HUMAN DEVELOPMENT NETWORKU 22355May 1999

A Fine BalanceSome Optionsfor Private and PublicHealth Care in Urban India

C. David Naylor, Prabhat Jha,John Woods, and Abusaleh Shariff

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HUMAN DEVELOPMENT NETWORK

A Fine BalanceSome Options for Private and PublicHealthz Care in Urban India

C. David Naylor, Prabhat Jha,John lWoods, and Abusaleh Shariff

The World BankWashington, D.C

© 1999 The International Bank for Reconstructionand Development / THE WORLD BANK

1818 H Street, N.WWashington, D.C. 20433, U.S.A.

All rights reservedManufactured in the United States of AmericaFirst printing May 1999

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C. David Naylor is Professor of Medicine, Public Health Sciences and Health Administration at the Universityof Toronto and Senior Scientist Emeritus at the Institute for Clinical Evaluative Sciences in Toronto, Canada.Prabhat Jha is Senior Health Specialist, South Asia Department, the World Bank. John Woods is Director ofStrategic Planning, St. Joseph's Health Centre, McMaster University, Hamilton, Canada. Abusaleh Shariff isPrincipal Economist at the National Council of Applied Economic Research, New Delhi, India.

Cover graphic by Erin Harris, Spot Color Inc

Contents

Foreword v

Abstract vi

Acknowledgments viii

Acronyms ix

1 Introduction: The Challenge of Urban Health Care in India

2 India's Public and Private Health Care Systems 3The Responsibilities of the Central and State Governrrients for Direct Provision of Care 3The Private-Public Balance of Finance 3The Private-Public Mix of Rural Health Care Delivery 4The Private-Public Mix of Urban Health Care Delivery 5

3 Insurance Plans and Corporate Prepayment 9The Potential Importance of Insurance and Prepayment 9Government-mandated Prepayment Schemes 9State-owned (quasi-private) Health Insurance Schemes 11Opening the Private Insurance Market 12Prepayment and Private Industry 12The Potential for Growth of Health Insurance in India 13

4 International Lessons, Indian Challenges 15iSome International Lessons 15Recapitulation of Challenges and Issues for India 16

5 Some Policy Options for Financing of Health Care in India 19Opening the Private Insurance Market 19Augmentation of Private Prepayment and Purchasing Capacity 19Government Finance Options 21

6 Some Policy Options for Improved Delivery of Urban Health Services in India 23Autonomy for Public Hospitals and Partnerships with NGOs 23Primary Care Capacity in the Public Sector 24Accident and Trauma Care 24Regulation, Information, and Quality Assurance 24Building Intellectual Capital for Health Reform 26

7 Conclusions 27

iii

Notes 29

References 30

Glossary of health insurance and related terms 32

Text Tables1 Distribution of India's disease burden in 1990 and projected for 2020 12 Tiers of the rural public health care system, 1993 33 National health spending: sources and uses 44 Coverage data for the ESIS, March 1996 105 Coverage data for the CGHS, March 1995 106 Percentages of total health expenditures funded through public/social insurance

and direct government revenues 137 Estimates of people and households in India, 1994 148. The matrix of private and public funding and provision of urban health care 17

iv

Foreword

Health systems around the world are currently con- In this report, the authors examine India's policyfronted with question of how public policy can engage options for improving the private-public mix for urbanthe private sector to promote efficient and sustainable health care. Its timing is propitious. The Governmenthealth care delivery. In India, the private sector of India (GOI) has begun to consider new policies inabsorbs 80 percent of total health care expenditures. health care finance, in light of ongoing concern about theThe share of private health care spending far exceeds organization of health services in India's burgeoningthat in most Western countries, and is also well above urban areas. This paper was designed as a statement bythe worldwide average for low-income countries. the authors, rather than a formal Govemment ofMost of this private expenditure currently occurs on India-World Bank report, a deliberate approach that fullyan out-of-pocket basis, suggesting a substantial enables the authors to provoke a thoughtful debate. Theopportunity to reshape the configuration of Indian GOI has requested the World Bank to further assist it inhealth care through innovations in prepayment of ser- examining options for developing private-public part-vices. At the same time, India's urban population is nerships for health service delivery This report shouldsteadily increasing and faces both communicable and help to inform that process and catalyze more definitivechronic diseases. This dual disease burden has creat- assessments of some policy options. More generally, thised a need for both the private and public sectors to report is also an important contribution to the ongoingbetter organize health services in India's rapidly grow- debate over how to optimize the quality efficiency, anding cities. equity of India's urban health care services.

J. V R. Prasada Rao Richard L. Skolnik Christopher LovelaceAdditional Secretary, Health Sector Manager DirectorMinistry of Health and Health, Nutrition, Health, Nutrition,Family Welfare and Population and PopulationGovernment of India South Asia Department Human Development

Network The World BankThe Worlcd Bank

v

Abstract

India's urban health care systems, both public and pri- Moreover, the public sector provides numerous subsi-vate, face growing pressure from several directions. dies for the comparatively wealthy.These include a steadily urbanizing population; the The daunting size, diversity, and complexity of Indiaepidemiological transition to chronic, noncommunica- mean that there is no single solution to the nation'sble diseases that are costly to treat; the increasing health care crisis. An incremental and pluralisticdemand for sophisticated health services from middle- approach is inevitable, with different states and regionsincome Indians; and a poorly regulated private sector pursuing divergent health care reform strategies.that currently absorbs about 80 percent of all health We accordingly suggest a variety of reform optionscare expenditures. The capacity of urban health care to improve the private-public mix of health caresystems to respond to these pressures is inhibited by finance and delivery in urban India. We envisage con-fragmentation, poor vertical integration, and limited tinued, and ideally greater, investment by the centralprimary care services. Moreover, urban public hospi- and state governments in the financing of health caretals are chronically overcrowded and handicapped by and stronger accountability for services funded, buta lack of administrative autonomy, a shortage of pro- less involvement in the direct provision of care. Thefessional managers, and the absence of community national and regional governments should be able toinvolvement. foster the development of more effective, efficient, and

India's public health care system is characterized by equitable health services by increasing the autonomycentralized control, a condition that compromises ser- of public hospitals, partnering with NGOs, investing invice delivery. At the same time, the private system is the expansion of primary care, and assuming a strongerlargely unregulated and is evolving in costly and inef- purchaser role on behalf of the poor.fective directions without an active market for pre- We also outline proposals to demonopolize the pri-payment of services. In sum, the financing of urban vate health insurance market and eliminate subsidieshealth care is chaotic, with poorly channeled pur- for middle-income Indians. Doing so would lendchasing power and perverse incentives. Consumers impetus to comprehensive self-insurance by profes-pay for most services out-of-pocket on a fee-for-ser- sionals, small business people, and others who wouldvice basis. otherwise remain outside of any mandatory system of

