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Modicare puts hospitals at risk, Indian companies warn

Health care providers say capping treatment is illogical

MUMBAI -- India's private sector is warning that the country's ambitious universal health care program, known as Modicare, could be unworkable, and may even undermine hospitals' ability to treat patients.

Private hospital companies and insurers are raising the alarm over what has been called the world's biggest experiment in universal health care, a program launched by Prime Minister Narendra Modi in September to ensure that 500 million poor people in the one of the world's largest economies can receive treatment for a range of conditions.

The contours of the government-funded health program, officially known as Ayushman Bharat-National Health Protection Mission, are still being set. But the government's proposal to cap about 1,350 treatment packages at between 1,000 rupees ($13.46) and roughly 150,000 rupees has many health care companies focusing on the risks rather than the opportunities.

Several who spoke to the Nikkei Asian Review complained that the cap was illogical and detrimental to the quality of patient care.

Dr. Preetha Reddy, vice chairperson of one of India's largest private hospital chains, Apollo Hospitals, said that while the scheme gives poor and vulnerable sections of society access to advanced medical care, pricing needed to be fixed at a level that allowed private hospitals to provide this care without compromise.

"It is hoped that there is a review of the pricing after the initial period to ensure that large private hospitals can continue to invest in the latest modern equipment and technology ... Also, the limit of 500,000 rupees may not be enough for ... chronic diseases which require treatment and expenses over a long, drawn out period," Reddy said. She added that the rates being proposed were 15% to 20% lower than the state health care scheme for central government employees and their families.

Dr. Bolleni Bhaskar Rao, a health care provider and key architect in the public-private partnership model for health care in India's South, runs a hospital chain with more than 1,000 beds, the Krishna Institute of Medical Sciences. It is an initiative by the Andhra Pradesh government to provide health insurance cover of up to 150,000 rupees to around 20 million people in 2007.

"The question is who will bear the cost of improved infrastructure, salaries and technologies?" he said. "Secondly, there is no way of analyzing on how much the cost (of treatments) is. Whatever scheme you join every month, every year, there are cost escalations."

India's private health care providers, in particular multispeciality hospitals, are already struggling to maintain quality. It is estimated that the top three to four hospital groups are running losses of a few billion rupees, industry sources said, because of factors such as low occupancy, thin margins, and regulatory controls.

Yet IHH, Southeast Asia's largest hospital group, sees an opportunity in the tribulations of India's health care sector. This week the Malaysian company took control of one of India's biggest private health care companies, Fortis Healthcare, which recently came under scrutiny after its founders, Malvinder Singh and Shivinder Singh, along with eight related companies according to findings of the initial investigations, were in an allegedly fraudulent manner.

Tan See Leng, managing director and chief executive of IHH, said this week that the government's new health care plan was "an excellent initiative by the government."

But Fortis Chairman Ravi Rajagopal was more cautious. He told the Nikkei Asian Review that the company was still evaluating the implications of Modicare.

"As an individual, ... I am all for making health care affordable, and for quality care," he said. However, he added, "We need to find a model where there is some level of support that does not overall distort it too drastically. Whatever action we take at Fortis, we will ... certainly signify our intent to be part of the government scheme. The shape and form it takes remains to be seen."

Others warn that the trust-based model most state governments are adopting for insurance cover could pose a problem. Of the 32 states and union territories that are part of the scheme, 17 will pool money from their own funds and central government contributions into a trust and settle claims directly. Eight are reported to have agreed to involve private insurers, while seven would run it as a hybrid model between the two.

Rao of the Krishna Institute believes the trust model is problematic, as governments have a bad track record on timely payment. If insurance payments are late, this could mean added cost for hospital operators, he said. This scenario could be avoided if third-party insurance companies were brought in, he added.

Rakesh Jain, executive director and CEO of Reliance General Insurance, said insurers were not expecting the new system to create a very big market opportunity at this stage.

But in the long term it could be difficult for Modicare to succeed without the private insurance sector, he suggested. "Large health schemes require a lot of effort in execution, and access to knowledge and resources is important; these are not experimental schemes, so you require serious players," he said. He added that the company has been approached by some states to partner in the health care scheme, but did not share details.

According to research company Fintelekt, India's stand-alone health insurance market is forecast to expand from 58.59 billion rupees as of March 2017 to 219 billion rupees by the financial year ending March 2022

Until now, the market has been held back by the fact that Indians have had to pay for health care themselves, with many families made destitute by the costs. About 70% of total health spending is paid for by Indians in a country where public expenditure in the sector is just 1% of gross domestic product.

For drug companies, meanwhile, the gains are likely to be little more than incremental. Part of the reason, according to according to Indian Pharmaceutical Alliance Secretary General Dilip G Shah, is that the government already procures large volumes of drugs from pharmaceutical companies for public hospitals at low prices. Shah sees "some incremental" gains for drug companies as such procurement could increase.

Nevertheless there are reports that companies such as Pfizer, GlaxoSmithKline Pharma and Abbott are urging the government to create "policy provisions" that would allow drugmakers to make a new class of generic drugs that would be even cheaper than current generic products.

Not everyone is complaining, however. Many small private hospitals and diagnostic centers will benefit. There could also be gains for medical equipment companies and training institutions.

Already, over 15,000 private hospitals have applied to become partners in the scheme and 6,000 have been accepted.

Sujay Shetty head of PwC India's health industries team, said companies in these sectors could be winners. And he agrees with Jain. In the long-run, India's state governments will have to reconsider whether they can afford to fund the world's biggest health care scheme on their own. Eventually insurance companies will have to step in.

Nikkei staff writer Kiran Sharma in New Delhi contributed to this story.

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