorders, blindness,
cancer and diabetes, among others. The progress was periodically reviewed through the constitution
of committees, all of which recommended strengthening of the primary health care infrastructure.

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 Indian Medical Care Industry: An Overview

The country’s first National Health Policy was announced in 1983. The policy’s primary objective was
to attain the goal of Health for All by the year 2000; the policy also specified quantitative targets for
health and fertility to be achieved by that year. The National Health Policy, 1983 strongly suggested
the creation of infrastructure for primary healthcare in the country and also identified the following as
priority areas:

! close co-ordination with health related services such as nutrition, drinking water supply and
sanitation;
! involvement and participation of voluntary organisations;
! provision of essential drugs and vaccines; qualitative improvement in health and family planning
services; and
! provision of adequate training and medical research facilities for prevention/treatment of common
health problems.

Subsequently, the Ministry of Health and Family Welfare, GoI, has announced the National Health
Policy, 2002 (NHP2002). The main objective of this policy is to achieve an acceptable standard of
good health amongst the general population of the country. NHP2002 assesses the current health
scenario in India as follows:

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 Indian Medical Care Industry: An Overview

Table 4: National Health Policy, 2002

Assessment of the Current Scenario Policy Recommendation
State spending on health With health being a State subject, the principal ! Increase the overall expenditure on health to 6% of GDP
contribution for funding of public health is from the by 2010
resources of the States. However, during the 1990s, ! State Governments to increase health expenditure to 7%
the State budgetary allocation towards health of Budget by 2005 and to 8% by 2010
declined. At the same time, the Central budgetary ! Central grants to constitute at least 25% of total health
allocation towards health remained stagnant at spending as against 15% currently
around 1.3% of the total Central Budget. This has
resulted in low per capita health expenditure, which
has restricted the reach and quality of public health
services.
Equity in access to healthcare Wide disparity in health status between States ! Identify primary health sector as the vehicle for reducing
access inequity, thereby increasing access to a vast
number of individuals, and also facilitate preventive and
early stage curative initiative.
! Allocate 55% of the total public health investment for
primary health sector; 35% for secondary sector, and the
rest for the tertiary sector
! Strengthen existing public health facilities and open
additional outlets
Delivery of national public Lack of co-ordination between States and Central ! Vertical programmes in active participation with States
health programmes governments in implementation of national health ! Centre to ensure financial resources, technical support,
programmes monitoring and evaluation at the national level
! Gradually converge all health programmes under a single
field administration
! Continue vertical programmes for control of major
diseases till moderate rates of prevalence are reached
! Programme implementation to be carried out by
autonomous bodies at the State and district level limiting
State health department interventions to overall
monitoring of the achievement of programme targets and
other technical aspects
Quality and efficiency of Low utilisation of public health infrastructure ! Provide essential drugs through Central Government
existing public health funding which would boost utilisation of public health
infrastructure infrastructure
! Levy reasonable user-charges for certain secondary and
tertiary public health care services, for those who can
afford to pay
Medical personnel Shortage of medical manpower in less-developed and ! State governments to recruit a cadre of licentiates of
rural areas medical practice and practitioners of Indian Systems of
Medicine and Homoeopathy to provide simple services
and to perform simple procedures in under-serviced
areas
! Consider using paramedical manpower in allopathic area
to provide such functions
! Simplify recruitment procedures and rules
Role of private sector Limited and unregulated role of private sector ! Enact a suitable legislation for regulating minimum
infrastructure and quality standards in clinical
establishments and medical institutions by 2003
! Issue statutory guidelines for conduct of clinical practice
and delivery of medical service by 2003
! Encourage private insurance instruments to increase
coverage
! Export medical services
Public health facilities in urban Public health services in urban areas are inadequate ! Set up organised primary health structure using
areas appropriate population norms
! Two tiered structure is proposed. The first tier will include
a primary centre with a dispensary (including OPD facility
and essential drugs) for every 100,000 population. The
second tier will include the Government hospital, which
will entertain references made by the primary centres.
! Funding of urban primary health system to be jointly
borne by local self-government institutions and State and
Central governments.
Compiled by INGRES

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 Indian Medical Care Industry: An Overview

Administrative Structure
Under the Constitution of India, public health is the responsibility of the States. The Constitution
includes health in the State List while medical education is in the Concurrent List of public
responsibilities. The administrative structure for health is housed under the Ministry of Health and
Family Welfare (MOHFW) which has three departments, viz. the Department of Health, the
Department of Family Welfare, and the Department of Indian Systems of Medicine.

Health ministries exist in each State. At the level of each district within every State, there is a Chief
Medical Officer (CMO) in charge of rural non-hospital facilities, a District Medical Superintendent
(DMS) in charge of the district hospital and a District Controller (DC) who is the overall head of civil
services in the district.

At the GoI level, the healthcare role is limited to co-ordination and direction because the actual
implementation takes place at the State level. The Central Government, however, initiates and fully or
partially finances centrally sponsored schemes for family planning and immunisation (such as the
National Family Welfare Programme), and the disease control programmes (such as the National
Malaria Eradication Programme, the National Tuberculosis Control Programme, the National Leprosy
Eradication Programme, and the National AIDS Control Programme, among others).