Private health insurance is controlled by a set of employment-related coverage. However, in order tononcompetitive state-owned corporations that operate concentrate purchasing power and shape the evolutionon a fee-for-service indemnity basis, undertake virtu- of the liberalized private insurance market, we proposeally no utilization review, and offer policies with many an expansion of publicly mandated prepaymentexclusions. The largest system of mandatory employ- through the workplace, along with the elimination ofment-related insurance, the Employees' State Insur- the monopoly position of ESIS as a provider. In oneance Scheme (ESIS) covers only a fraction of patients potential scenario, regional sickness funds would con-who are potentially eligible and does not function as an tract for comprehensive, capitation-based coverageinsurer or purchaser, but instead operates directly as an either directly with provider networks (includingunpopular health service for lower-income workers. investor-owned or nongovernmental organization

vi

facilities) or through managed care intermediaries. enhanced regulatory and self-regulatory capacity, andThese sickness funds would also have the option of better education of the public and purchasers about thepurchasing more open-ended coverage for higher price and quality of health services. In addition, invest-income employees. inent in intellectual capital is necessary to expand the

To facilitate these reforms in finance and delivery, we number of Indians with skills in health care finance,have recommended a stronger health "infostructure," evaluation, and management.

vii

Acknowledgments

The title of this report is unashamedly borrowed from The authors also wish to acknowledge the followingRohinton Mistry's prize-winning novel about India, A individuals, all of the World Bank, for providing helpfulFine Balance (McClelland and Stewart, Toronto, 1996). comments on earlier drafts of the report and/or issues

Data and ideas for this report were drawn from a pertinent to it: Richard G. Feachem, Salim Habayeb,variety of published and unpublished sources. Dean T. Jamison, Anthony Measham, Tawhid Nawaz,Information was also gathered during World Bank David H. Peters, Alexander S. Preker, Ronald Ridker,missions to India by Drs. Jha and Naylor, who are Richard L. Skolnik, and John Williamson. In addition,grateful to Mr. P. Subramaniyam of the Centre for Amardeep Thind from the University of Heidelberg andDevelopment Research and Training in Chennai for Indrani Gupta of the Institute for Economic Growth inhis invaluable assistance. Delhi provided useful comments. We are also grateful to

Drs. Jha and Naylor thank for her many insights two anonymous referees whose critiques were of greatMs. Shailaja Chandra, Additional Secretary for help in sharpening the focus of the report.Health, Ministry of Health and Family Welfare, The opinions contained herein are solely those ofGovernment of India. We also thank Mr. J. V R. the authors. Endorsement by any of the above-namedPrasada Rao, Additional Secretary for Health, Minis- individuals or any agencies or institutions with whichtry of Health and Family Welfare, for his support of the authors are affiliated should not be assumed orthis publication. inferred.

viii

Acronyms

CGHS Central Government Health SchemeDALY Disability-adjusted life yearsESIC Employees' State Insurance CorporationESIS Employees' State Insurance SchemeGIC General Insurance CorporationHMO Health Maintenance OrganizationISM&H Indian Systems of Medicine and Homeo-

pathyNCAER National Council of Applied Economic

ResearchNGO Nongovernmental organizationNHI National health insuranceNSS National Sample SurveyOECD Organisation for Economic Co-operation

and DevelopmentPHP Prepaid health planVHS Voluntary Health Service

ix

1 Introduction:The Challenge of Urban Health Care in India

India is the world's largest democracy. Ethnically and In the last decade, India's urban population hasreligiously more heterogeneous than any other nation, grown approximately twice as fast as its rural popula-its population is approaching one billion and will sur- tion. The country's urban population exceeds the entirepass China's early in the next millennium. With just population of the United States, with about 30 percentunder one-sixth of the world's population, India's 288 of Indians now living in cities. This figure is projectedmillion lost Disability-adjusted Life Years (DALYs) to rise to about 370 million persons by 2006. Moremake up 21 percent of the global total (Murray and than half of the urban population lives in 23 metro-Lopez, 1996). India also accounts for a quarter of the politan areas or cities with more than one million peo-world's annual maternal deaths and 19 percent of ple, including the four megacities of Calcutta, Chennai,deaths of children under the age of five. Delhi, and Mumbai (Eighth Five-Year Plan).

From an epidemiological standpoint, the nation's These considerations-dual, high disease burdensdisease profile poses dual challenges. More than half of coupled with rapid urbanization-highlight the grow-India's DALYs lost are due to communicable diseases, ing importance of urban health care issues in India.30 percent to noncommunicable diseases, and 15 per- The economic and social future of the country will becent to injuries (Murray and Lopez, 1996). The burden driven to some degree by the positive development ofof communicable, maternal, and reproductive diseases its cities, including the success of urban health care ser-is concentrated in rural areas and urban slums. These vices. However, these services are currently manageddiseases are fortunately highly sensitive to interven- by a chaotic array of public and private providers andtions in poverty reduction, public health, and primary facilities that are characterized by wide variations in thecare. However, cardiovascular disease, cancer, muscu- quality, cost, and efficiency of care. The restructuringloskeletal disorders, and neuro-psychiatric illnesses are of urban health care, moreover, is not simply a luxuryrapidly emerging as causes of death and disability (see for India's expanding middle class. With teeming slumsTable 1). These chronic diseases, coupled with rising a feature of every large Indian city, the reform of urbanincomes, are increasing the demand for more complex health care delivery is an integral part of any agendatypes of health care. that is concerned with the poor.

In this report, we provide a brief overview of India'shealth care systems, highlight issues pertinent to thecurrent public-private mix in urban health care, and

Table 1 Distribution of India's disease burden in 1990and projected for 2020 suggest some directions and options for reform. We(percentage of DALYs lost, by cause) caution that the report assumes the need for greater

investments in health promotion and clinical preven-Communicable,

Noncommunicable Maternal, and tion. This position, however, is not predicated onYear Diseases Perinatal Diseases Injuries massive shifts away from palliative and curative inter-1990 29 56 15 ventions. In addition, India's large population,2020 57 24 19 regional diversity, and multidimensional health careSource: Murray and Lopez (1996). systems mean that any overview will inevitably be

1

somewhat oversimplified. For example, the percent- Pradesh, Kashmir, and Orissa. However, our inten-age of the population that is urban varies sharply tion is not to generate state-specific blueprints, or tothroughout India, from about 10 percent in Himachal exhaustively catalogue all potential policy options.Pradesh to 40 percent in Maharashtra. Absolute lev- Our goals are simply to propose some general direc-els and allocative patterns for health expenditures tions for change in the financing and organization ofalso vary dramatically across states (Duggal et al., service delivery and to catalyze discussion about pol-1995). As one indicator, whereas more than 40 per- icy options and responsibilities for urban health carecent of the bed capacity is in the private sector in at the national and state levels. We begin with aKerala and Gujarat, private sector bed capacity is review of India's current health care systems, focus-much lower in states such as Rajasthan, Bihar, Uttar ing primarily on the urban setting.

