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25 Jun

The Great Indian Fear Factory: The Healthcare System

As I write this, India has had 28+ Million cases for COVID19 and over 300,000 Deaths. But this writing is not about that. It’s about the fact that all across India, EMPLOYERS are scrambling to organize and pay for vaccinations for their employees — driven by, one part business exigency, one part corporate altruism, and two parts HR strategy. (Full disclosure: We are one such company helping over 150 large companies across India in this endeavor).

From “Covid War Rooms” made up of company volunteers to emergency helplines for their employees to seek resources that we Indians took for granted — Hospital beds, oxygen, and plasma (blood); Indian companies have outdone themselves in showing their employees that they “care”. The question is, why should they? Why should it fall upon the employers only to care for their employee health, during these pandemic times?

The economic impact of this pandemic is well discussed, but what this pandemic has done is blow-open the lid on Indian healthcare and how our elected governments over the last 75 years, have under-invested in developing the country’s healthcare framework.

Before I stepped into this industry, I was shocked to know that India spent just 1 to 1.5% of GDP* in the previous years on healthcare and just 0.68% of GDP as per the Union Budget for 2021–2022*. Yes! Read that again — just 0.68% of GDP.

India is one of the countries with the lowest public health spending. Even countries like Nepal, Sri Lanka, and Bhutan spend 1.1%, 1.6%, and 2.5% respectively*. This is when the 2021 Economic Survey clearly stated the importance of increasing public health spending to 3% of the GDP (we need it to go to 5%) could significantly reduce Out-of-Pocket Expenses (OoPE) in healthcare from 63% currently to about 30%. Incidentally, WHO’s health financing profile for 2017 for India shows that 67.78% of the total health expenditure was paid out of pocket and this is when India has grown at an average of 8% every year for the past few decades.

Did I mention that OoPE accounts for over 63% of the Indian Healthcare industry (as compared to 18% globally) and was at a staggering $45 Billion each year according to the 2016–2017 National Health Accounts Estimates? That’s $45 Billion that Indians pay from their pocket (not paid by insurance), each year to pay for their healthcare, from their savings, selling personal possessions, or borrowing from employers, friends, and family. OoPE on healthcare expenditure burdens not just the poor but also the middle class of this country.

How did we get here? What led to this bedlam? The answers lie not in the present but the history of the Indian healthcare system.

The Genesis — The Decaying Indian Healthcare System

Let’s take a quick trip down memory lane and understand the pillars of our healthcare system, which was envisaged right after independence in 1947.

In 1885, there were 1250 hospitals and dispensaries in British India. Then with a slow progression, India built up 7400 hospitals and dispensaries in the country right before independence, with India’s Ministry of Health being established immediately thereafter in 1947.

The architects of the new Republic formulated a three-tier medical system that would cover people living in all regions and topographies of India. These three tiers were to include primary care for villages, secondary care for semi-urban centers, and tertiary care for bigger cities that would also offer specialized treatments.

Over the years, emphasis on tertiary care took precedence. The government under-invested in building more hospitals and our public healthcare facilities began to crumble due to insufficient staffing and infrastructural woes. While we doubled our per capita public expenditure on health from Rs. 621 in 2009–10 to Rs. 1,112 by 2015–2016; to date, for a country that houses 1.3 Billion people, the per capita public spending on health is just Rs. 1657 or about US$ 22 (National Health Accounts Estimates 2016–2017). If you compare that to a similarly populous Country, China’s per capita public spending healthcare is about 4237 Yuan or approx. Rs. 48,115 or about US$ 660*.

So while successive governments ignored developing the healthcare infrastructure, private healthcare providers moved in quickly to fill in the gap. The first private hospital, in free India that was set up, was the Sir Ganga Ram Hospital in Delhi in 1954. Since then, the emerging market (EM) private hospital market is expected to triple to US$ 240 Billion, driven mainly by India. The hospital sector contributes nearly 70% of the US$ 81 Billion healthcare industry in India and during 2019–2020, the private hospitals market is estimated to have seen a nearly 27% CAGR. Staggering, to say the least!

Yet, a Merrill Lynch report states that bed penetration in India is as low as 1.3 Beds per 1000 People. This is significantly lower than the global median of 2.5 Beds per 1000 People. When it says “global median” keep in mind, it includes some of the poorest countries in the world.

Is it any wonder then, that we’re seeing this bedlam since being hit by the pandemic last year?

The Health Insurance problem

Health Insurance was traditionally known as a “tax-saving” option in India. It was the kind of thing that your family Chartered Accountant prescribed when filing your annual tax returns. Managing health risk was diametrically opposite to an Indian’s desire to manage financial risk. Just think back to all those uncles advising you to start a “PPF Account”, but none ever asking if you have health insurance.

With only a significant minority of the Indian population being insured, the rest just pay for healthcare by selling things like their buffalo. Yes, you read that right. I’m not trying to be facetious — Search online for “selling a buffalo for a brain scan”.

But what’s shockingly illuminating is that the ones that do have health insurance are severely “under-insured”. The average insurance cover per family in India is just Rs.9 Lakhs and that usually covers the entire family — which means that any claim by any one family member affects the other’s health risk coverage.

Now, here’s the significant part: A majority of Indians depend solely on their employers to provide for their healthcare needs. The Indian Employers usually provide a ‘Group Health Insurance’ policy cover, under the garb of “Employee Health Benefits”. What they do not realize is that the insurance provided for by the Employer is likely to only pay for about 40% of an employed Indian’s healthcare needs, during their working life. That just simply means that, that individual will get added to the other pool of non-insured to pay from their pocket for healthcare. There’s more to this piece of the story, but more on that next time.

My thoughts around possible solutions

1. Provide benefits to investors investing in setting up and building private hospitals and primary care centers. Similar to the benefits that the Indian IT sector got for many years. GOI can get commitments in return — employment generation, base pricing for basic services, etc.

a. Benefits? A massive increase in bed capacity per 1000 people.

2. Capital gains waivers for VCs and PEs investing in Health-Tech. I admit I have an ulterior motive in this. But at the risk of seeming to be self-serving; companies like QubeHealth are democratizing healthcare, by providing access and understanding of the complicated Indian healthcare system.

3. Increase spending as a percentage of GDP, in healthcare to 3+% This is as obvious as it gets. Create a special task force that focuses on this like the team that set up AADHAR across India.

From these three, I am most optimistic about the first, hopeful about the second, and skeptical about the third. I look forward to seeing how things unfold over the next decade.

Qube Health
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