In addition to this, there is also a Central Council of Health & Family Welfare (CCHFW) which includes
the health ministers and secretaries from all States. The CCHFW is the primary advisory and policy
making body for healthcare in the country. The Planning Commission also has a health cell that
supports this advisory and policy making function, besides preparing the Plan-financed scheme for
the sector.

MEDICAL CARE INFRASTRUCTURE

S i ze of Me di ca l Ca re I nfras truc ture

Table 5 presents data on the number of medical care units in India. Data on the number of each type
of unit is available for the public medical care infrastructure (MCI) but is dated (with the latest
estimates being those of 2002). Very little data is available for private MCI. According to available
data, there are around a million beds I the country. However, it is expected that the reported data
understates the number of beds because it does not accurately cover the informal private hospitals
that are present across the country. Accounting for these, an independent study1 put the number of
beds in the country at around 1.5 million in 2001. Working with this estimate, the country has
approximately 1.5 bed per thousand population which compares relatively poorly with world averages.
The Indian bed per thousand population is the same as the average of low income countries and is
less than half of the average of middle income counties. Thus, there is considerable scope of
infrastructure expansion in this area.

1
Healthcare in India: A road ahead, a report by CII- McKinsey & Company, 2002

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 Indian Medical Care Industry: An Overview

Table 5: Medical Care Infrastructure in India – Available data

Government & Private & Rural Urban Total
Local bodies Voluntary
Organisations
1
No. of Medical Practitioners NA NA NA NA 605,800

Sub-Centres (as of March 31, 2001) 137,311 NA NA NA 137,311

Primary Health Centres 22,842 NA NA NA 22,842
(as of March 31, 2001)
Community Health Centres 3,043 NA NA NA 3,043
(as of March 31, 2001)

No. of Allopathic Hospitals 4,048 11,345 2,450 10,284 15,393

2
Allopathic Dispensaries 9,856 12,065 11,045 10,278 22,291
3
Allopathic Dispensary Beds 14,890 14,772 15,671 13,670 29,662
3
No. of Allopathic Hospital Beds 421,279 262,256 59,061 496,268 683,545
4
No. of Beds—All Types 1,027,607
Note:
1. Medical Practitioners registered with Medical Council of India on December 31, 2002.
2. Not the numeric total of rural and urban dispensaries
3. Not the numeric total of rural and urban beds.
4. Not the numeric total of total beds in allopathic dispensaries and allopathic hospitals.
Source: Health Information of India, 2002, Central Bureau of Health Intelligence, MOHFW

The table below compares the health manpower in India to a set of countries and reveals both nurse
and midwife density and physician density compared relatively poorly with middle income countries in
Asia.

Table 6: Health Manpower and Hospital Beds—An International Comparison

Nurses & Midwives, Physicians,
density per 100 000 density per 100
population 000 population
China 104 164
India 62 51
Japan 840 201
Malaysia 169 70
Thailand 162 30
United States of America 773 549
Source: World Health Organisation

T yp e s o f Me d i c a l Ca r e I n fr a s tr uc tu r e

Medical care infrastructure (MCI) in India can be classified on the basis of:

! nature of medical services delivered (primary/secondary/tertiary);

! scope of service (outpatient /inpatient);
! system of medicine followed (allopathy/homeopathy/ayurvedic/unani);
! organisation objective (for profit or not-for-profit)
! geographic location of facility (rural/urban); and
! ownership (public/private/voluntary).

The various types of MCI mentioned are discussed in Annexure 1. The following section discusses
the medical care infrastructure classified on the basis of ownership, that is, public and private.

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 Indian Medical Care Industry: An Overview

Public Medical Care Infrastructure

Rural India
Public MCI in rural India consists of sub-centres (SUBCs), primary health centres (PHCs), community
health centres (CHCs), and rural hospitals, which together are supposed to form an integrated, tiered
referral system. These have been developed in accordance with the norms suggested by the Bhore
Committee and subsequently modified by other committees. The current facility norms for rural MCI
are presented in Table 7.

Table 7: Population-based Rural Public MCI Norms and Number of Facilities

Norm
Sub-Centres ! 1/5,000 population (1/3,000 in hilly / tribal areas)
! No of sub-centres per PHC: 6
PHC ! 1/30,000 population (1/1,20,000 population in hilly / tribal
areas))
! No. of PHCs per CHC: 4
CHC 1/100,000 population
Rural Hospitals No norms
Source: Planning Commission, Report of the Working Group on Health Care Delivery, 1996

In addition to facility norms, specific norms exist for staffing pattern, furniture and equipment for rural
public MCI. However, there are no norms for drugs and supplies. Table 8 briefly describes the three
primary elements of rural public MCI.