2

2 India's Public and Private Health CareSystems

The Responsibilities of the Central and State majority of funding and management for tiered sys-Governments for Direct Provision of Care tems of rural health services and are particularly invest-

ed in the rural hospitals sector. Many municipalitiesSince gaining independence, India has been commit- also contribute to public health programs and to directted to the principle that publicly funded health care health service provision.should be available to all citizens regardless of their Less acute illnesses are treated in rural delivery sys-ability to pay Both the GOI and states serve as tems, which are based on subcenters or health postsproviders of last resort, with either no or minimal staffed by lay health workers. Subcenters refer patientscharges made at the point of service. However, total to rural hospitals which treat more serious illnesses andstate and central government spending on public which function as secondary referral centers. The num-health care services is only US$2-3 per capita per year. bers of these public sector provider units as of March

The Constitution of India assigns concurrent 1995 are shown in Table 2.responsibility for health care to the central and state States also have responsibility for urban health ser-governments. The central government is responsible vices, which generally include larger referral hospitalsfor health in Union Territories and plays an important and some publicly funded primary care services. Therole in supporting and assisting state governments with states vary up to tenfold in their per capita spendinghealth care planning, policymaking, and delivery In on health. The GOI has a predominant role in healthaddition, the Ministry of Health and Family Welfare care only in the union territories.oversees several disease control programs that arenational in scope (including malaria, tuberculosis,blindness, leprosy, and HIV/AIDS). The Private-Public Balance of Finance

The GOI has functionally separated health fromfamily welfare in order to promote family planning and International debate over the optimum balancepopulation control (Nath, 1994). Different national between public and private funding and the provisionsecretaries have accordingly been appointed to health of health care is ongoing. Most nations uphold theand family welfare. This has created a functional sepa- principle that no citizen should be denied care on theration within states down to the district level, where basis of an inability to pay, but the means by which thisprimary health centers may have separate drug inven-tories, for example with one set of paracetamol tabletsused for health and another for family planning. 1 Table 2 Tiers of the rural public health care system,

Whereas most family welfare expenditures flow 1996from the central government, national funding for Subcenters 220,590

public health services constitutes less than 25 percent Primary Health Centers 22,156public Community Health Centers 2,377

of the anticipated total expenditure for such services, Rural Hospitals 3,568

while states cover more than 75 percent of direct health Source: Planning Commission, Report of the Working Group on Health Careservice provision costs. The 25 states provide the Delivery. 1996.

3

4 A Fine Balance

principle is put into practice can vary enormously sector have never been recorded or registered (JesaniTypical Organization for Economic Cooperation and and Nandraj, 1994).Development (OECD) configurations include univer-sal social insurance systems with public or quasi-pub-lic payment systems and largely private service provi- The Private-Public Mix of Rural Health Caresion (e.g., in Canada and Germany), or national health Deliveryservices with some parallel private insurance (e.g., inBritain and Sweden). Public funding accounts for 65- Urban health care in India cannot be understood with-90 percent of all health service expenditures in OECD out also considering the context of rural care. In mostnations, with the sole exception of the United States. states, the tiered public system that was designed to

In India, however, only about 20 percent of all serve rural Indians has suffered chronic staffing prob-health expenditures flow through the public sector. lems for two decades. Although at least 15,000 physi-The Subgroup on Health Care Financing and cians graduate from India's medical schools every year,Insurance of the Ministry of Health and Family Welfare staff shortages persist in the rural public service. Datahas recommended that public expenditures on health from the early 1990s suggest that up to two-thirds ofshould be not less than 2.5 percent of GDP, with 80 medical graduates enter the private sector, mostly inpercent going directly to public health care. Current urban settings. Tuition is heavily subsidized by states,state and central expenditures are about half this level. a particular concern given the eventual practice loca-

Table 3 shows that Indian health services are tion of most graduates. Nursing shortages are also afinanced largely by out-of-pocket household-level pay- problem. The Eighth Five-Year Plan (1992-1997) notedments, with much smaller contributions by central and that there were fewer than 300,000 registered nursesstate governments through direct service provision. compared to 400,000 registered medical graduates-(We shall consider corporate and third-party funding, a sharp departure from the ratio of 3:1 or higher seenincluding health insurance, below.) While the majori- in most other countries. Many current nursing gradu-ty of expenditures are for primary or ambulatory care, ates are understandably drawn to well-paid jobs ininpatient services also consume a substantial amount urban private hospitals, as opposed to less lucrativeof private and public funding. About two-thirds of reg- rural service.istered hospitals are private, but account for less than The problems of the rural health service go beyond40 percent of available beds. This inconsistency reflects staffing. Figures vary by state and district, but onethe impact of big public sector hospitals in urban areas. working group for the GOI Planning Commission hasHowever, the number of private beds is probably much estimated that, overall, the rural system is underuti-greater than official figures suggest (Bhat, 1994). Not lized by as much as 50 percent, relative to its existingonly is the private hospitals sector continuously capacity (Planning Commission, Report of the Working

expanding, but many small institutions in the private Group on Medical Education, 1996).

Table 3 National health spending: sources and uses (percent)

SourcesCentral State & CorporateGov't Local Gov't 3rd Party Households Total

UsesPrimary Care 4.3 5.6 0.8 48.0 58.7Secondary & Tertiary Inpatient Care 0.9 8.4 2.5 27.0 38.8Nonservice Provision 0.9 1.6 N/A N/A 2.5Total 6.1 15.6 3.3 75 100

Source: World Bank (1995b).

India's Public and Private Health Systems 5

Low utilization is partly a function of problems although most of these practitioners also rely heavilyrelated to distance and transportation. As noted by on mainstream methods and remedies. Some haveWyatt and Bhat (1997), more than 50 percent of the worked as medicine compounders, pharmacists, orpopulation has to travel more than 5.5 kilometers to doctors' assistants.reach a primary health center, usually on foot, and nei- Recognizing this reality in the 1990s, some statesther subcenters nor primary health centers have pro- [ntroduced programs aimed at retraining local privatefessional personnel or diagnostic facilities. The limited practitioners of ISM&H (Eighth Five-Year Plan). Bycapacity of the system's lower tiers leads many rural training these practitioners in essential primary careIndians to bypass it altogether, with self-referral to services, the states can help to ensure that rural resi-urban centers and concomitant overcrowding. These dents have a low-cost and effective private alternativeconcerns were noted in a 1983 statement on national to public primary care.health policy by the Ministry of Health and Family Continued problems in rural care have led someWelfare, which called for a "well worked-out referral panchayats (village committees) to develop multidisci-system" to "ensure against the continuation of the plinary organizations for provision of a range of healthexisting rush towards the curative centers in the urban and social services, including primary care and familyareas" (Ministry of Health and Family Welfare, 1983). welfare services at the subcenter level. Past governmentHowever, no substantial restructuring has taken place reports have acknowledged the strengths of this grass-since this statement was issued. roots sector and encouraged partnerships with it, but

Critics have suggested that the rural public health progress remains slow.system providers focus unduly on family planning andimmunization targets, rather than on the actual serviceneeds of their populations. Several surveys have found The Private-Public Mix of Urban Health Carethat patients complain of impersonal care, the cavalier Deliveryattitudes of health personnel, and long waiting times.

