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How SFO is Financing India's HealthCare Sector for Scaling Up Critical Infrastructure Needed To Fulfill People Aspirations

  • Financing healthcare in India is tricky due to a myriad of socio-economical factors and it needs to be looked at from two aspects: (a) financing of capital costs i.e. creating healthcare infrastructure and; (b) financing delivery of healthcare.
  • With regard to capital costs, it can be addressed in three buckets. First, there is pubic sector expenditure that is incurred by the Government. Examples include AIIMS hospitals, state and municipal medical college, primary health centres, etc. Second is the charitable trust format which are donated by seeking grants. Before 1990, most Indian hospitals were built by charitable trusts and societies. Only after the advent of Apollo Hospitals in 1986 that healthcare started to lean towards private healthcare. India should not lose focus of the charitable trust era as it has become mandatory for most corporates to spend 2-3% of profits on CSR activities. It is mainly diverted towards education but healthcare will become a focused agenda in future.

Gaps being filled by the Private Sector

  • Third and last is healthcare infrastructure created by the private sector. It leverages structured financing that happens through debt or equity chiefly. Post-COVID, Government has come up with schemes to bolster financing structure by reducing interest rates for hospital projects. This is a welcome move because hospitals were also getting funds through debt at the same interest rates as more profitable ventures like pharmaceuticals, software parks and real state. It is clearly known that hospital industry does not as much make profits in comparison. Hospital project financing where funds were available at an interest rate of 9.5-10% today are available at 6-7%, is a relief because interest was one of the key expenditure element; and hospitals were not willing to look at Capex through debt financing. This will also encourage equity to flow into healthcare, making more entrepreneurs enter the sector.

Scope for Foreign Exchange Borrowing

  • Government should also look at giving guarantees for any foreign exchange borrowing towards hospital projects. One example is that of Japan that lends through development banks like Japanese International Co-operation Agency (JICA) and Japan Bank for International Co-operation (JBIC). They lend funds at 2% interest but it has to be returned in Japanese currency (yen). Adding the arbitrage for this long term financing, requires to factor in the currency fluctuation. Hence, the end repayment happens close to 7-8% interest instead of 2%. If Government stands guarantee to this fluctuation of currency, it becomes a good source of financing. Government is already doing so for Indian projects upto INR100 crores in the post covid times to attract investments in the sector.

Making healthcare accessible to all

  • When it comes to financing healthcare delivery, the Government has done its bit by launching schemes like Ayushman Bharat at the national level. Beside the PMJAY, central government health schemes (CGHS), schemes for armed forces, ESIC, most states run their own health programs. However, all schemes have different packages, rates, management, and hence are running in vertical silos. There is a need to horizontally blend schemes together. The funding of schemes is different for each which can be channeled horizontally. All schemes should have a similar pattern to reduce bureaucratic hassle of running them in silos. Why should one state pay more for bypass surgery than the other is a question that one needs to ask. One should take the best practices of all schemes and try to horizontally integrate.
  • Secondly, the schemes target poor socio-economic strata, armed forces and Central Government personnel. Thus leaving the salaried class out of the gambit. To make health insurance more affordable for them, Government should think of co-paying insurance premium or making healthcare costs of insured population lower than what it is. Insurance premiums over the last 10 years have skyrocketed. That said, Indian hospital billings are lower than international counterparts like Singapore, USA and Europe. Co-payment can be a way of looking at it. For example, in Australia, part of health insurance is paid by federal Government and a portion is bought by people who can afford it.

Public Private Partnership: The way forward

  • Other way of amalgamating both capital expenditure and healthcare delivery financing is public-private partnership (PPP). In Australia in a World Bank-sponsored study tour, they came up with PPP format for a government hospital in Port Macquarie that was running well. Government provides a certain portion of OpEx, building and medical equipment; and in return, the private sector promises a fixed amount of volume of patients to be treated, pre-booked by the government for its insured population. The balance capacity can be utilised by the private sector for its purposes.
  • We have also done one study for Andhra Pradesh Government on a PPP model, where the radiology department of district hospitals in smaller towns were outsourced. Private sector was called in and the bid was on what was the lowest price that you do a CT scan or a MRI. Bare minimum limit was decided by the government. PPP foray helps especially to take healthcare to hinterland India. Even the Uttar Pradesh government has recently come up with a tender for 13 districts medical college hospitals on a PPP format.
  • An effective and tangible method to reduce cost of delivery is to harness technology to its fullest extent. For example, telemedicine can be leveraged to address the paucity of radiologists in rural areas.

How SFO Is Financing HealthCare In India

  • As part of our commitment towards achieving SDGs, we are expected to ensure healthy lives and well-being for all of all ages. However, SDG1, which calls to “end poverty in all its forms everywhere” could be in peril without UHC, as almost 90 million people are impoverished by health expenses every year. In India, we run a higher risk of impoverishing our people as more than 50% of healthcare expenditure is met by families themselves, with 60% of rural and 40% of urban families are having to borrow, sell assets or ask for contributions from family and friends to meet hospitalization expenses. Even with this knowledge, the growth in government spending on healthcare has been just about enough to beat inflation.
  • It has been obvious for many years that the Indian private sector does not have the risk capital required for infrastructure services that entail a long-gestation period and scale. The Indian financial system is equally constrained in this respect. In addition, we need to recognise that the cost of provision of healthcare services through the private sector is higher.
  • In addition to economic reasoning for higher government investment, there is a moral argument for government investment in healthcare. Given that our economic policy choices are shifting risk to individuals and households are promoting urban areas as core centres of economic activity where the quality of air is at best poor and living conditions pathetic, it is the moral responsibility of our political and economic leadership to build and sustain healthcare infrastructure and services till an average Indian is in a position to finance them from her or his earnings.
  • However, in the face of a lack of resources for health, the author argues that the government has chosen to absolve itself of the responsibility of raising resources for public welfare. And even when it does, it uses an inappropriate choice – raising indirect taxes (which is regressive) and providing relief in direct taxes. While the central government spends about INR 60,000 crores annually on healthcare, the annual relief provided to the most profitable firms in direct taxes last year was 2.5X the annual expenditure on health care.
  • Healthcare, along with sanitation and quality of water and air, is a public good. If we don’t invest adequately in these areas at this stage of our development, we will be laying a foundation for building an unhealthy workforce that will condemn millions to poor quality of life and compromise our ability to grow.
  • We at SFO are proving cheap risk capital to build indias healthcare to become the best in the world. 

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