Table 8: Description of Sub-Centres, Primary Health Centres and Community Health Centres
Description of Infrastructure
Sub-Centres ! Generally located in a large village
! Serve as the last link in the primary health chain
! Typically one room plus buildings
! Equipment generally consists of kits for delivery, etc
! Norms require two paramedical staff (1 male, 1 female)
PHCs ! Generally located in Panchayats or mandal head quarters
! Generally have 5-7 SUBCs attached
! Typically have a small operation theatre and male and female wards with a total
of 6 beds
! Equipment typically includes minimal laboratory and operating theatre devices
! Staffed by one or two doctors
! Norms require 14 para-medical staff per PHC
! 20-30% have a vehicle
CHCs ! Are usually located in towns with a population of 20,000 and above
! Serve as the first referral hospital and have 3-6 PHCs attached
! Are usually 30-bed hospitals with major operation theatres, etc.
! Equipment includes X-ray machine
! Staffing norms require 4 specialists and 21 paramedical staff per CHC
! 70-80% have a vehicle
Compiled by INGRES

Urban India
Unlike for rural India, no norms exist for facility provision in urban India. The Government hospitals
located in towns and cities provide outpatient services which substitute for some of the similar
functions of CHCs and PHCs. Further, since hospitals are concentrated in urban areas, hospital bed
provision is much higher in urban India than in the rural districts.

Utilisation pattern for Public MCI

The provision of appropriate health infrastructure is a necessary but not sufficient condition for
healthcare utilisation. A number of factors such as economic status, caste, occupation, education and
gender are known to have a great influence on the perceived need for medical care, and the access
to medical care facilities.

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 Indian Medical Care Industry: An Overview

Utilisation of public MCI in India remains low. A study by the Planning Commission2 estimated that,
overall, the rural system is under-utilised by over 50%, relative to its capacity. The National Sample
nd
Survey Organisation’s (NSSO’s) 42 round of survey in 1986-87 and the National Council of Applied
Economic Research’s (NCAER’s) Household Survey of Health Care Utilisation and Expenditure’ in
nd
1993 and other studies3 have also corroborated this phenomenon. In fact the NSSO’ s 52 round
survey conducted in 1995-96 reported a further decline in the public MCI utilisation.

In-patient medical care: Utilisation of public sector MCI for hospitalised treatments has witnessed a
decline over a period of time. According to the “Household Survey of Healthcare Utilisation and
Expenditure” conducted during 1992-93, for 62% of the cases in rural areas and 60% in urban areas,
nd
which required hospitalisation, treatment was sought in public sector MCIs. Further, the NSSO (52
round) survey conducted in 1995-96 reported figures of 43.8% and 43.1% for treatments sought in
public sector MCI in rural and urban areas respectively.

Table 9: Distribution of Hospitalised Treatments by Type of Hospital (1986-87 and 1995-96)

Figures per 1000 population
Type of Hospital Rural Urban
1995-96 1986-87 1995-96 1986-87
Public Hospital 399 554 418 595
PHC/CHC 48 43 9 8
Public Dispensary 5 0 4 0
All Government Sources 438 597 431 603
Private Hospital 419 320 410 296
Nursing Home 80 49 111 70
Charitable Institution 8 17 6 12
All Non-Government 562 403 569 397
Sources
All Hospitals 1000 1000 1000 1000
Source: NSSO 52nd Round Survey, Sarvekshana 2000

Table 9 shows that the utilisation of public MCI marked a sharp decline during the period 1986-87 and
1995-96 for both rural and urban areas. The sharpest decline happened in the reliance on public
hospitals, while private hospitals and nursing homes substantially improved their shares in the
utilisation of MCI.

Outpatient medical care: Figure 3 plots the distribution of treatments by the type (source) of medical
services in India. This table reveals a high dependence on private practitioners in both rural and urban
areas. The percentage of treatments sought from non-Government sources (private hospitals, nursing
homes, charitable institutions, private doctors and others) was reported at 71% in rural areas and
74.1% in urban areas. Percentage of treatments, which were not treated as in-patient of hospital,
sought from private doctors alone amounted to 48.8% in rural areas and 50.3% in urban areas. The
number of treatments sought from the public MCI (public hospitals, PHCs, public dispensaries,
employees state insurance, or ESI, facilities) was reported at 17.5% in rural areas and 16.6% in urban
areas. Thus, in spite of the presence of a relatively extensive public MCI, it is far from being the
dominant source of medical care in rural India. A similar pattern is visible for treatment choices in
urban India.

