Health insurance in India is headed toward a big bang deregulation. Providers will soon have to scramble to adapt to a new set of market conditions.
Officials hope the gradual liberalization of India's economy is likely to unleash strong growth, which in turn is expected to translate into rising demand for healthcare services. India's well-traveled middle class will insist on a quality and quantity of services comparable to what it sees in the West and other advanced Asian countries.
"Today, the healthcare business in India is like a sleeping giant that needs to be urgently roused from its slumber," says Nimish Parekh, managing director of Sedgwick Parekh Health Management, a Bombay-based managed-care services organization.
The Indian healthcare economy is now estimated at $17 billion. The country's entire gross domestic product is $400 billion. (All figures are in U.S. dollars) Healthcare makes up much less of the GDP, as well as a lower share of personal income, than in the U.S.
Expected to grow by about 13% per year for the next six years, the healthcare sector is considered by many investors as India's next big business opportunity. No wonder Aetna and Cigna Corp. are looking for local partners and a national presence.
Until now, health insurance as Americans understand it has been largely unknown in India. In its place have been a variety of weak government programs and some employer-based managed-care services organizations, which resemble a company bill-paying service more than a true insurance or managed-care product.
The advent of private health insurance, expected next October, promises to turn Indian healthcare inside-out. "For the next three years," Parekh says, "we expect an upheaval in the Indian healthcare market. The biggest challenge is posed to providers."
Despite a large network of government dispensaries and hospitals, most of which provide free or subsidized services, many Indians prefer to use private healthcare facilities and providers. Studies by India's Central Bureau of Health Intelligence show a majority of Indians want private healthcare, even though the consumer must pay substantially more for it. In the aggregate, private healthcare would cost each Indian the equivalent of $4.40 per year, compared with $2.80 for government-owned healthcare. The figure covers primary care but not hospitalizations.
These amounts may sound ridiculously low to Americans, but 80% of India's population of about 1 billion people lives at close to a subsistence level. These aggregate figures are averaged across a population for which averages often don't describe the scene well, because economic and social disparities within the country are so large.
The middle class would pay more for health insurance, of course, but the middle class--roughly 150 million people--is tiny and a world apart from the national norm.
Few enjoy benefits. Two facts dominate the Indian health system. First, most Indians are not covered by healthcare benefits, aside from what they can get for free or through subsidy in government dispensaries. Indians pay out-of-pocket for doctors' charges. But when serious illness strikes, many are unable to afford inpatient hospitalization. Insurance market deregulation would affect primarily hospitals.
Second, healthcare costs are rising at an alarming 22% to 25% per year in metropolitan areas in India, so access to quality private healthcare will decline unless people find alternate means to pay for it.
The entry of private insurers and managed-care companies, domestic and foreign, changes the picture entirely.
"As a result of privatized insurance coming in, many more people will be able to access the private healthcare system," says Prathap Reddy, M.D., chairman of the Apollo Hospitals Group, the largest private healthcare provider in India. Its network of hospitals has about 3,000 beds at 11 locations. During the next decade Reddy expects 15% of the now-uninsured--or about 140 million people--to be able to afford health insurance. That compares with today's coverage of less than 5%.
Reddy says his estimate is conservative. Most Indians will not be able to afford private insurance, which will apply primarily to the professional class. Reddy believes a 5% chunk of the population will get insurance in the next three to five years, and another 10% will get it in the second five years.
Slow to change. So how are providers reacting to these imminent changes?
"Larger hospitals like ours don't expect too much change in the next five years," says Ashok Bhatkhande, M.D., administrative director at Bombay's private 175-bed Breach Candy Hospital. "In fact, we expect that as people's incomes increase, the demand for services in the premium healthcare segment will rise, too. Today we cater to a rich South Bombay crowd. Tomorrow, with private insurance coming in, we could extend our services to middle-income people, too."
Breach Candy has a good reputation. Bhatkhande is confident the number of patients will grow as the middle-class becomes able to afford the hospital's services. His bright outlook for big private hospitals may be accurate given that India has a demand for hospital beds that far outstrips supply.
In the long term, Bhatkhande is concerned about increased competition as more hospitals are built to meet the need.
"We need 80,000 hospital beds to be added per year for the next 10 years to bridge the gap between demand and supply in India," Reddy says.
But Joe Curian, chief executive officer of Bombay's private 350-bed P.D. Hinduja National Hospital, is more realistic.
He predicts a scenario that follows the pattern of the U.S. and Canada during the past decade. "If private insurers manage to mobilize the markets better, initially the provider network will not be able to keep pace with the needs of the newly mobilized market because of the shortage of beds. But in seven years or so, we will see a tilt in the balance of demand and supply against the provider network. Then, private insurers and managed-care companies will call the shots," he says.
