PPP In Health Care





It is widely accepted that the deficiencies in public sector health system can only be overcome by significant reforms. The need for reforms in India’s health sector has been emphasized by successive plan documents since the Eighth Five-Year Plan in 1992, by the 2002 national health policy and by international donor agencies. The World Bank (2001:12,14), which has been catalytic in initiating health sector reforms in many states, categorically emphasized: now is the time to carry out radical experiments in India’s health sector, particularly since the status quo is leading to a dead end. But it is evident that there is no single strategy that would be best option. The proposed reforms are not cheap, but the cost of not reforming is even greater”.


Health Sector Reform (HSR) is defined as a sustained, purposeful change to improve the efficiency, equity and effectiveness of the health sector’. The World Health Organization (1997) defined health sector reform as a sustained process of fundamental change in policy and institutional arrangements of the health sector, usually guided by the government. ..It is designed to improve the functioning and performance of the health sector and ultimately the health status of the people.

Reform strategies include

  1. Alternative financing (user-fees, health insurance, community financing, private sector investment);
  2. Institutional management (autonomy to hospitals, monitoring and management by local government agencies, contracting);
  3. Public sector reforms (civil service reforms, capacity building, productivity improvement); and


  1. Collaboration with the private sector (public/private partnerships, joint ventures).


Partnership with the private sector has emerged as a new avenue of reforms, in part due to resource constraints in the public sector of governments across the world. There is growing realisation that, given their respective strengths and weaknesses, neither the public sector nor the private sector alone can operate in the best interest of the health system. There is also a growing belief that public and private sectors in health can potentially gain from one another. Involvement of the private sector is, in part, linked to the wider belief that public sector bureaucracies are inefficient and unresponsive and that market mechanisms will promote efficiency and ensure cost effective, good quality services. Another perspective on this debate is linked to the notion that the public sector must reorient its dual role of financing and provision of services because of its increasing inability on both fronts (Mitchell 2000). Under partnerships, public and private sectors can play innovative roles in financing and providing health care services.


While reviewing the health sector in India, the World Bank (2001) and the National Commission on Macroeconomics in Health (2003, 2005) strongly advocated harnessing the private sector s energy and countering its failures by making both public and private sectors more accountable. The Tenth Five-Year Plan (2002-2007) envisioned in detail the need for private sector participation in the delivery of health services.


Collaborating with the private sector and fostering a partnership for providing health services to the underserved sections of the population are particularly critical in the Indian context. Due to the deficiencies in the public sector health systems, the poor in India are forced to seek services from the private sector, often borrowing to pay for them.



India has one of the world s highest levels of private out- of-pocket financing (87 percent estimated in World Bank 2001). Out-of -pocket expense at the point of service use is about 85 percent. Such a mode of financing imposes debilitating effects on the poor. Hospitalisation or chronic illnesses often lead to liquidation of assets or indebtedness. It is estimated that more than 40% of hospitalised people borrow money or sell assets to cover expenses, and 35% of hospitalised Indians fall below the poverty line because of hospital expenses. Out-of-pocket medical costs alone may push 2.2% of the population below poverty line in one year. Approximately 29 percent of the Indian population (almost 300 million people) live below the poverty line and depend on free health services from the public sector. The inequities in the health system are further aggravated by the fact that public spending on health has remained stagnant at around one percent of GDP (0.9%) compared to the global average of 5.5%. Yet even the public subsidy on health does not automatically benefit the poor. The poorest quintile of the population uses only one -tenth of the public (state) subsidies on health care while the richest quintile accesses 34 percent of the subsidies.


Private Sector in India


Over the years the private health sector in India has grown remarkably. At independence the private sector in India had only eight percent of health care facilities (World Bank 2004) but recent estimates indicate that 93% of all hospitals, 64% of beds, 85% of doctors, 80% of outpatients and 57% of inpatients are in the private sector. Contrary to commonly held views, private hospitals are relatively less urban-biased than the public hospitals. Given the overwhelming presence of the private sector in health, various state governments in India have been exploring the option of involving the private sector and creating partnerships with it in order to meet the growing health care needs of the population.


The private sector is not only India’s most unregulated sector but also its most potent untapped sector. Although inequitable, expensive, over-indulgent in clinical procedures and without quality standards or public disclosure of practices, the private sector is perceived to be easily accessible, better managed and more efficient than its public counterpart. It is assumed that collaboration with the private sector in the form of


Public/Private Partnership would improve equity, efficiency, accountability, quality and accessibility of the entire health system. Advocates argue that the public and private sectors can potentially gain from one another in the form of resources, technology, knowledge and skills, management practices, cost efficiency and even a make-over of their respective images (ADBI 2000). Partnerships are expected to ameliorate the resource constraints of the public sector by reducing investments in expensive tertiary care services.