2
Planning Commission, Report of the Working Group on Medical Education, 1996
3
Household Survey of Medical Care (June 1992)

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 Indian Medical Care Industry: An Overview

Figure 3: Distribution of Treatments (not treated as in-patient of hospital) by type of medical services

60

50

40

30

20

10

0
Rural Urban
Public hospital P.H.C Public dispensary Private hospital N ursing hom e

C haritable institution ESIdoctor Private doctor O thers NR

Source: NSSO 52nd Round Survey, Sarvekshana 2000

Various studies have cited numerous reasons for the lower utilisation of public health facilities in India.
Further, these studies have noted wide differences in the utilisation of Public MCI across various
States in the country. Figure 4 plots the reasons for choice of treatment for non-hospitalised illness
episodes in rural India as reported by NCAER’s Household Survey of Healthcare Utilisation and
Expenditure conducted in 1993. It reveals that most people who sought treatment from public health
facilities did so because the services were available for free. On the other hand, proximity, availability
and good reputation were the main demand drivers for private medical care services. Other factors
that are not specifically highlighted in this study but are known to be important reasons for the
preference for private sector services are lack of qualified staff at public MCI, inadequacy of
diagnostic facilities, and inadequacy of transportation facilities to reach public MCI. The rural public
MCI is known to have suffered from chronic staffing problems for two decades. Although at least
15,000 physicians graduate from the country’s medical schools every year, it is estimated that up to
two-thirds of the medical graduates enter the private sector, largely in urban and semi-urban settings.
4
Further, studies have highlighted that low public MCI utilisation is also the result of disenchantment
with what people receive at SUBCs and PHCs after walking relatively long distances on foot.
Unavailability of professional personnel and inadequacy of diagnostic facilities prompt many rural
Indians to bypass the public MCI altogether with self-referral to urban centres.

Figure 4: Reasons for Choice of Treatment for Non-Hospital Illness Episodes in Rural India
Home Remedy

Faith healer / Religious person

Medical Shop

Private doctor / Nursing home

ANM/MPHW/Anganwadi

PHC/CHC

Government hospital

0% 25% 50% 75% 100%

Inexpensive / Free Close by (proximity) No other facility near by time suitable Good reputation oth

Source: Household Survey of Health Care Utilisation and Expenditure, Working Paper No 53, NCAER

4
A Fine Balance: Some Options for Private and Public health Care in Urban India, World Bank, 1999

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 Indian Medical Care Industry: An Overview

Private Medical Care Infrastructure

It is estimated that there are around 35,000-45,000 private hospitals in the country. The private MCI in
India is highly fragmented but is dominated by small hospitals as depicted in the chart below.

Distribution of private hospitals by

bed size
100-200 >200
beds, 5% beds, 1%

30-100
beds,
10%

<30
beds,
84%

Source: Healthcare in India: A road ahead, a report by CII- McKinsey & Company, 2002

At the most basic level, it includes individual private practitioners who provide primary curative
services. They are present in both rural and urban India and are extremely diverse in terms of the
medical disciplines they follow and the technical qualifications they possess. In urban India, specialist
practitioners sometimes get together to form specialist clinics where a number of them are available
for consultation under the same roof (without any inpatient facility). The next level of care is provided
by small nursing homes with bed capacity ranging from 5 to 100 beds. While these are concentrated
in urban India, rural demand has led to such nursing homes springing up on highways and mandi
towns. These nursing homes are usually owned by doctors and offer OPD, maternity, general surgery
and investigative facilities. Within the nursing home category, there are large variations in terms of
equipment, facilities, range of services and quality of care. The next level consists of large tertiary
hospitals run by trusts or corporates. Quite a few tertiary health facilities have been set up in the
voluntary sector during the past few years. These facilities (run by trusts or corporates or non-
government organisations, that is, NGOs) are located primarily in urban India. The 1980s saw a flurry
of activity in this area with a number of non-resident Indians (NRIs) starting tertiary ventures in India.
Many of these were unsuccessful because of a variety of reasons. The 1990s saw the entry of Indian
companies into the medical care sector with established or soon-to-be established health delivery
infrastructure. Most of these players have focused on large, multi-speciality or speciality facilities
located in large cities.

Economics and Financial Performance

Inpatient medical care is a capital-intensive business. As a thumb rule, the per bed project cost is
estimated at Rs 0.3-0.5 million for a general hospital, Rs 0.8-2 million for a secondary care hospital
and Rs 2-5 million for a tertiary hospital. Given the predominance of debt financing in hospitals, the
capital-intensive nature reflects in the relatively high interest costs. Further, delays in implementation
tend to increase the interest burden, thus crippling the financial position. Further, the cost structure
tends to be relatively fixed in nature, especially in terms of the following cost heads: employee cost
(approximately 15% of sales), power and fuel (approximately 4%) and insurance (approximately 1%).
These coupled with interest and depreciation (5-7% of sales) make sustaining occupancy levels
critical for financial stability.

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 Indian Medical Care Industry: An Overview

TRENDS IN MEDICAL CARE INDUSTRY

Changing demographic profile and epidemiological transition: Table 11: Age-wise population
Improving overall health status and socio-economic pressures have distribution
caused the country’s demographic profile to change. As a result of 2005 2010
the decline in the birth rate, the proportion of population in the 0-14 0-14 33.7% 31.5%
age group declined between 1991 and 2001 and is expected to 15-64 61.6% 63.6%
decline further. On the other hand, improvement in life expectancy 65+ 4.7% 4.9%
has led to an increase in the number of old aged in the population. Source: Statistical Outline of India
These trends are likely to continue thereby leading to an increase in 2004-2005
the proportion of population in the older age groups (refer Table 11).