Given the issues related to access and the general Public care in urban areasdissatisfaction with the public system, it is not surpris- Unlike in the rural health care system, a tiered referraling that rural Indians gravitate in large numbers to local system for publicly funded services does not exist inprivate practitioners, many of whom are unregistered urban areas. The ambulatory care sector includes aboutand unqualified. For example, Rohde and Viswanathan 1,600 urban health centers with various names and(1994) cite a major study in Uttar Pradesh with a ran- staff. Only about 1,500 subcenters are staffed by laydom sample of 330 villages and interviews of 488 pri- health educators or paramedical personnel. Withvate practitioners. Based on this sample, it was pro- about 300 million Indians living in urban areas, thejected that Uttar Pradesh alone has more than 187,000 current number of centers and subcenters is far tooprivate practitioners, while India as a whole may have small to meet ambulatory health care needs.1,250,000. The operational situation with subcenters, or health

One can therefore argue that India has three tiers posts, is also less than optimal. In 1996, the Planningof "medical" personnel: about 400,000 registered Commission catalogued the various deficiencies notedpractitioners, 400,000 who have formal training and by three earlier reviews. Health posts were oftenmight or might not meet registration requirements, attached to hospitals or maternity homes, which madeand 400,000 who are part of the informal sector con- them inaccessible to slum dwellers for both distancecentrated in rural areas. According to Rohde and and cost reasons. Other deficiencies include anViswanathan (1994), the typical village practitioner absence of adequate or standardized drugs and equip-grew up in the community where he/she works, but ment, a lack of outreach services for early detection andis unregistered and may not have any formal medical treatment of infectious disease such as malaria, tuber-training. Training in medicine, when applicable, usu- culosis, and leprosy, and poor staffing and in-houseally takes place in one of the ISM&H schools, training. In addition, formal referral linkages are lack-

6 A Fine Balance

ing and inadequate partnering exists between non- government administrators. This process hinders flex-profit nongovernmental organizations (NGOs) and ibility, erodes morale, and stifles innovation.2 User feesprivate medical practitioners (Planning Commission, scaled to patients' ability to pay were mandated inReport of the Working Group on Health Care Delivery, manyjurisdictions by the Eighth Five-Year Plan, but are1996). set at low levels and are collected inconsistently

These deficiencies in publicly funded health care for Hospital practitioners complain of severe difficulties inurban Indians have drawn the attention of planners obtaining and maintaining high-technology equip-and policymakers. In the Eighth Five-Year Plan, the ment, while many leading specialists are departing forPlanning Commission wrote that "In.... large cities, private practice in the growing numbers of large, well-about 40-50 percent of the urban dwellers are estimat- equipped private hospitals (see below).ed to be living in slum areas where the health status ofthe people is as bad as, if not worse than, in rural areas. Private care in urban areas[linfrastructure for primary health care in urban areas Middle-class urban patients rely heavily on privatehardly exists..." (Eighth Five-Year Plan). Subsequently, providers for both ambulatory and inpatient services.a Working Group on Health Care Delivery within the They receive ambulatory care from an array of gener-current Planning Commission has recommended the alists and specialists, most of whom are conventional-establishment of more than 10,000 new urban health ly trained and fully qualified physicians. Specialistssubcenters and 766 new urban health centers. It has often form groups and operate freestanding diagnosticalso recommended upgrading 750 of the current facilities as well as "nursing homes," owner-operatedhealth centers. inpatient facilities that generally have less than 20

At present, the inadequacies of public ambulatory beds. Many of these small private facilities are not reg-care are reflected in utilization patterns. The National istered with the authorities, and operate unobtrusive-Sample Survey (NSS) and National Council of ly in residential areas where they can obtain water andApplied Economic Research (NCAER) analyses indi- electricity services at domestic rates. Leading medicalcate that poor urban patients rely on public facilities authorities have expressed concern about the overusefor in-patient care, but usually turn to private practi- of diagnostic equipment in small owner-operated facil-tioners for ambulatory care. Similarly, when Nanda ities, which results in both inappropriate proceduresand Baru (1994) interviewed relatively impoverished and higher costs for patients. Many small clinics alsoindividuals in a Delhi resettlement colony, they found have an attached pharmacy and overprescription hasthat 60 percent of the respondents first resorted to a been alleged. On the other hand, a study in Karnatakaprivate practitioner if they fell ill, while only 20 per- showed that only three percent of small private hospi-cent went to a government hospital. Survey respon- tals have a blood bank, a worrisome situation givendents cited longer consultations and more personal- that they perform numerous elective surgenes.ized attention as advantages of seeking care from Delhi and Mumbai both have laws dating back toprivate practitioners. 1953 and 1949, respectively, that require private nurs-

India has approximately 4,500 government hospi- ing homes to register with the authorities. Delhi's lawtals with more than 450,000 beds (Duggal, 1997), remains largely unenforced, while in Mumbai a privatemost of which are located in cities. Along with crowd- citizens' group helped to reactivate the legislation byed outpatient departments, public hospitals run inpa- petitioning the Bombay High Court, leading to antient occupancy rates as high as 150 percent, with immediate jump in the number of registered homes bypatients doubled up in or under beds. Physical condi- several hundred. However, some states do not have leg-tions are poor, health information systems are primi- islation regulating private hospitals.tive, and formal quality control is negligible. Further- A 1995 review of nursing homes in Delhi recom-more, the public hospitals in virtually all states and mended that they be required to obtain a "no objectionunion territories lack autonomy, and must work certificate" (i.e., neighborhood approval) to operate inthrough their budgets line by line with state or central residential areas. The review also recommended that

India's Public and Private Health Systems 7

rates be posted clearly, that there be an incinerator on investor-owned hospitals have incurred substantialsite to dispose of biohazards, that parking spaces be debt in order to build opulent facilities. Few haverelated to the size of the facility, and that water and elec- achieved profitabilitytricity be charged at commercial rates. These recom- Their information systems are modern, profession-mendations remain unimplemented. al management is the rule, and quality control is more

A dramatic development in the last several years has conspicuous than in public sector hospitals.been the emergence of large-scale, investor-owned Nonetheless, during on-site visits we saw private hos-hospitals. Every major population center now has pitals promoting questionable packages of laboratorymedium and large private hospitals with varying and noninvasive imaging tests as preventive services.degrees of high-technology capacity This sector has Moreover, these institutions do not routinely compilebeen steadily recruiting some of India's most talented indicators on quality and efficiency A lack of continu-specialists, including expatriates, and has also become ity between inpatient and ambulatory care is inevitablea popular venue for wealthy patients from the Middle when hospitals function as isolated enterprises. Fee-East and Africa. Several health care corporations have for-service payment reinforces this sector's focus onissued shares and trade actively on Indian stock high-cost, high-technology procedures, as opposed toexchanges. preventive services and primary care.