II. Public/Private Partnership



There are many ways of defining the terms public and private (Wang 2000). In general, however, the public sector includes organizations or institutions that are financed by state revenue and that function under government budgets or control. The private sector comprises those organizations and individuals working outside the direct control of the state. Broadly the private sector includes all non-state actors, some explicitly seeking profits (for-profit) and others operating on a not-for -profit (NFP) basis. The former are conventionally called private enterprise, the latter non-governmental organizations (NGOs) . In the health sector, for-profit providers may include individual physicians, diagnostic centres, ambulance operators, blood banks, commercial contractors, polyclinics, nursing homes and hospitals of various capacities. They may also include community service extension of industrial establishments, co-operative societies and professional associations. The for -profit private health sector encompasses the most diverse group of practitioners and facilities. But likewise the character of not-for-profit organizations varies in terms of their size, expertise level and geographical spread. NFP services are clustered in charitable clinics or hospitals. Some are established on a financially sustainable basis and are funded from user-charges; most, however, require the support of grants or donations.


Although widely used, the term partnership is difficult to define. Some definitions in the literature are so ambiguous that they cover practically any type of interaction between public and private actors. Yet partnership is often used to describe a range of interorganizational relationships and collaborations. Some of the useful definitions of publicprivate partnership are:

  • “,,,,,,means to bring together a set of actors for the common goal of improving the health of a population based on the mutually agreed roles and principles (WHO 1999)


  • “……a variety of co-operative arrangements between the government and private sector in delivering public goods or services provides a vehicle for coordinating with non-governmental actor to undertake integrated, comprehensive efforts to meet community needs… to take advantage of the expertise of each partner, so that resources, risks and rewards can be allocated in a way that best meets clearly defined public needs (Axelsson, Bustreo and Harding 2003)


  • “….a partnership means that both parties have agreed to work together in implementing a program, and that each party has a clear role and say in how that implementation happens (Blagescu and Young 2005)


  • “……a form of agreement [that] entails reciprocal obligations and mutual accountability, voluntary or contractual relationships, the sharing of investment and reputational risks, and joint responsibility for design and execution (World Economic Forum 2005)


Three fundamental themes emerge from these definitions.

First, a relative sense of equality between the partners;

second, there is mutual commitment to agreed objectives; and

third, there is mutual benefit for the stakeholders involved in the partnership.



Partnership is therefore a collaborative effort and reciprocal relationship between two or vmore parties with clear terms and conditions, clearly defined partnership structures, and specified performance indicators for delivery of a set of health services in a stipulated time period. In other words, the core elements of a viable partnership are beneficence (joint gains),autonomy (of each partner), joint- ness (shared decision-making and accountability) and equity (fair returns in proportion to investment and effort).


Challenges in Partnership


While the health system as a whole has common objectives of equity, efficiency, quality and accessibility, public and private providers interpret the contents of these objectives differently. Generally, the motive of the government is to provide health services to all at minimum cost or free; it develops policies and programmes to provide equity of access to such services. From the public sector point of view, there are merits and demerits in collaborating with the private sector.


Not-for-profit organizations have special concern for reaching the poor and the disadvantaged but, in many states, they account for less than one percent of all health facilities. Their sustenance depends on philanthropic donations or external funding. As a result their interventions remain ad hoc, and their up- scalability remains doubtful. But they provide good quality care, need little regulation or oversight from government, are able to attract dedicated staff, and cater to the needs of those otherwise excluded from mainstream health care. Moreover, they are also willing to undertake health care challenges that the for-profit sector is unwilling or unable to take on. Given their non-profit motives and grass-root level presence, NGOs can play useful oversight roles in the system. Their size and flexibility allows them to achieve notable successes where governments have failed.


Opinion is divided on the motives of the (for-profit) private sector, ranging from outright distrust to strong support for close co-operation with it. One extreme view is that the private sector is primarily motivated by money and has no concern for equity or access.


Bennet et al. identified five main problems associated with private-for-profit provision of health services. They are related to the use of illegitimate or unethical means to maximise profit, less concern towards public health goals, lack of interest in sharing clinical information, creating brain drain among public sector health staff, and lack of regulatory control over their practices. Management standards are generally higher in the private (for-profit) sector. The private sector can play an important role in transferring management skills and best practices to the public sector. In India, the formal for-profit sector has the most diverse group of facilities and practitioners. Since it accounts for the largest proportion of services and resources in the health sector, it is argued that future strategies to improve public health should take into account of the strengths of the private sector.