Changing demographic structure, especially ageing, has important implications for the demand for
medical care. On an average, an increase in the proportion of the older population tends to result in a
higher per capita demand for health services. Further, the type of health services required also tends
to change, with the disease profile shifting towards non-communicable diseases. Figure 6 presents
the type of illness distribution according to age. While fever was the most prevalent illness during the
5
period of survey in the less-than-five age group, its prevalence declined in comparison with other
diseases as we progress to the older age groups. Similarly, gastro-intestinal diseases affect fewer
people as we move towards the older age groups. However, the prevalence of lifestyle-related ailment
increases with a progress towards older age groups. The point is that the illness distribution of a
population is clearly affected by its age profile and therefore, this is likely to alter the mix of medical
care.
Figure 5: Type of Illness Distribution According to Age
100%

80%

60%

40%

20%

0%
<5 5 -1 4 1 5 -3 4 3 5 -5 9 60+

G a s tro -in te s tin a l R e s p ira to ry F ev er

H e a rt / R e n a l U n c la s s ifie d

Source: NCAER

! Increasing presence of corporate sector: Corporate presence in the medical care sector in
India started during the 1980s and was led by NRI doctors who set up projects in India. Prior to
this, private institutional presence in the medical care sector was primarily in the form of charitable
trusts that established large hospitals such as the Bombay Hospital in Mumbai and Sir Ganga
Ram Hospital in New Delhi; besides, there were hundreds of small hospitals and nursing homes
across the country. In contrast to this, the activity during the 1990s was led by medium and large
sized Indian companies and was concentrated but not limited to for-profit large, tertiary hospitals.
Examples include Max, Fortis, Escorts and Wockhardt, among others. The other area that
witnessed increasing corporate presence is diagnostic services where players such as SRL-
Ranbaxy, Nicholas Piramal and Dr Lal’s Laboratories established or enhanced their presence.
Other segments of the healthcare value chain are yet to attract as much interest from the
corporate sector.

5 Household survey of healthcare utilisation and expenditure conducted in 1993.

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 Indian Medical Care Industry: An Overview

While emergence of corporate hospitals on a larger scale is important for the bed-supply deficit to
be bridged, it is even more important for the professionalisation of hospital management. Till
recently, modern management systems had not penetrated most healthcare institutions, with
some notable exceptions. Most hospitals would organise their resources and manpower within
structures that had evolved rather than been designed. The processes would be structured to
ensure multiple points of control rather than patient convenience. Information capture would be
rudimentary and information rarely integrated beyond that required for reporting purposes,
because of which any data-based quality control would not be possible.

With corporate entities entering the healthcare sector, they are introducing managerial practices
and tools, which they had been using for long, in the hospitals that they are promoting. Moreover,
these entities are showing a marked preference for professionals, even for non-clinical and
clinical support functions. This, in turn, is leading to the expansion of the hospital management
education industry.

! Increasing concerns about quality of care: The necessity, appropriateness and efficiency of
care delivered by medical care facilities are increasingly under question. There is a widespread
belief that most facilities “over charge” by way of unnecessary diagnostic tests and by stretching
the patient’s length of stay. The problem is exacerbated by lack of regulation and institutional
pressure to lower cost per illness episode. This has highlighted the need for some form of quality
checking mechanism, either by way of licensing or by accreditation. There has been increasing
interest in the latter with a number of bodies having announced plans for developing an
accreditation service. Further, there are indication that the Government, both at the Centre and at
the level of various States, are in the process of developing suitable legislation to ensure
standards.
! Private players venture into health insurance business: The health insurance market has
been open to private competition to General Insurance Corporation’s Mediclaim since April 2000.
According to the rules notified by the Insurance Regulatory and Development Authority (IRDA),
both general and life insurance companies can offer health insurance. Although various private
players have entered the market, the national insurance companies continue to dominate.
! Day care concept: Internationally, managed care organisations attempt to reduce the average
length of stay of patients in hospitals as a cost containment measure. This has led to the
development of the concept of day care centres with diagnostic and ambulatory care facilities
wherein patients need not be admitted for more than one day. This not only helps hospitals
increase their revenues by increasing the number of patients who can be treated but also helps
them increase the utilisation of operation rooms. For patients, it is less costly, entails a lesser
waiting time and is more convenient as they can return home the same day.
! Foreign alliances: A number of alliances have been forged in the Indian medical care sector.
Most aim at drawing upon the international partners’ skills, knowledge and experience in devising
and implementing a medical care service rather than the latter’s capital.

Table 12: Select Recent Foreign Alliances in the Indian Medical care Sector
Company Partner
Max Healthcare Harvard Medical International Inc, USA
Fortis Healthcare Partners Healthcare System, USA
Birla Heart & Research Centre Cleveland Clinic Foundation, USA
Compiled by INGRES

! Continuing Shortage of Nursing Staff: The shortage of qualified and trained nursing staff is a
factor that is affecting hospitals across the country. Many hospitals have been responding to this
constraint by operating at below-norm nurse to patient ratios, stretching nursing staff working
hours, and even recruiting partly skilled nursing personnel.