Vertical integration in the private sector is extreme-ly limited. Just as the lack of urban primary care con- State-owned enterprise delivery systemstributes to overloading of the outpatient and emer- State-owned enterprises, such as Coal India and Indiangency departments of large public hospitals, so does Railways, have developed their own care-giving sys-incomplete vertical integration lead to wasteful expen- tems. For example, Indian Railways, the largest pub-ditures in the private hospital sector. The investor- licly owned enterprise in the world, operates 670 pri-owned Apollo Group has been working to develop mary health centers and 122 hospitals and employsprimary care centers that will feed directly into its pri- 2,550 doctors. An estimated 10 million beneficiariesvate hospital facilities, but in the absence of compre- are covered by the system.hensive coverage and risk sharing, such arrangements The Railways health service has four tiers. Primarymay serve more to drum up business than to hold health centers have a medical officer and pharmacist indown costs. each unit. Subdivisional hospitals have a 25-30 bed

In return for allowing large private hospitals to oper- capacity and basic diagnostic facilities. Divisional hos-ate in urban areas, some municipal governments insist pitals have 100-200 beds and cover the higher-volumethat such hospitals provide 15-20 percent of their bed subspecialties. Zonal hospitals, with 300-400 beds,capacity to the poor without charges. Municipalities serve as final referral centers, with all subspecialtiesmay give private hospitals lower rates on utilities or and diagnostic capacities except for magnetic reso-local taxes in exchange for charity care. Private hospi- nance and other high-technology tests. Each zonal hos-tals have also received reductions or waivers on pital has a particular strength, e.g., cardiology inimported medical equipment in exchange for using the Chennai, oncology and plastic surgery in Mumbai, anddevices for charitable service a certain percentage of the orthopedics in Calcutta. Patients are transported totime. However, policing of these agreements is very these centers free of charge on Indian Railways, whichinconsistent. also covers the cost of treatment at nearby public or

Private hospitals have the luxury of primarily treat- private hospitals if a patient is too sick to travel.ing patients with medium to high incomes who canafford to pay their fees. Such institutions are support- The voluntary sectored in large part by direct out-of-pocket payments, but India has a rich tradition of voluntary and charitablealso draw on funds provided by state-owned health work that is nourished by religious beliefs and philo-insurance arrangements and direct employer contracts sophical values. NGO health facilities include some ofand payments (see below). However, many large, the most efficient and effective urban hospitals.

8 A Fine Balance

Two examples from Chennai illustrate this point. sources, including grants from the GOI and the StateThe Shankar Netralaya in Chennai, founded in 1978, of Tamil Nadu, a variety of charitable donors and donoris internationally renowned as an eye hospital. It organizations, and contracts with industry that providereceives no government grants or international donor fee-for-service payments. With this funding base, thefunds, but is fully supported by domestic donations VHS has been able to organize a local health insuranceand user charges scaled according to the ability to pay plan that is prorated by income. All patients becomeAbout 20 percent of the 16,000 operations performed subscribers based on their ability to pay Like manyannually are done free of charge for very poor clients. other voluntary institutions, the VHS takes advantageA large outreach program exists, including busing and of the excess diagnostic capacity of the private sectora hostel for those who must travel very long distances to negotiate the purchase of CAT and MRI scans atafter outpatient surgery. The management is highly reduced rates when required.3 The VHS also runs aprofessional and a computerized information system community primary health care service through a sys-exists. The technological capacity is equal to that of tem of mini-health centers and lay first-aid workers.most European and American eye hospitals. Similar We concur with other observers who have conclud-institutions have been set up in Maharashtra and ed that the NGO hospitals sector is better managed andKashmir by ophthalmologists who trained at Shankar more innovative than the public hospitals sector. TheNetralaya. former institutions and agencies have been leaders in

Many top practitioners offer free services on the multisource fundraising, in the careful application ofpremises of the 350-bed Voluntary Health Service user charges, in creating cooperative approaches to(VHS) hospital in Chennai, which was established in prepayment or insurance, and in building slum out-1958 as a general hospital. It is funded from several reach clinics in India's urban areas.

3 Insurance Plans and CorporatePrepayment

The Potential Importance of Insurance and Health Scheme (CGHS). All other insurance policies,Prepayment including those incorrectly perceived as being fully pri-

vate, come under the domain of four large, state-ownedIndia's current mix of public and private health care is companies, all of which are subsidiaries of the govern-an unstable amalgam of the direct provision of publicly ment-owned General Insurance Corporation (GIC).funded care by governments and out-of-pocket pur-chase of private services by individual consumers. As The Employees' State Insurance Scheme (ESIS)illustrated in Table 3, only 3-4 percent of health care ESIS was initiated in 1948 and became operational inprovision is presently funded through prepayment 1952. It is a largely self-supporting social securityschemes and third parties such as corporations. health insurance program for members of the orga-However, such funding sources are critical because of nized labor sector. It is administered by an autonomoustheir potential role in the future. Hundreds of millions body known as the Employees' State Insuranceof individuals paying out of pocket have limited lever- Corporation (ESIC).age in the private health care market. Moreover, the The Employees'State Insurance Act of 1948 appliedexpansion of private insurance that is organized on an to nonseasonal factories that use power and employ 20indemnity basis-with fee-for-service payment of doc- or more persons. A 1989 amendment extended cover-tors and hospitals-may accelerate expenditure age to nonseasonal factories using power and employ-growth and yield limited marginal health returns. In ing 10 or more persons, as well as to other establish-contrast, the aggregation and application of purchas- ments that do not use power but employ 20 or moreing power in large-scale prepayment plans could have persons. Previously limited to employees earning lessa powerful and positive influence on provider behav- than Rupees (Rs.) 3,000 (about US$10) per month,ior, particularly in light of India's large supply of physi- coverage was recently extended to those earning up tocians and its thriving private hospital sector. Rs.6,500 per month.

