Rob Katz

Guest Post: Healthcare and India’s Low Income Market

LifeSpring HospitalGuest bloggers Shaila Parikh and Biju Mohandas work for Acumen Fund, based out of Hyderabad. Shaila is a Summer Associate and a Master of International Affairs candidate at Columbia University’s School of International and Public Affairs. Biju is Acumen Fund’s India Business Manager. Before joining Acumen Fund, he served for five years in the Indian Army’s Medical and Dental Corps. Later, Biju completed his Post Graduate Program in Management with a dual major in analytical finance and strategic marketing from the Indian School of Business.

By Shaila Parikh and Biju MohandasIn the middle of June, Acumen investee LifeSpring opened its second low-cost maternity hospital in a peri-urban area near Hyderabad. They plan to have six hospitals opened by the end of 2008, and by the time this post goes live, they will have launched their third hospital in Nellore, a small town in southern Andhra Pradesh.

As LifeSpring and other Acumen Fund investees slowly and steadily gain scale, we have started asking broader questions about healthcare for the low-income market. Mainly, we want to understand the major gaps and bottlenecks to providing healthcare to the low-income market in India and how these issues can be overcome. The India office is presently working on a status report of the healthcare sector in which we are trying to understand the challenges of the industry for our target market. What follows is a brief summary of our understanding thus far. Your feedback through questions, comments, nudges, pointers and criticism are appreciated.

Simply put, healthcare for the poor seems to have three central challenges: affordability, availability and quality. Effective, viable solutions will need to address all three issues.

A scalable and sustainable micro health insurance model will probably rank as the highest value intervention to address the issue of affordability, especially in a country like India where, according to India’s National Health Accounts, an estimated 72 percent of healthcare expenditures are out-of-pocket. The idea of pooling risk to prevent unexpected health shocks from forcing a family further into poverty is intuitive and micro health insurance has been in India for some years now.

However, there remain challenges unique to the low income market. Micro health insurance schemes began by providing coverage only for major ticket items such as accidents and surgeries. For example, the Jan Arogya Bima Policy, launched specifically for the poor in 2005 by India’s National Insurance Company, covers only hospitalization expenses incurred for medical or surgical treatment. But the industry quickly learned that this left a large gap between what was offered and what the poor actually needed.

Medical care for the poor is also burdensome due to the cost of smaller, more frequent expenses such as doctor consultations, drugs, non-surgery-related hospitalizations, maternity care and a host of other medical expenses. Due to moral hazard (fraud), adverse selection, inadequate healthcare provision mechanisms, and high marketing and transaction costs, a financially sustainable insurance model has yet to emerge. Nevertheless, insurance- and savings-based attempts continue to pop up all over India.

For example, the government has partnered with industry players to launch several micro health insurance schemes at the state level. The Yeshasvini Cooperative Farmer’s Health Scheme in Karnataka, which started out covering only major surgical operations in 2003, now includes diagnostic tests and investigations at discounted rates. Andhra Pradesh’s Arogyashri initiative also has more comprehensive coverage and seems interesting. While similar models have worked in countries like Colombia and Thailand, we will need to wait and watch the sustainability and impact of these efforts in India.

Challenges of availability and quality often go hand-in-hand. In theory, the government provides health care to all its citizens through an extensive network of primary, secondary and tertiary facilities that reach even remote villages. In practice however, this network has deteriorating infrastructure, low quality care and doctor absenteeism that deter many of the poor.

Instead, the rural poor visit their local private doctors who are typically little more than quacks providing low-quality – and sometimes even harmful – services. For example, these types of healthcare providers are notorious for giving an injection of steroids and painkillers to give the patient immediate relief. Sadly, this treatment is only temporary and quite destructive in the long run.

This scenario illustrates the need for accessible, quality healthcare – one area where Acumen Fund has both current investments and some future pipeline opportunities. Our existing investments use innovative service delivery models including a focused factory approach to provide low-cost but quality care (LifeSpring), micro-health franchising to reach deep rural markets (Drishtee), integrated health centers for primary care along with social marketing for preventive healthcare (Sehat First), and integration of traditional medicine with a modern, scientific approach for treating chronic diseases (AyurVAID).

In addition to these innovations, attempts to use public-private partnerships to address the issue of quality healthcare are also being made. For example, the government has several contracts with private companies and NGOs to manage the village-based primary health care clinics. For example the foundation arm of CARE Hospitals has teamed up with the government in Maharashtra to provide the entire range of basic healthcare services at the district level. This is a model that seems to have worked well in Cambodia, where the government has contracted out rural health clinic operations to NGOs or the private sector.

In addition to ensuring that quality healthcare is available and affordable, it is also important to focus on critical supporting services such as diagnostics and drugs. In India, spurious drugs are ubiquitous and ensuring quality remains one of the biggest issues. The challenge is to improve supply chain and cold chain management to enable high quality, affordable drugs to reach deep rural markets. Players like ITC through their e-Sagar e-Choupal initiative are looking to tap this market. They have attempted to set up pharmacies in their rural shopping complexes to sell low-cost generic drugs and they also have doctors and basic pathology facilities. These are being developed as stand-alone profit centers and as referral centers for secondary care hospitals located in nearby towns.

Diagnostics are another key component of healthcare. Both imaging diagnostics (such as x-rays, CT scans and ultrasounds) and pathology lab diagnostics (such as blood tests) are critical for proper diagnoses and treatment. Today, this area of care consists mainly of small, unregulated players of questionable quality. However the emergence of large chains and their expansion into tier II and III cities might signal a trend towards consolidation and improved quality in the long term. Also, the pressure to increase the utilization of capital-intensive centers housing sophisticated equipment (hubs) might trigger expansion through smaller collection centers (spokes) into both the urban and rural low-income markets, making this a very important component of healthcare access for the poor.

On the whole, there still is a long way to go before quality healthcare becomes affordable and available to everyone in India. However, despite the many challenges, a combination of government initiatives, public-private partnerships and market forces seem to offer some hope that this ideal could become a reality.

Editor’s note: This post first appeared on the Acumen Fund blog.