! Trend of Outsourcing Services: Outsourcing also happens to be the current trend in hospitals,
especially in non-clinical (such as laundry) and clinical support (blood bank, diagnostic services)
areas. The drivers of outsourcing include the need to focus on core business (micro management
of patient care following the increase in the number of super specialties), lack of space, rising cost
of administration, and eagerness to avoid potential industrial relation problems.

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 Indian Medical Care Industry: An Overview

! Continuing Popularity of the Visiting Consultants Model: The reliance of healthcare

institutions on visiting consultants continues to be strong. This trend may be attributed to the
general shortage of medical professionals practising modern medicine, and the increasing patient
demand for specialised care even for minor ailments. These factors, among others, have also led
to an increase in the charges for specialist care. As a result, many hospitals are unable to afford
specialists as full timers and access them only on visiting consultant basis. It is observed that the
practice of visiting consultants is more prevalent in certain cities where the same group of
specialists visits multiple hospitals. From a grading perspective, the use of the visiting consultants
model throws up an important question: how does the hospital achieve consistency in the
adherence to protocols and promote institutionalisation? ICRA believes that only a few hospitals
(especially in the tertiary care category) have evolved systems to support delivery of consistent
and quality care, while adopting the visiting consultants model.

! Change in Bed Allocation Within Hospitals: ICRA observes that even smaller healthcare
institutions are increasingly allocating more beds for surgical and intensive care (encroaching
upon even the intermediate care areas in the process), at the cost of wards and rooms, perhaps
because of revenue considerations. Moreover, ICRA notes that the smaller institutions continue to
avoid taking up emergency cases, especially the medico-legal ones, and this area continues to be
serviced primarily by Government hospitals, which remain over-loaded.

PROSPECTS
De m a n d for m e d ic a l c a r e

The demand for medical care can be thought of in terms of the following equation:

Population * Disease and injury prevalence rates

Assuming a growing population, the demand for medical care will be a function of the second variable.
International experience and India’s own track record have shown that the prevalence of
communicable diseases declines with economic development, as communities are able to control the
spread of such diseases. However, increasing development brings along a higher incidence of non-
communicable diseases and injuries. Table 13 discusses the impact which some of the major
diseases are likely to have on the Indian population. It is based on the work done by Technology
Information, Forecasting and Assessment Council (TIFAC), an institution under the Ministry of
Science and Technology, GoI.

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 Indian Medical Care Industry: An Overview

Table 13:
Disease Outlook
Opthalmology The annual incidence of cataract, which is the cause of 80% of blindness cases, is 3.8
million cases. The total surgical cataract removal capability is 1.75 million per year. Thus,
unless the capacity expands, the backlog of cases is bound to increase.
Cancer The total number of cancer cases in India was estimated at 924,790 in 2001. This is
projected to increase to 1,229,968 by 2011 and to 1,557,800 by 2021.
Neurological, The current prevalence rate for neurological disorders is 15 to 20 per thousand population.
neuro-surgical The most common ailments are epilepsy, migraine, cerebrovascular disorders, Parkinson’s
and psychiatric disease and peripheral neuropathies. Around 1% of the current population is estimated to
disorders and be suffering from serious psychiatric illnesses, 10-15% have neurotic disorders and 2.5-3%
addictions are mentally retarded. With general improvement in medical care and increasing life span,
age-related neurological disorders are expected to show a considerable rise.
Cardiovascular The CVD mortality rate in India was estimated at 2.4 million in 1990. With increasing
diseases urbanisation, this problem is likely to increase.
Renal disease There are two major causes of renal disease, hypertension and diabetes. These are stress-
and hypertension related disorders and are likely to increase with increasing urbanisation. A cue can be taken
from a study, which showed that hypertension prevalence rate in urban Delhi at 17.4% while
the number was 5.9% in rural Haryana. Another study showed the HT prevalence rate at
1.5% in tribal and rural areas and 15% of all adults in Mumbai. Diabetes prevalence varies
from 1% in rural communities to 9% among city dwellers. The diabetic population in India is
projected to increase from 32 million in 2000 to almost 47 million people in 2010. Only
uncontrolled HT and diabetes lead to renal failure. With more awareness about these
ailments, it is likely that the incidence of renal failure will not increase. Incidence of patients
entering end stage renal disease (ESRD) is estimated at 100 per million population in some
Western countries.
Tuberculosis Total new TB cases are estimated to have increased from 0.92 million in 1991 to 1.1 million
in 2001. The number is projected to increase to 1.42 million in 2021.
Malaria Projected to increase from 2.03 million cases in 2001 to 2.62 million cases in 2021.
Accidents and These include accidents and injuries caused by natural causes (lightning, cyclone, among
injuries others) and other causes such as road accidents, industrial accidents and domestic
accidents. Taking only road accidents, the number is projected to increase from around
86,000 fatalities and 400,000 injuries to 147,000 fatalities and almost 700,000 injuries in
2021.
Source: TIFAC

