PPP in India’s health sector 

Current scenario

The Eleventh Five Year Plan’s goals of lowering maternal and infantmortality, malnutrition among children, anemia among women and girls, and fertility have not been fully met. India’s efforts at improving its child sex ratio have been disappointing. Statistics suggest that the country is lagging behind some of its neighboring countries as well:

• High levels of anemia (56 percent1 among married women aged 15-45 years)
• High levels of malnutrition among children¹ (wasting 22.9 percent, stunting 44.9 percent)
• High infant mortality¹ (47/1,000 live birth) and maternal mortality¹ (2120 per 1 million live births)

Low public spending on health (1percent¹ of the GDP), as well as high outof-pocket payments (71 percent¹) leading to impoverishment and substantial inequity have been major hindrances to progress.

Trends observed in health reforms²

Need for increased private participation

CRISIL Research anticipates that the sector needs close to INR 6 trillion to attain the global median of 24 beds per 10,000 persons. This calls for the participation of private players in many areas such as infrastructure development, management and operations, capacity building and training, financing, IT infrastructure, and materials management. Public private partnerships (PPPs) can cater to rising health reform demands.

Health infrastructure per 10000 persons Source: WHO statistics, CRISIL Research

Public vs private providers in healthcare

First step towards establishing PPP

• First, it is essential to conduct detailed investigations on what the public really needs.
• To run PPP projects, a balance must be struck between ‘gain’ and ‘loss’ by determining the value of efforts.
• Gaining the public's trust and support is also of significant importance.
• Behavioral changes among users often influence the success of PPP projects.
• It is important to establish a comprehensive set of legal frameworks that govern the running of PPP projects.
• Since the impact of healthcare projects is often major and sometimes life-threatening, operational risks must be minimized as far as possible.

Management contract

• The public sector owns infrastructure. With private participation in facility operations and management, typically for a fee, quality can be improved. The contract period is typically defined and linked to service quality.

Leasing

• Public sector infrastructure is on a short- to medium-term lease to private players who operate the facility with specific buyback arrangements from the government during the lease period, in the form of a percentage of beds or other subsidies on capital expenditure.
  

Joint venture (JV)

• A JV is generally formed as a legal entity or a special purpose vehicle (SPV), with equity participation from both the government and private players. Government contributions can vary from upfront capital infusion into the SPV, land lease, or financial concessions on capital infused by a private player.

BOO/BOT

• The private sector is assigned all aspects of the project. The ownership of the new facility is transferred to the private sector, either indefinitely or for a fixed period of time. This type of arrangement also falls within the domain of PPP.

Concession

• This works more like a long-term lease, where a private player takes over the management of a state-owned enterprise, including significant investment risks. Ownership and investment decisions during the lease period no longer remain with the state. Government regulation may stipulate a certain percentage of services. healthcare:

PPPs - current perspective

The PPP model can be exploited in various ways in healthcare:

Summary

• India’s varied regions face their own distinct challenges, which must be addressed innovatively. Further, many health programs have to adopt a holistic approach - developing healthy habits, sanitation, nutrition, rural indebtedness, political sponsorship, economic divide, digital divide and making services accessible to actual beneficiaries. Further, ill health has disastrous socioeconomic repercussions on families, communities and states, thus hindering the development of a nation. The private sector can be called upon for assistance to innovate and accelerate the pace of healthcare service delivery.
• The USD 40-billion Indian healthcare industry is growing at a CAGR of 21 percent and is expected to be worth USD 80 billion by 2020⁵.With increased public-sector expenditure, PPPs are expected to act as catalysts for this sector.
• Well-thought out mitigation strategies need to be formulated to overcome challenges. Policy innovations such as PPPs are, of course, highly contextual. However, collaboration with the private sector is not a substitute for, but a fortification of, the public sector in the provision of health services. Thus, a clear rationale for collaborating with the private sector is essential. For need-based successful intervention, it is important to understand not only what services are to be provided via the PPP route but also why such decisions are made.

Sources
1. CRISIL report
2. KPMG in India Analaysis
3. Article – “India plans major boost to health sector, to invest 2.5% of
GDP by 2017 “,Feb29,2012, Times of India 4. CRISIL Report - The Emerging role of PPP in Health sector
5. India Brand Eqity Foundation , CRISIL Report , June 2012