Public health

Medicine market

Print edition : August 05, 2016

A delegate takes a selfie in front of a hoarding at the pharma trade show during the second edition of PharmaLytica, in Hyderabad in 2015. Photo: NAGARA GOPAL

At a primary health centre at Muraroi in Birbhum, West Bengal, a file picture. Photo: PTI

The effect of health reforms has been both direct in terms of declining public investment in health-care infrastructure and medical education and indirect in terms of the high cost of medicines following the WTO trade regime.

Public health is one of the main casualties of the policies of the economic liberalisation launched in 1991 in India, the Structural Adjustment Programme that the Bretton Woods institutions (the World Bank and the International Monetary Fund) have forced the country to put in place, and the neoliberal policies that have been followed by successive governments since then. The effect has been both direct in terms of declining public investment in health-care infrastructure and medical education and indirect in terms of the high cost of medicines following the globalised trade regime a la the World Trade Organisation (WTO), which was established by the developed countries towards the end of the 20th century.

Economic reforms in many developing countries were a corollary of the process of “globalisation”, which was pushed by developed economies in the beginning of the 1980s and has formed the basis of governance, trade and economics across the world since then. Globalisation also resulted in major shifts in the policies of institutions and structures that had until then governed health at the global level. Along with the greatly diminishing role of the United Nations and its various organs, globalisation led to the marginalisation of the World Health Organisation (WHO), which was the premier institution in global advocacy and in national-level health governance. The WHO’s influence diminished in matters of health across nations of the world, and the World Bank emerged as a major influence in shaping health policies at the national level.

This began in 1987 when the World Bank came out with a document titled Financing Health Services in Developing Countries, whose recommendations began to have a decisive influence in the health sector in countries undertaking economic reforms. Its key recommendations were to (a) increase amounts paid by patients for public health services; (b) develop private health insurance schemes; (c) expand the role of the private sector; and (d) decentralise government health-care services.

These recommendations were further refined and reiterated in its 1993 World Development Report titled Investing in Health. As a result, health care came to be viewed as not as “public good” but as a commodity that is part of the global system of trade and services and accessible through market mechanisms. The Bank’s recommendations were adopted by most developing countries as part of their liberalisation process because these were actually the Bank’s conditionalities for the loans given by it to the countries to emerge out of their respective economic crises. Following severe criticism of the recommendations, the Bank has reduced its emphasis on the rollback of public services but continued to advocate a reduced role for the government as the primary health-care provider and an increased role for the private sector.



In India, this has resulted in the gradual retreat of the state in providing health care. In accordance with the World Bank’s prescriptions, the health-care system has witnessed over the last two decades (a) declining investment in public health and introduction of service charges, or “user fees”, as part of public health care even for diagnostic tests or the forcing of patients to access such services in the private sector, which the poor cannot afford; (b) introduction of health insurance, which has the effect of undermining public health care because in the presence of free or low-cost health care there is no need for private health insurance; (c) increasing the share of the private sector in providing health care, which, given its predominantly profit motive, focusses only on curative care, as against preventive care, and high-revenue-earning tertiary health services; (d) rolling back of the government’s role in health governance and passing on the responsibility to local communities and organisations, including non-governmental organisations (NGOs), many of whose operations get largely focussed on lifestyle diseases such as HIV-AIDS, areas for which international aid is more easily available to NGOs.

As against the WHO’s recommendation of public health expenditure of 5 per cent of the gross domestic product (GDP), the Indian government’s expenditure has remained stagnant around 1 per cent for the past two decades. At the end of the Eleventh Plan, against the investment target of 2 per cent of the GDP, the actual investment achieved was 1.09 per cent only. For the Twelfth Plan, the Planning Commission was even less ambitious than the Eleventh Plan target; the target set for the Twelfth Plan was only 1.58 per cent as against the recommendation of 2.5 per cent made by the High Level Expert Groups (HLEGs) set up by the Planning Commission and the Ministry of Health and Family Welfare. More pertinently, given the trend of budgetary figures of the last four years, what is likely to be achieved will be about 1.2 per cent.

The private sector has stepped in to fill this huge gap so much so that today about 75 per cent of the national expenditure on health is by the private sector, which is one of the highest in the world. The lack of investment in the health sector has resulted in the absence of a sufficient number of accessible primary health centres (PHCs) and secondary level community health centres (CHCs), resulting in a near-total abandonment of primary health care in rural settings and driving the poor to distant urban, private hospitals. This has had the direct impact of high out-of-pocket spending (OOPS) by the average citizen on health, which today is about a high 65 per cent of the per capita total expenditure on health, giving rise to huge disparities in access to health between the rich and the poor.

