PPP Model : India’s need for Healthcare Infrastructure

India is homeland of 1.38 billion population making it the second most populous country in the world. Providing basic necessities, infrastructure, education and health facilities to all the citizen and maintaining the economic balance is a mammoth task for the government,  especially when a large disparity amongst in the economic conditions of the people is prevailing. The challenge becomes more critical when the economy is still developing. During past few decades, government has taken steps to improve the infrastructure and provide basic needs to the larger and otherwise deprived part of the population. But after all these years healthcare remained one of the sector where the gap is still wide.

India has given birth to sages, Charaka and Shushruta, who has given the world the gifts of Ayurveda (Medicine) and Surgery, the basic foundation of modern-day healthcare. But today the same land ranks no-where amongst the developed countries when it comes to healthcare. It is not because of medical technology or knowhow but because of lack of infrastructure. According to a WHO data India has only 5 hospital beds and 8.3 doctors per 10,000 population ranking it 155th amongst 167 countries. Out of this available 5 hospital beds 60% i.e. 3 beds belong to private hospitals and out of 8.3 doctors 70% i.e. nearly 6 doctors are belong to private sector. The ideal situation of country like India to have is atleast 10 beds per 10,000 population to start with i.e. there is a deficit of nearly 700 thousand hospital beds. Out of which 20% has to be ICU beds viz., 560 thousand ward beds and 140 thousand ICU beds. In short India needs more and more multi-speciality and super-speciality hospitals. Building hospital is a very capital intensive project. For any multi-speciality or super-speciality hospital the average cost per bed comes to nearly INR 5 million per bed considering the infrastructure, all allied diagnostic and medical equipment needed for running the hospital. Hence to meet the infrastructure deficit there is a need of nearly INR 3,500 billion which is nearly 63% of the total capital expenditure of FY21-22 union budget. 

The bed deficit hit the country hard during the covid pandemic. Government had to invoke Disaster Management Act 2005 and Pandemic Disease Act 1897, to force the reluctant private sector to participate and also the local government has taken over community halls and large areas to convert them into covid treating facilities. This is forcing the government to increase the health budget which means more taxes for the tax-paying population. This is cross-subsiding the non-tax payers by tax-payers. It’s not too late to fill the deficit. 

As it is said Rome cannot be built in a day, so as the required infrastructure. If people expect government to develop the same it is not practically possible. But what government can do is join hands with the corporates and infrastructure financing agencies/funds for the same under Public Private Partnership (PPP) agreement. A considerable cost for building a hospital is the land acquisition cost. Government can play their part by allocating and leasing the land and become a partner in the hospital. Also, the government facilitates the corporates to get all the licenses for the hospital after it is ready to run. The government as a part of their responsibility will do the internal audit by independent third party for smooth and transparent functioning of the hospital.

Average land acquisition cost is nearly 15% of the total hospital cost. Hence if government provides the land, then the total fund requirement to build the required infrastructure will be reduced to nearly INR 2,975 billion. Allowing 10% CSR fund to be infused to Hospital building will further reduce the fund requirement by approximately INR 5 billion which is nearly 60% of the total utilised CSR funds as per reports. As government is a partner, the banks and infrastructure funding agencies can easily fund the projects. Corporates also get the confidence to invest and operate the projects to provide the best healthcare services to the people. 

The advantages of the PPP model are:

• Government will allocating the land and facilitating the acquisition of required licenses, so there will no corruption and unnecessary time expense in the mentioned processes. The time of the project will be reduced considerably by nearly 35-40%.
• Government can be easily roll out public health schemes/polocies and have a greater reach.
• As the government is a partner, the hospital can be easily empanelled with private as well as government insurance schemes thereby providing the best medical services to all the economic strata of the society
• The land and the related licenses will be provided and facilitated by the government. So all the organised and well managed corporates will be inclined to develop medical care facility. 
• The financing agencies and banks can easily disburse loans for building the infrastructure and allied medical capex as government will be providing the necessary collateral in the form of land. The risk of banks as well as the corporates will be minimal.
• Better infrastructure facilities will encourage the specialists and experienced medical professionals to stay back in home country and practise medicine/surgery.
• Government can facilitate tie-ups with best of the medical colleges/medical centres around the world to send the medical practitioners and doctors from the hospital under PPP model for upskilling by making some policy level changes and allocation of some amount from union health budget. This will help Indian medical services to be at par with the standards of developed countries.

There are some basic disadvantages of the PPP model as seen when implemented in other sectors:

• Corporates will be keen in taking the land near the urban areas and metro rather than rural because of the lesser revenue scope making the project financially less viable.
• Medical professionals are generally not very keen in practising in the rural areas. So even if the healthcare infrastructure is ready, without adequate healthcare professional the project will not succeed.
• PPP projects generally lack financial control during the project phase which lead to higher infrastructure and project cost and putting pressure on the management to increase revenue and improve profitability resulting in higher pricing.

All the disadvantages can be minimised by policy intervention and strict financial control during the project phase. To make PPP model successful not only the partner from private sector but also the government has to put a lot of efforts. It’s a bicycle which can run only if both are wheels are functioning properly and are driven by a skilled rider. The independent auditor appointed in consent to both the parties play an important role in maintaining the balance between the two partners.

We can conclude that to fill the deficit in healthcare infrastructure PPP model can be one of the most viable options especially in developing economies like India.