There are also a large number of non-qualified rural medical practitioners in the informal private sector in India. A conservative estimate puts the number of these practitioners at 1.25 million.



Private partner selection and obligations of the Partners


it is possible to suggest that a competitive process of selecting the private sector partner is less effective than an invited or negotiated partnership. A possible explanation may be that, while competing to win a contract, the private partner’s primary concern is to showcase a low cost that would clinch the bid. The public sector managers, on the other hand, are more concerned about satisfying procedural requirements (for internal regulatory systems) than meeting the beneficiaries needs. The tendering process in government invariably chooses the lowest bid. While seemingly economical for the government in the short run, after some time the contractor would expect an upward revision of the tariffs or incentives. In the absence of these, the contractor is unlikely to deliver services in the same level of quality or effectiveness as at the beginning of the contract. Governments may resort to a transparent and competitive process of selecting the private agency to withstand administrative and legal scrutiny. This approach of contracting may be useful in commercial projects but not in the social sector where competitive pricing of services is not the priority; rather, reaching the poor is. Some of the successful partnership projects documented here point to the importance of prior negotiations with the potential partners. In some cases the eligibility conditions were tailor-made or else the prior experience of the agency was used as a basis for choosing the private partner.


Among the core components of any partnership are mutual responsibilities and commitments. In all the partnerships, the public sector is committed to providing the physical infrastructure in the form of building premises, equipment, drugs and supplies, electricity, water connection and in some cases fuel for the ambulance or an equivalent budget item. Otherwise the public sector commits resources by reimbursing expenses incurred or providing grants-in-aid. The responsibilities of the private partners are clearly stated in most of the projects. A common theme of responsibility is to provide uninterrupted services to the target beneficiaries (BPL patients), employment of qualified staff, maintenance and upkeep of physical infrastructure, payment of rents and taxes, and submission of periodic accounts and reports. Some partnership projects prescribe additional responsibilities for the private partners under certain contingencies. For example, the Rajiv Gandhi super -speciality hospital should be ready to provide free services during natural calamities; Shamlaji hospital should cater to medico legal cases and treat accident and trauma cases. All the partnership projects are expected to provide services under national programmes, including immunization and family planning. Private partners are allowed to extend the services beyond the scope of the partnership agreement.


There is no pattern to indicate whether the public/private partnership as a policy option was guided by donor agencies or due to compulsions of resource constraints or due to competitive bureaucracy. However, public/ private partnership seems to have been prompted by visionary personalities from the bureaucracy and from civil society. Analysis suggests that states that experimented with partnership ideas before formalising a policy seem to be more successful compared to those that promulgated a formal policy without experimentation. Policy pronouncements by government alone are not sufficient for public/private partnerships to succeed. Visionary leadership, social entrepreneurship and relationships based on trust between the stakeholders are equally important for successful partnerships.


Capacity of private partners and public sector officials towards managing the partnerships is yet to be fully developed. Public sector managers may perceive the new initiative as a burdensome task, requiring them not only to placate their subordinates but also to seek better performance from their private partners. This is a daunting task. Private partners, who are known for their informal and flexible systems and organizational processes, are uncomfortable with the rigid organizational and managerial processes and procedures of the public sector. Bureaucracy is yet to become conversant in the principles of New Public Management.


Designing partnership (contract) agreements requires sufficient capacity-building measures but central government leadership may not be ideal for achieving this aim. States could create regional resource centres to develop these capacities locally. The approach towards pricing of tariffs for services (both in block grants or in case- based reimbursements) is based only on competitive tendering process rather than on a standard calculation of competitive rates. Similarly the payment system is mired in red tape that impedes successful partnerships.


Policy innovations such as public/private partnerships are, of course, highly contextual. Partnership with the private sector is not a substitute for the provision of health services by the public sector. Also, public- private partnership initiatives cannot be uniform across all the regions or suitable under all kinds of political and administrative dispensations. While private partnership is an administrative decision, an obvious but important point is that it must enjoy political and community support. In states where the private sector is prevalent, partnership initiatives could be an alternative, not necessarily, because of competitive efficiency but to prevent further immiseration of the poor and the deprived sections of society. There has to be a clear rationale for partnering with the private sector. It is important to understand not only what services are to be provided under private partnership but also to understand the basis on which such decisions are made.


Any policy initiatives to strengthen the flagging public sector health services in India would be welcome. But a government that fails to deliver quality social services due to lack of basic administrative capacity would not be able to contract either clinical or nonclinical services. The first step must be to improve basic administrative systems.

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