This section reviews India's insurance and non- State governments can extend the Act's coveragegovernmental prepayment arrangements as they apply with due notice to industrial, commercial, agricultur-to urban health care. Consistent with the categories in al, and other enterprises. Most state governments haveTable 3, we include an analysis of the direct provision already extended coverage to service enterprises suchof employee health services by investor-owned indus- as shops, hotels, restaurants, cinemas, road transporttries. businesses, and newspapers that employ 20 or more

persons. Table 4 illustrates ESIS coverage as of March31, 1996.

Government-mandated Prepayment Schemes Employers currently contribute to the ESIS anamount equal to 4.75 percent of the wages payable to

India has two main systems of publicly mandated con- employees, while employees contribute 2.25 percenttributory health insurance: the Employees' State of their wages. Employees in the lowest wage groupInsurance Scheme (ESIS) and the Central Government (i.e., who earn average daily wages of up to Rs.15 per

9

10 A Fine Balance

Table 4 Coverage data for the ESIS, March 1996 "complex office procedures, abnormal delays in the

Item Number settlement of cases and lack of specialist services, non-

States/Union Territories Covered 22 availability of ambulance vans, and low quality medi-Centers 629 cines."Employees 6,613,400 During on-site interviews, employer representativesInsured Persons/Family Units 7,302,800 characterized the ESIS as providing uneven value forInsured Women 1,165,900Total Beneficiaries 28,334,850 their money and suggested that they and the negotiat-Employers Covered 190,944 ing units of their employees should be able to eitherEmployees Yet To Be Covered 981,700 use ESIS or to choose alternative modes of coverage.ESI Hospitals 124ESI Annexes 42 Employers also noted that employees earning betweenBeds in ESIS Hospitals 18,527 Rs.3,000 and Rs.6,500 were upset by the increase inBeds in ESIS Annexes 842 the income limit for ESIS coverage and their resultingBeds Reserved in Other Hospitals 4,101 forced enrollment in the scheme.ESI Dispensaries 1,440ESI Medical Officers 6,136ESI Medical Practitioners 3,076 The Central Government Health Scheme (CGHS)Source: ESIC Annual Report, 1995-96. The Central Government Health Scheme (CGHS),

introduced in 1954, now covers 16 major cities and a

large proportion of central government employees,

day) are not required to contribute; employers are, including pensioners and the widows of former

however, required to contribute their share with regard employees. Dispensaries in Bhubaneswar and Ranchi

to such employees. State governments contribute a cover the staff of the Accountant General's offices. The

minimum of 12.5 percent of the total ESIS expenditure CGHS has more than four million beneficiaries, includ-

on medical care in their respective states. ing a wide array of paragovernmental personnel such as

The benefits derived from the ESIS can be divided civilian and industrial workers in defense establish-

into medical care and various categories of cash bene- ments, past and present members of Parliament, and

fits. Medical care is provided to insured persons and other senior government officials. Also covered are high

their family members through a network of panel clin- court judges and employees, the Delhi police, accredit-

ics, ESI dispensaries, and ESI hospitals. The ESIS also ed journalists, and many other categories of employees

finances cases requiring advanced, subspecialty treat- of semigovernmental and quasi-autonomous organiza-

ment, or specialized surgery in the leading medical tions. The CGHS is similar to the ESIS in its contribu-

institutions of the country. A variety of cash benefits are tory financing. Table 5 shows the numbers of entities

provided, including sickness benefits for certified ill- involved in the CGHS as of March 31, 1995.

nesses, maternity benefits, partial replacement of earn-

ing capacity for various levels of disability, and death Table 5 Coverage data for the CGHS, March 1995

benefits for the families of those who die from a job- Item Number

related accident. Cities 16

Despite its breadth of coverage, the ESIS program Families 886,238

has, according to Ellis et al. (1996), "come under seri- Beneficiaries 4,019,266a

ous criticism from users, internal review committees, Allopathic Dispensaries 235and outside researchers." They also noted that Ayurvedic Dispensaries 31

Homoeopathic Dispensaries 34"detailed patient surveys conducted in Gujarat found Unani Dispensaries 8

that more than half of all survey respondents covered Yoga Dispensaries 3

by ESIS did not seek care from ESIS facilities for treat- Sidha Dispensaries 2

ment." Another report by the Center for Social Total Attendance 25,207,546Services, the Administrative Staff College of India a. Excluding people living in Patna, Bihar

(1996), was similarly critical, noting problems with Source: CGHS Annual Report, 1994-95.

Insurance Plans and Corporate Prepayment 11

In its role as an employer, the central government groups do offer individuals arrangements to pre-heavily subsidizes CGHS. The contribution from process claims. In these cases, a claims processor isemployees varies from Rs.5 to Rs.50 per month. established on a nonprofit basis, with tax rebatesTreatment can be obtained from more than 300 dis- provided to those who buy memberships. Thispensaries, clinics, laboratories, and dental units. approach transforms Mediclaim coverage from a par-When treatment is obtained at government hospi- tial indemnity to a full-service plan for enrollees andtals, enrollees with higher levels of coverage can helps build a loyal patient base for a particular clin-upgrade their accommodations and charges are fully ic or private hospital.reimbursed. Patients are sent to private hospitals As of September 1996, annual premiums forbased on a referral from a CGHS medical officer. Mediclaim ranged from Rs.175 to Rs.5,770 and cover-In such cases, CGHS reimburses 80 percent of the age from Rs.15,000 to Rs.300,000 per policy year.private charges, with the remainder often covered by Individuals are eligible for a full or partial rebate onemployee-provident funds. income tax up to a sum of Rs.10,000 per year.

CGHS subscribers have complained of high out-of- Premiums are scaled to age, with minor discounts forpocket expenses due to slow reimbursement and claim-free years. GIC has imposed a lengthy list ofincomplete coverage for private care. Ambulatory exclusions. For example, no payment for hospital careclinics under the direct auspices of CGHS have also will be made for "any existing illness or disease ofbeen criticized for being poorly staffed and unhy- chronic nature" or for various other conditions duringgienic. the first year of insurance coverage. Many middle-class

Indians in small enterprises do purchase individualMediclaim policies, but expect that large out-of-pock-

State-owned (quasi-private) Health Insurance et expenditures will be required in the event of a seri-Schemes ous or chronic illness.