6
The table clearly indicates that the total demand for medical care in India may be expected to
increase.
E m e r g e n c e of pr i va t e h e al t h i n s u r a nc e a n d i t s i m p a c t on h o s p i t a l s

A decade and a half after Mediclaim was launched, some 2.5 million Indians, or less than 0.5% of the
Indian population, subscribe to it. This rather low subscription base is a result of many factors, the
most important of which are lack of affordability and restrictive policy conditions. Assuming private
7
insurers will address the latter, the former will continue to be a constraint. A study which examined
the willingness and ability of individuals to participate in private health insurance programmes showed
that “most low and middle income households found the premiums beyond their reach, while lower
income households were wary of private schemes and trusted Government schemes”. However, other
8
studies project an insured base of 30 million people by 2005 and 160 million by 2010. The market
may lie somewhere in between. The insured base that private insurers are able to build up will
determine the influence they would have on the healthcare service delivery sector. The other factor
that will determine the influence on supply is the type of insurance model adopted. International
experience has shown that the incentives to “over-provide” care in the indemnity based insurance

6
In economic terms, health could be thought of as a product. The health status of a population can then be thought of as a
function of four variables, viz. healthcare, lifestyle, environment and human biology. Improvement in the latter three could
reduce the demand for health care. On the other hand, worsening of the three could increase the demand for healthcare.
TIFAC projects the incidence rates after considering the health improving / worsening effect of the latter three variables.
7
Paper presented by Indrani Gupta at Health Insurance Conference at the Indian Institute of Management, Ahmedabad, 18-19
March, s2000
8
Asian Health Services

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 Indian Medical Care Industry: An Overview

model have led to high costs and gave way to managed care. Table 14 highlights the key differences
between traditional indemnity based insurance and managed care. Managed care links the insurance
and delivery of services, in effect reversing the incentives of providers that are prevalent in traditional
indemnity based insurance.

Table 14: Key Differences between Traditional Indemnity-Based Insurance and Managed Care
Characteristic Traditional Insurance Managed Care
Choice of provider Plans may restrict the choice of Encourages or requires use of
provider selected providers
Provider payment Offers fee-for-service Pays negotiated rates to providers
reimbursement to providers or re- on per capita basis
imbursement to the members who
pay for their medical expenses
Relation to health care delivery Functions apart from the health Integrates the finance and delivery
system care delivery system system
Financial Risk Assumes all financial risks Shares risk with providers
Cost control measures Offers few financial incentives Creates financial incentives for
providers and members for costs
Relation to service quality Takes little interest in measuring Participates actively in methods to
quality and appropriateness of measure quality and monitor
services appropriateness of care
Financial focus Has no real budget for cost of Establishes budget for cost of
services, simply “pay as you go” services; prepayment of a fixed
premium of a fixed premium in
most cases
Compiled by INGRES

Short-tem impact: Studies in the US have shown that the emergence of managed care is usually
followed by deteriorating financial performance of hospitals in the short run. This happens for two
reasons. First, hospitals that form a part of the managed care organisation and derive a large share of
their traffic through them are forced to reduce costs and share risks. Second, hospitals that cannot be
a part of the managed care structure (because they either choose not to or are not selected because
of their service mix, location or inefficiency) face a reduction in traffic.
9
Long-term impact: Studies in the US have also shown that the emergence of managed care
reduces health care utilisation, especially hospital utilisation, without any compromise on the quality of
care. Table 15 plots the decline in occupancy rates of hospitals in the US during the period 1975-
2000, a period in which managed care enrolment increased many times.

Table 15: Hospital Occupancy Rates in the US (% of beds occupied)

1975 1980 1990 1995 1997 1998 1999 2000
6-24 beds 48.0 46.8 32.3 36.9 35.4 33.2 33.0 31.7
25-49 beds 56.7 52.8 41.3 42.6 40.3 41.2 41.5 41.3
50-99 beds 64.7 64.2 53.8 54.1 54.2 54.7 54.5 54.8
100-199 beds 71.2 71.4 61.5 58.8 58.2 58.4 59.3 60.0
200-299 beds 77.1 77.4 67.1 63.1 61.8 62.9 64.1 65.0
300-399 beds 79.7 79.7 70.0 64.8 63.2 64.7 66.1 65.7
400-499 beds 81.1 81.2 73.5 68.1 68.0 67.3 68.3 69.1
500 beds or more 80.9 82.1 77.3 71.4 69.8 70.9 71.7 72.2
Source: National Center for Health Statistics, U.S. Department Of Health And Human Services

The decline happened even as the country faced a growing and ageing population and was caused
by stagnant number of admissions, a shift towards outpatient services and declining average length of
stay (refer Table 16). As a result, the number of hospitals in the US and the number of total beds
declined over the period 1975-2000.