Certainly, hospitals are worried about that. The U.S. experience with managed care looms large in the minds of Indian healthcare providers. They worry about cost containment, direct payments from insurers and general arm-twisting by managed-care networks. (Under Mediclaim, the government insurance plan, patients pay their bills directly to providers and are later reimbursed.)
"Managed care in India will not be what it is in the U.S." Parekh says. "There will be a local evolution by which we'll adapt some basic philosophy of managed care to local situations and parameters. If there's one lesson we have learned from the U.S. experience of managed care, it is that partnerships between managed-care companies, insurers and providers work better than attitudes of confrontation."
Deborah Gray, of the Group Strategy and Development department at the BUPA Group, a British insurer, seconds that opinion. "Healthcare management models currently in use in the U.S. or Europe cannot simply be replicated in India."
Pieces of managed care. In India, the best model may well incorporate some managed-care techniques. But cost containment cannot be the exclusive goal. Quality control will also be necessary.
"Providers will have to get disciplined, quality-driven and cost-efficient in order to take advantage of the new scenario," Reddy says. "Hospitals will have to pay close attention to their clinical and surgical outcomes, for this will be a determining factor in attracting business from private insurers and managed-care networks."
Most private hospitals in India don't have established quality benchmarks or standards of clinical care. There's usually a huge discrepancy in pricing, depending on what the local market will bear.
"Indian hospitals will have to put their house in order and become more accountable," says health researcher Sunil Nandraj, who co-authored a World Health Organization study on developing a framework for an accreditation system for private hospitals and nursing homes in Bombay. "They have to put in place guidelines, protocols and standards of care. The process of accreditation has to be commenced," Nandraj says.
Paul vanOstenberg, executive director of international accreditation at the Joint Commission on Accreditation of Healthcare Organizations, says that "from a number of different vantage points there's a lot of discussion on accreditation in India. But as far as I know, there's no commitment from the government or private industry to move forward."
The German development bank has been working with some insurance companies to establish an independent quality review in conjunction with insurance, he says. Also, the U.S. Agency for International Development has visited India to see what opportunities exist.
Joint Commission Resources, the accrediting agency's consulting arm, has been contacted by an Indian philanthropy and is awaiting an invitation to visit India this summer, vanOstenberg says.
Price surge ahead. The effects of insurance deregulation will flow like a growth hormone through the bloodstream of the hospital industry. Not only will deregulation affect services, accountability and organizational development, it will reconfigure hospital pricing completely.
"I suspect hospitals are going to jack up rates initially once private insurers enter the market," Nandraj says.
Bhatkhande confirms that view: "Hospitals in India currently operate with very low margins. In fact, we undercharge at the hospital level for procedures that involve high technology because the market can't afford it. So if privatized insurers are paying the bill, we will increase charges."
But managed-care companies say hospitals will eventually have to adjust to cost-capping and fixed rates.
"There's tremendous need for rationalization of prices," says Nayan Shah, M.D., managing director of Paramount Healthcare Management, a managed-care services organization based in Bombay. "Hospital bed rates range from $3 a night to $300. Surgeries like a heart bypass could cost anything between $3,400 and $10,000."
Eight months ago Paramount tied up with Munich Re, the world's largest reinsurance company, to provide managed-care services in India. Munich Re, which owns Mednet, one of the largest managed-care services organizations in Europe and the Middle East, has a one-third stake in Paramount. Paramount has 55 corporate clients and 690 hospitals in its network.
But will providers agree to fixed costs? Yes, if the deal is good for them, says Shah, who has set up a network of 20 ophthalmologists in Bombay.
"Cataract surgeries typically cost between $90 and $900. We convinced these ophthalmologists to fix the rate of a cataract surgery at $340 for our clients," he says.
"As long as it's a customary and reasonable charge, doctors are agreeable because we in turn bring them volumes," says Shah, whose company last year did business worth $2.5 million with hospitals around Bombay. "Every provider is looking at volumes of business today, and so they welcome being part of a managed-care network. "
Small providers will benefit the most from networking. Unfortunately, they are the least prepared for managed care.
Nursing homes will play a critical role in meeting bed capacity and keeping costs down, says Virsen Ruparel, M.D., immediate past vice president of the Indian Medical Association in the state of Maharashtra. "But neither they nor individual healthcare practitioners have understood the full implications of the new scenario. They need to start standardizing their procedures, doing proper recordkeeping and organizing a network among themselves."
Providers are also beginning to realize they need modern integrated hospital information systems and to attract the right managerial talent for hospital administration.
"Long-term provider success will depend on consistently good quality of care to patients," says Curian of Hinduja Hospital. "Standardization will only lay down a minimum criterion of care. The winners will be those who regularly exceed those criteria."