Group Mediclaim policies are available to any cen-India nationalized its insurance industry in 1973, trally administered group or corporate body of moremerging all private insurers under the control of the than 50 persons and are also extended to depen-General Insurance Corporation (GIC). The GIC has dents. Benefits are similar to those contained in indi-four subsidiaries that offer health-related coverage: vidual policies. Employees prefer group Mediclaimthe National Insurance Corporation (Calcutta), the policies to the ESIS because the former offers aNew India Assurance Company (Mumbai), the choice of providers. However, the ESIS is mandato-Oriental Insurance Company (New Delhi), and the ry for lower-income employees and requires lowerUnited Insurance Company (Chennai). Each of these premium contributions from employers. Thus, opt-is a national government-owned entity with a focus ing out of the ESIS has little appeal for most corpo-on the region where the head office is located. rations with a poorly paid workforce. Instead, cov-

GIC's medical insurance consists of several levels erage is often achieved through a combination of theof group and individual coverage, collectively ESIS for those earning less than Rs.6,500 per monthknown by the brand name Mediclaim. The policy and group Mediclaim benefits for those earningname, type, premium levels, eligibility criteria, and more.benefit coverage related to the types of coverage are As of the end of 1995, only 1.8 million personsall determined by the GIC. The four subsidiary com- were covered by individual and group Mediclaimpanies compete only with respect to the servicing of policies. Total premium receipts were Rs. 1,200 mil-claims and the marketing of policies. lion. Claims settled led to payments totaling Rs.570

In general, individual Mediclaim policies function million, illustrating that the policies had a high reten-on an indemnity basis, whereby the patient (or an tion ratio.employer on his/her behalO pays the provider and is In late 1996, the GIC introduced a low-premiumsubsequently reimbursed. Some private provider scheme, Jana Arogya Bima, that requires payment of

12 A Fine Balance

Rs.70 to Rs. 140 per annum, depending on the age of also to allow entry of selected Indian players in the heatththe subscriber, with a Rs.50 charge for each depen- insurance sector.

dent child over the age of five. Such premiums put the Speech of Shri P. Chidambaram,scheme within reach of the rural middle class and Minister of Finance, 28 February 1997some urban residents who fall outside of ESIS cover-age. However, Jana Arogya Bima payments are capped While these proposed changes fell short of intro-at Rs.5,000 per insured person per annum, which ducing unlimited competition, they held promise formeans that beneficiaries still need to rely on free care the reinvigoration of the private insurance market. Thein public hospitals for any major illnesses. AIDS- matter was referred to India's insurance regulatoryrelated disorders are excluded. By March 1997, this authority for advice in 1997. Subsequently, the gov-scheme had about 400,000 enrollees. ernment tabled the Insurance Regulatory Authority Bill

Beginning in 1991, GIC has also offered an old- before the national Parliament in late 1998. The billage medical insurance scheme, similar in some included regulations pertinent to a liberalized insur-respects to a medical savings account. Funds accrue ance market, with the expectation that the Ministry ofduring the subscriber's working life and are available Health and Family Welfare would develop and enforceafter retirement. The number of subscribers has been rules specifically applicable to private health insur-limited. ance. The bill was referred to a Special Parliamentary

The Life Insurance Corporation, another state- Committee, and was scheduled to be tabled beforeowned entity, began offering a health care endowment Parliament again in March 1999.policy called Asha Deep II in 1995. It covers individ-uals 18-50 years of age and provides betweenRs.50,000 and Rs.300,000 for four conditions: cancer, Prepayment and Private Industryparalytic stroke, renal failure/dialysis, and coronaryartery disease. Terms are 15, 20, or 25 years with the Given the limitations of state-owned health insurancemaximum age at maturity fixed at 65 years. Benefits programs, major employers have developed twocan be claimed for one of the four target conditions approaches to providing health care to their employ-only once as a lump sum payment. Residual payments ees. The first approach, "empanelment," bears someare made at maturity or death, whichever is earlier. similarities to preferred provider arrangements in theThe Life Insurance Corporation sold 175,000 such United States. The employer develops a panel of pri-policies during 1995-96. vate hospitals and clinics or practitioners' offices

where employees are encouraged to seek care andwhich, in return for being recognized as approved

Opening the Private Insurance Market providers, offer discounted rates. In many cases,empanelment arrangements are layered on top of

In his budget speech for 1997-98, then Minister of group Mediclaim coverage, with the provider agreeingFinance, P Chidambaram, acknowledged the "dis- to a service contract for payment rather than indem-tressingly low" uptake of health insurance in India by nity arrangements.stating the following: Empanelment allows employers to bring some

leverage to bear on providers regarding improvementsClearly there is a demand for health insurance products. in the quality, accessibility, and affordability of care.GIC has frankly admitted that its Mediclaim policy has However, we found no evidence of prepaymentnot been successful and that it would be willing to pro- arrangements that included risk-sharing by providers.mote joint ventures in this line of business. GIC is also Instead, service contract payments are supplemented

confident of facing competition in the health insurance by fees for specified services. On industrial site visitsbusiness. Accordingly, I propose to move the necessary and in discussions with representatives of various

amendments to enable GIC to float joint ventures and chambers of commerce, we found that officials were

Insurance Plans and Corporate Prepayment 13

not aware of prepayment innovations such as managed available at some manufacturing plants. Low-incomecare plans with capitation funding.4 employees are covered by the ESIS, with a group

The second approach used by employers is direct Mediclaim arrangement available for staff in higherprovision of services. Many large plants have on-site income brackets. Discretionary medical grants areemergency services and dispensaries. The provision of made to individual employees or their family membersambulatory care through house doctors is part of a in order to meet special expenses that are not com-cost-containment strategy. Such practitioners act as pletely covered by Mediclaim.triage agents, both sorting through the complaints of The companies also provide a Rs.10,000 grant perworkers to determine the need for referrals and adju- annum per employee as part of their salary packages,dicating absenteeism. Some major corporations, such which is the maximum tax-free medical allowance.as Tatas and Hindujas, have gone further and devel- Reliance Group is considering construction of an 80-oped hospitals as trusts or societies. In so doing, they bed, secondary hospital in a township populated pri-have blurred the boundaries between employer- marily by its own employees and their families. Theowned facilities and the NGO sector. Facilities such as strategy under consideration is to vest the hospital withthe Tatas Memorial Cancer Hospital in Mumbai are the Reliance Foundation, open it to employees andinternationally recognized for their research and their families, and accept members of the general pub-teaching. lic on a fee-for-service basis. Physicians and surgeons

