What happens when … a failed healthcare system is opened to FDI

So there are many takers for Indian hospitals.This is very interesting given the fact that India’s healthcare spending as a percentage of GDP (~ 3.9% including private sector, ~1.8% excluding) is one of the smallest in the world whereas it has the second largest population in the world.

In this ‘what happens when’ we explore this scenario a bit. In India the demand is definitely there for healthcare. The supply is skewed towards urban areas and the variance in availability and quality of service is massive, especially when comparing Government run hospitals and private hospitals.

What cannot be argued against is that there is a massive gap between demand and supply with demand far outstripping supply. This gap is likely to further widen as the population ages. This gap, for sure, increases as we move down the wealth ladder.

In theory – investment is supposed to increase the supply (if used to build capacity). But that model works for products more than services. Especially where services are specialised in nature (e.g. MRI scanning, Gamma knife) or require extensive training (e.g. general practitioner, dentist etc.)  or both (e.g. neuro-surgeon, heart specialists, cancer specialists, neo-natal specialists etc.).

Therefore more money in today does not mean more doctors tomorrow. It means higher packages being offered to currently qualified doctors and specialists irrespective of whether they are in the private or public sectors. This would mean an increased demand for a resource in limited supply. In turn, to recoup the higher input costs the hospitals will have to find ways of either increasing their charges, reducing other costs or somehow battle to increase occupancy rates (perhaps by connecting with Health Insurance schemes?). This becomes even more important when we take into account the fact that any investment will require a return. Whether it is over a longer term or short term, fixed or variable.

So it leads to some disturbing conclusions:

1. Brain drain away from the public sector into the private
2. Providers sticking to safe markets (e.g. urban areas)
3. Increased gap between quality and availability of healthcare as the costs rise
4. Rising inequality in terms of access to healthcare
5. Increased reliance on insurance to come in and plug the gap between treatment costs and income (insurance – healthcare provider nexus)

To think positively one can look at the silver lining:

1. It would encourage setting up of integrated medi-cities (treatment, training and research) and expansion of medical education (suddenly all those medical colleges churning out MBBS will have more incentive to expand and improve quality of education – especially if the foreign owned healthcare facilities are more discerning than their local counterparts)
2. There may be some risk takers driven by new investments, who may want to explore newer markets (e.g. smaller cities, villages) and come up with innovative business models for healthcare delivery
3. Increased accountability and a driver to improve medical insurance (the US model)
4. Turning to medical tourism to ‘subsidise’ treatments for locals (in the same way UK universities use foreign students to subsidise home students)
5. Faster and (hopefully) cheaper access to advanced treatments

In all of this the Citizens of India and the Government will have to make sure that they act as watchdogs to make sure FDI does not result in exploitative practices or long term mis-alignment of the healthcare system in India.