Many studies have shown that medical expenditure, which often is more than 10 per cent of the household expenditure, is one of the major causes of indebtedness among the poor. This, according to an estimate, results in pushing about four crore people below the poverty line every year. Also, the primary motive of private investment being profit, the private sector has little interest in providing primary health care. To maximise profit, its focus is largely on high-cost tertiary care, which is of no importance to the poor, who are the main victims of infectious diseases that require immediate primary care. Also, the costs in the private sector have only been increasing at a rapid rate. Since the beginning of liberalisation, they have shot up by over 300 per cent. More pertinently, increasingly, private health care has come to mean in recent years corporatisation of health care, with large corporate entities entering the business of health.

As the country crosses the milestone of 25 years of economic reforms, which include health sector reforms, the increasing disease burden across States and growing disparities in health care and health indicators that only compare favourably with sub-Saharan Africa, the government only seems to be pushing the same private-sector dominated health-care provision. Despite the less–than-envisaged investment in the flagship scheme of the erstwhile United Progressive Alliance (UPA) government, the National Rural Health Mission (NRHM) has resulted in the expansion and strengthening of the health-care system in rural areas. It has demonstrated that positive changes in the public health system can be brought about even within the existing public health system and with limited resources. But the important lessons from it would seem to be of no importance to planners and policymakers, who are only too keen to abdicate the state’s responsibility to provide affordable health care to its citizens.

For the first time since liberalisation and the neoliberal agenda became part of the government discourse and public policymaking, the Planning Commission’s Twelfth Plan document on health and the draft National Health Policy (NHP) of 2015 have openly articulated the need for privatisation of public health care. In fact, the NHP of 2015, which has essentially charted the trajectory for slowly mortgaging public health to the private sector, has defended the lower public health expenditure target set as follows: “At current prices, a target of 2.5 per cent of GDP translates to Rs.3,800 per capita, representing an almost fourfold increase in five years. Thus, a longer time frame may be appropriate to even reach this modest target.”

PPP & private insurance

One of the instruments that the government has used to facilitate the increasing participation of the private sector is the so-called public-private partnerships (PPPs) in a whole range of settings and situations concerning health care. The flaws in the model have been widely debated and discussed and several studies have pointed out that instituting these PPP programmes without sufficient critical scrutiny has resulted in improper utilisation of public funds to the benefit of the private sector.

Health insurance is another instrument that the government has sought to introduce in recent years as recommended by the World Bank which has greatly facilitated the entry of the private sector. Health insurance does exist in many industrialised countries with a well-developed health-care system, except for the United States which has the costliest system in the world. In most of these countries, it is government insurance schemes that have the dominant share. In India, however, this is actually facilitating further privatisation of health care because health insurance mechanisms exist largely in the private sector.

The Twelfth Plan document, in fact, has explicitly envisaged a restructuring of the prevailing health system in such a way as to include health insurance. The health system, according to it, will be a “mixture of service provision and insurance”. The restructuring thus means a system of health care delivered by a managed network. This is a clear indication of moving away from publicly funded health care to a system in which private players would provide the health services of which the government would be a “manager”. This actually amounts to the government turning into a buyer of health care with public money, which goes to strengthen an already resurgent corporate-driven private health-care system.

The Rashtriya Swasthya Bima Yojana (RSBY), a nationwide scheme launched by the UPA government, is premised basically on these notions and is indicative of future trends in “public” health care. Notwithstanding the HLEG’s recommendation against prevalent health insurance schemes, the Twelfth Plan document has, in fact, called for an expansion of schemes such as the RSBY. The present government, too, has stated that it will work to provide health insurance coverage for all through a national insurance policy for health.

The opening up of the health insurance sector to private players, many of whom have partnered with foreign insurance agencies, is the direct fallout of the General Agreement on Trade in Services (GATS) that was negotiated under the aegis of the WTO, which came to be established as part of the globalisation process in the later 1990s. As a consequence of developments under the WTO, health-care management firms, health-care technology companies and the pharmaceutical industry of the West have made deep inroads into the Indian market besides insurance companies.

TRIPS and patents

An important component of the WTO negotiations that has had a serious impact on the health sector is the Trade-Related Intellectual Property Rights (TRIPS) agreement. This has led to the Indian government changing the Indian Patents Act of 1970, which had served the domestic pharma industry well by excluding medicines and drugs from product patentability, and replacing it with the Indian Patents Act of 2005 in conformity with TRIPS provisions that allow for product patents for drugs and medicines. With only process patents allowed under the 1970 Act, and that too for a limited period, the Indian pharma industry, without the encumbrances of product patent protection, made extensive use of this provision to devise new chemical processes and different production mechanisms for a given patented drug abroad to manufacture drugs on a large scale, resulting in the emergence of a vibrant generic drug industry in the country.

