Economic Survey 2021: Government’s Focus on Free Market for Healthcare?

“The recent COVID-19 pandemic has emphasised the importance of the healthcare sector and its inter-linkages with other key sector (sic) of the economy. The ongoing pandemic has showcased how a healthcare crisis can get transformed into an economic and social crisis.” The chapter on healthcare in the Economic Survey 2020-2021 starts with these lines. The chapter is titled “Healthcare takes centre stage, finally!”, almost impling that the Union government had been waiting for a reason to allocate more funds to healthcare.

The Economic Survey acknowledges the poor condition of the public healthcare system – lack of human resources, low budget allocations, deplorable inadequate manpower – but fails to concretely outline the solution to these problems.

More and more people are slowly becoming dependent on private healthcare providers despite an increase in the number of public healthcare providers. The Survey says, “While the share of public institutions has increased both in hospital and outpatient cares, the private sector dominates in total healthcare provision in India. Around 74 per cent of outpatient care and 65 percent of hospitalisation care is provided through the private sector in urban India.”

The Survey uses data from PMJAY to understand the difference in quality between public and private sector service providers, and concludes that the quality of treatment in the private sector may not be significantly better than that in the public sector in India. However, this does not explain why a majority of the Indian population, including people from the poorer sections, choose private sector providers over public sector ones.

INFORMATION ASYMMETRY AND ITS AFFECT ON HEALTHCARE

The patients, while availing services from healthcare providers, are not always able to readily evaluate the outcome. Especially patients who must undergo invasive procedures like an open-heart surgery may find it very difficult to evaluate its quality and have to therefore rely

on the reputation of the hospital or the doctor as a proxy for the quality. For some services such as preventive care and mental health, patients may never know for sure whether their provider did a good job. This creates an asymmetry in the amount and value of information available to the patients and their families, which has far-reaching effects.

India does not have policies in place that require transparency from healthcare service providers. According to the Economic Survey, this information asymmetry creates market failures and thereby renders unregulated private healthcare sub-optimal. It adds, “When little information is available on the quality of a product prior to purchase, and the quality of the product is uncertain, quality deteriorates to the lowest level in an unregulated market. While reputation can partially mitigate this market failure, the design of healthcare systems must account for this market failure, which can otherwise lead to loss of consumer faith and resultant under-investment in healthcare.”

However, while the Economic Survey 2020-21 does not fail to acknowledge the problems caused by the existing policies, the solutions it talks about are not the ones that will curb the dominance of private healthcare providers in the market and make services accessible for the poorer sections. It does not talk about how to decrease the ever-growing out-of-pocket expenditures on health, except that increasing the spending on health to 2.5-3% of GDP from the current 1% might decrease the out-of-pocket-expenditures from the current 65% to 30% of overall healthcare spend.

The Survey points out that the Quality and Outcomes Framework (QOF) introduced by the National Health Service (NHS) in the United Kingdom 2004 as well as other quality assessment practices in various countries have helped regulate market failure caused by information asymmetry, and recommends implementing a similar framework in the country. It says, “Finally, given the information asymmetries that make unregulated private enterprise suboptimal in healthcare, a sectoral regulator that undertakes regulation and supervision of the healthcare sector must be seriously considered.”

However, after outlining all the reasons why the free market model for healthcare has repeatedly failed in India, the Survey says, “Given these market failures, a free market where individual consumers purchase services from providers on their own while paying at the point of service leads to severely sub-optimal outcomes including demand that can be influenced and induced by suppliers, over-seeking of hospitalization and under-seeking of primary care/public health when compared to economically optimal levels, and catastrophic out-of-pocket spending in part due to the low preference for health insurance.” The Union government fails to acknowledge that it is probably the free market model that has caused the healthcare system to deteriorate to this point, and not the particular structure of it.

The government, on the one the hand, accepts that the framework public healthcare system is crumbling because of the lack of resources and infrastructure and manpower, and can only be strengthened with a higher allocation of funds, but on the other hand, all through the Economic Survey 2020-21, talks about investing in tertiary healthcare, and strengthening the insurance model, which is to say that even if the allocation for healthcare is increased to 2.55% of the GDP, most of the money will go to private insurance providers or to private healthcare service providers. It does not talk about how to address the growing gap between utilisation of private and public service providers, only about regulating the private providers and introducing a sectoral regulator to help maintain the free market better. 

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