9
The Economics of Health & Health Care, Folland, Goodman and Stano, Prentice Hall

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 Indian Medical Care Industry: An Overview

Table 16: Operating Statistics of Hospitals in the US

Units 1975 1980 1990 1995 1998 1999 2000
Admissions No. in 36,157 38,892 33,774 33,282 33,766 34,181 34891
thousands
Average No of days 11.4 9.9 9.1 7.8 7.2 7.0 6.8
length of
stay
Outpatient No. in 254,844 262,951 368,184 483,195 545,481 573,461 592,673
visits thousands
Source: National Center for Health Statistics, U.S. Department Of Health And Human Services

CONCLUSION
While considerable progress has been made in improving the health status of the Indian population,
the current status still compares poorly with that of many other developing countries. This is ironical
considering that India spends a comparatively large share of its GDP on health. The country’s policy
towards health has traditionally identified provision of primary health-care as the State’s responsibility
and encouraged establishment of a countrywide, State-run primary care infrastructure. The role of the
Central Government has been limited to family welfare programmes and design of disease control
programmes. The policy has traditionally remained silent on the role of the private sector in the
provision of medical care. Notwithstanding this, the private and voluntary medical care sectors have
developed to meet the increasing demand for medical care services.

The medical care infrastructure in India includes over half a million doctors, more than 15,000
hospitals and over 900,000 beds. The Government runs a multi-tiered, partially integrated medical
care system. The private and voluntary sector is largely fragmented and is dominated by the nursing
home segment. Despite a relatively extensive MCI in the public sector, its utilisation has declined
over time and accounts for 43.8% of all hospitalisation cases in rural India and 43.1% in urban India.
Even in the out-patient medical care segment, the private sector dominates. The inadequacy of
resources in Government-run medical care infrastructure has led to severe under-utilisation of its
facilities (as much as 50% in rural areas) and shifted the demand towards private providers.

The key trends that are likely to alter the demand for medical care services include changing
demographic profile (towards a higher proportion of the aged), epidemiological transition towards non-
communicable diseases, and increasing concerns about the quality of care among users. On the
supply side, quite a few investor-owned hospitals have come up, while the number of foreign alliances
have increased, private health insurers are likely to enter the market and medical care providers are
using information technology to improve the reach of their services.

The demand outlook for private medical care providers appears positive as the current scenario of
demand exceeding supply is likely to continue at least over the next decade. The role of the private
sector is likely to increase as the Government is constrained by its fiscal position and the increasing
preference for private medical care. The impact of the emergence of private insurers will depend on
the number of insured but could cause structural changes amongst the providers. ICRA’s analysis
shows that the emergence of managed care is usually followed by decreasing hospital profitability in
the short term. Over the long term, the dynamics of managed care are known to have led to
decreased utilisation of hospitals, both in terms of admissions and average length of hospital stay,
and to a shift in demand towards outpatient care.

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 Indian Medical Care Industry: An Overview

ANNEXURE 1: HEALTH DELIVERY INFRASTRUCTURE FORMATS IN INDIA

Nature of Medical Major Activities Public MC Formats Enterprise Owned MC Formats Private and Voluntary MC Formats
Service
Primary Care ! Elementary medical and Rural: Railways Rural:
primary health care ! Sub-centres ! Physicians in individual practice
! An initial diagnosis of ! Primary Health Centres ! Primary health centres
patients ailment is made Urban:
! Either a basic cure is Urban: Others ! General physicians
suggested or the patient ! Health posts ! Specialists
is referred to a secondary ! Dispensaries ! Clinics run by various PSUs and ! Free-standing diagnostic facilities
provider for further ! Urban health and family Government departments ! Specialists clinics (where a number
investigation and welfare centres ! Outpatient department of hospitals run by of specialists are available for
diagnosis ! Child welfare centres various large Indian companies consultation under the same roof -
! Juvenile service bureau without any inpatient facility)
! Sub-centres ! Outpatient facilities of nursing
! Primary health centres homes and medium and large trust
and private hospitals

Secondary Care ! Medical care provided by ! Community health Railways Rural:

specialists where centres ! Sub-divisional hospitals (25-30) bed with ! Nursing homes available on
specialists determine ! District hospitals basic diagnostic facilities) highways and large villages/towns
nature and complexity of ! Divisional hospitals (with 100-200 beds and
illness cover the high-volume sub-specialities) Urban:
! Suggest a cure or refer ! Nursing homes
the patient to a tertiary Other ! Medium and large hospitals
care centre
Some large PSUs and Indian companies run
hospitals that are accessible to their employees
and population in the vicinity
Tertiary Care ! Sophisticated care ! Teaching hospitals Railways Rural:
provided by super- ! Zonal hospitals (with 300-400 beds with all None
specialists subspecialties and diagnostic facilities
except for magnetic resonance and high- Urban:
technology tests) ! Large trust and investor owned
Others hospitals
! Same as the explanation under others
above.
! Examples include the Aditya Birla Group
that runs 15 hospitals across the country.

Compiled by INGRES

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 INDIAN TOURISM SECTOR

Report by ICRA Information, Grading and Research Service Page 10 of 22