By the 1980s, the Indian pharma industry was one of best developed in the developing world. In fact, in the 1990s India came to be identified as the “Pharma of the developing world” as medicines produced in this manner were a fraction of the cost of patented medicines from the West. The industry could not only introduce new drugs into the world market much before the expiry of the patents elsewhere but make them available at far cheaper prices (Table 1a & b). Thus, India was able to provide medical supplies to infections-stricken areas of Africa and the rest of the developing world on a large scale.

Thanks to the presence of Left parties in the opposition, some health safeguards could be introduced into the new 2005 Patent Act as amendments. An important provision in the amended Patents Act was the enabling of Indian generic drug manufacturers to continue production of patented medicines that they had introduced in the market between 1995 (when TRIPS was formulated) and 2005 (when the new Act came into force) even beyond 2005. This partially offset the detrimental impact of the new Act on the health sector for a limited period of four to five years.

But multinational drug companies, with larger financial muscle power and resources, have been constantly filing cases against Indian drug companies even where Indian companies have the legitimate right to produce those drugs under the health safeguards provisions of the Act. But in recent years, the Indian companies, with their limited resources capacity, have not been able to withstand the continuous onslaught of multinational companies (MNCs). In some cases, reluctant to carry on courtroom battles, some companies have tended to give up the fight. In more recent times, there have been increasing instances of Indian companies entering into compromise deals with the MNCs and becoming the latter’s marketing agents in the country for their patented drugs.

But the direct impact of the new Patents Act is beginning to be felt in the past few years. According to a 2014 study, of the 140 patented products that it had investigated, only 92 were found to have information about whether they are manufactured in India. And only four were actually found to be manufactured in India and the remaining 88 were just imported and marketed in India at high costs. The Drug Price Control Order, notified in 2012, cannot be used on these drugs because the order does not cover patented drugs. But, unfortunately, the Compulsory Licensing (CL) provision of the Act, which allows the Indian manufacturer to be licensed to manufacture a patented drug when the patent is not being worked in the country by the patent holder or the when drug is not being made available for public health purposes at affordable prices, is not being invoked to challenge most of these cases. As a result, the prices of some of these drugs (Table 2) are beyond an average citizen’s buying capacity.

Medical tourism

A major trend in recent years following globalisation and the increased participation of the private sector in health care is the rapid rise of “medical tourism”, which is being actively promoted both by the corporate sector and the government at the cost of health-care services to the Indian public. For example, the 2002 National Health Policy says: “To capitalise on the comparative cost advantage enjoyed by domestic health facilities in the secondary and tertiary sector, the policy will encourage the supply of services to patients of foreign origin on payment. The rendering of such services on payment in foreign exchange will be treated as ‘deemed exports’ and will be made eligible for all fiscal incentives extended to export earnings.” This is based on the recommendations that the corporate sector had made in the document “Policy Framework for Reforms in Health Care”, drafted by the erstwhile Prime Minister’s Advisory Council on Trade and Industry, which was headed by Mukesh Ambani and Kumar Mangalam Birla.

The private sector, which thrives on providing predominantly tertiary and high-end medical services to the small percentage of the Indian population that can afford the high costs of such services, has in the last decade or so begun to seek opportunities that go beyond the domestic market to increase its profit margins. People from other countries, where costs of treatment are higher than those in India, travel to India to access these services in the Indian private sector. India has emerged as a major destination for such health-care seekers from abroad, with the medical tourism industry growing at about 30 per cent annually. According to recent estimates, medical tourism has touched about $3 billion by 2015 and is slated to reach $8 billion by 2020.

The medical tourism industry is limited to large specialist hospitals run by corporate entities and has greatly grown in the last decade or so. And one cannot imagine the private sector using the booming revenue from medical tourism to finance deteriorating public health services. Moreover, most of these hospitals have not kept their commitment of treatment to a certain percentage of poor inpatients and outpatients free of cost in return for the subsidies, particularly free land, which the government had extended to them in its bid to promote private sector participation in health care. Today, specialists in private hospitals are senior doctors drawn from the public sector. Medical tourism is thus promoting an internal brain drain of health professionals into private corporate hospitals. Liberalisation has also led to the urban concentration of health-care providers—about 60 per cent of Indian doctors are located in cities. Medical tourism has also resulted in the migration of health-care professionals to large urban centres, and particularly to large corporate-run specialty institutions.

Bretton Woods advocated a reduction in government expenditure across all public welfare systems. As a result, liberalisation has also impacted adversely investments in other social determinants of health—such as food and nutritional security following the Agreement on Agriculture under the WTO—and in education, with education being increasingly treated as a service and the private sector playing an increasing role in providing high-cost education. The burgeoning private medical institutions produce doctors of dubious quality, which has in recent times had a direct impact the quality of health care.

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