One of the more innovative employer-run institu- will be employed on a salary basis and close attentiontions is the Sundaram Medical Foundation (SMF) will be paid to cost-effective care.Community Hospital, a 100-bed, secondary-levelhospital in Madras. The hospital was established bythe Sundaram Finance Group, a subsidiary of the mas- Potential for the Growth of Health Insurancesive TVS industrial group. However, TVS and in IndiaSundaram employees are not given priority for admis-sion and the facility draws heavily on the 300,000 res- Several Asian countries have been more effective thanidents of Annanagar who live within a 2.5 km radius. India in implementing social or publicly mandatedThe hospital has foregone CAT scanners, cardiac health insurance plans. However, the uptake of privatesurgery, and other tertiary services. During our site insurance in India (see Table 6) has also been limitedvisit in 1995, we found that most of the doctors prac- for a number of reasons, including high administrativeticed full-time and were salaried. The hospital con-ducted regular audits of antibiotic utilization, chartingpractices, laboratory test ordering, operating room Table 6 Percentages of total health expendituresquality controls, and overall bed utilization. The SMF funded through public/social insurance and directmanagement team described their institution as a government revenuesdemonstration project that could be attractive to Country Social Health Insurancea Government Budgetb

industries and other third-party payers, including pri- Low- and Middle-Income

vate insurers in a liberalized market with capitated Algeria 37 36Bolivia 20 33

prepayment plans. China 31 13As might be expected, pluralistic payment arrange- India 2 18

ments are the norm for large industrial groups. For Korea 23 10

example, the Reliance Group of Industries, a US$8 bil- Vietnam 2 20

lion investment company headquartered in Mumbai, a. Includes any funds derived from publicly mandated or publicly man-aged insurance. The calculation is based on prepayment. Any user

has an approach similar to that of the other major charges or copayments levied within such schemes are excluded.

industries we visited in 1997. Reliance Group compa- b. Includes health expenditures supported by taxes or other forms of

nies offer periodic health examinations to all 14,000 domestic revenues, including external assistance in the form of loans and

employees at on-site facilities, with emergency services Source: Bos et al., 1999.

14 A Fine Balance

costs due to a weak communications and record- India in its reliance on private care paid for out-of-keeping infrastructure. Dual utilization, whereby mid- pocket by the consumers themselves.dle-income groups may resort to public services In light of these limitations, the question arises ofbecause of their needs and the anticipated cost of care, how large the scope for health insurance is in India. Ashas also played a negative role. Other factors are a lack Gumber and Shariff (1997) have argued, about 60 per-of actuarial, process, and outcome data needed to facil- cent of the population cannot afford private insurance.itate risk management by insurers; weak legal, admin- In addition, the majority of Indians live in rural areasistrative, and regulatory structures; and limited labor where there are no private hospitals. However, givenparticipation in the formal sector. the trend towards rising per capita incomes and India's

The Chinese experience highlights the fragility of large population (see Table 7), hundreds of millions ofsocial insurance structures. In the early 1980s, about Indians might be able to self-insure or participate in70 percent of China's population was covered by health employment-related prepayment plans if a more activeinsurance, much of it arranged through rural coopera- insurance market were developed. The epidemiologi-tives, collectives, and commune-based industries. By cal transition, with a rising burden of expensive andthe mid-1990s, economic restructuring had largely chronic diseases, is also likely to drive up the propor-swept the latter industries aside, leaving coverage for tion of expenditures put towards specialized, high-only about one in four Chinese. China now resembles technology services.

Table 7 Estimates of people and households in India, 1994 (by income group)

Distribution of income groups

Income group In US dollars per yeara Number of people (millions) Number of households (millions)

Low Up to 600 210 35Lower-Middle 600 to 1,200 275 50

Middle 1,200 to 1,860 275 50Upper-Middle 1,860 to 2,580 150 30High Above 2,580 6 1

a. Annual household income at 1993-94 prices; US$1 equals Rs.30.Source: NCAER, Indian Marketing Demographics, 1996.

4 International Lessons, Indian Challenges

Some International Lessons spawned integrated delivery systems and care net-works that deliver a full spectrum of services and,

International experience offers several useful lessons through capitation payment, are accountable clinicallythat can be applied to the reform of health care finance and fiscally for the care of a particular population. Inand delivery in India. First, in order to avoid excessive Canada, the devolution of budgets from provincialcentralization and sluggish bureaucracies in publicly governments to regional authorities and a system offunded health systems, many governments have population-based funding have fulfilled similar goals,devolved budgets and decision-making authority to although physician payment remains outside regionalthe regional and institutional levels (e.g., health clinics responsibility An integrated care network, or regionaland hospitals) and, in some cases, have introduced delivery system, is in theory able to transfer resourcesquasi-market reforms. The concept of institutional to the most appropriate levels of care. This strategyautonomy has generally stood tests of time and geog- favors a shift away from relatively expensive acute careraphy For example, health care systems in France, interventions with small marginal health returns,Japan, and Germany support a mix of private and pub- towards primary, home-based, and community care,lic hospitals that have administrative autonomy and prevention, and health promotion.expenditures that are controlled through a combina- Third, open-ended private indemnity insurancetion of global budgets and standardized fees. In with fee-for-service payment of providers is widely rec-Canada, general hospitals have historically functioned ognized as a prescription for cost escalation and waste.as quasi-autonomous, nonprofit corporations support- As a corollary, governments should avoid subsidizinged by global budgets. Even in the United Kingdom's the enrollment of poorer citizens in such schemes. ThatNational Health Service-where attempts to introduce said, physician services can still be provided econom-quasi-markets have been widely viewed as only a lim- ically by fee-for-service providers under social insur-ited success-public hospitals have been structured as ance plans that constrain add-on payments from con-partially autonomous trusts that enter into contracts sumers. Such plans also cap the funds available forwith primary care fund holders and local authorities. direct payments from insurers to providers. Canada,Thus, most developed countries have coupled central- for example, has operated provincial social insuranceized public finance with decentralized management schemes structured along these lines for many yearsand delivery of services. and has achieved excellent cost control. Further,

Second, planners and managers have long recog- Germany has a very pluralistic system, with about 600nized the need for a seamless continuum of services nonprofit sickness insurance funds that cover 92 per-extending from primary to quaternary care and from cent of the population. Although German physiciansacute institutional to chronic and home care. Change practice predominantly on a fee-for-service basis, costin this direction has occurred through private market containment is ensured because sickness funds arepressures, as in the United States, or through budget allowed to negotiate collectively with regional physi-capping and publicly directed restructuring, as in cians associations, and because the federal governmentCanada and the United Kingdom. The U.S. market has has imposed sector-wide budgets.

15

16 A Fine Balance

Fourth, extending health care coverage solely Health Service, where they are tended free- of-charge.through an active marketplace with multiple private Policies that allow patients to do so also inadvertentlycarriers may disenfranchise members of the population reinforce the cream-skimming practices of some pri-who are high insurance risks or are unable to partici- vate insurers. That said, a government-funded healthpate in group plans. A revealing example is that of the service could serve as a provider of last resort if formalUnited States, where more than 1,200 investor-owned reinsurance mechanisms or user charges appropriatelyand nonprofit companies compete actively in a health scaled to income are in place.insurance market that covers 58 percent of the popu-lation. The drive to contain costs and maximize rev-enues has led to a chorus of complaints about cream- Recapitulation of Challenges and Issues for Indiaskimming and the selection of low-risk, low-costinsurance groups. Meanwhile, 43 million Americans India's public health care system is subjected to cen-remain uninsured, despite the fact that the United tralized controls that compromise service delivery,States spent 13.6 percent of its GDP on health care in while the private system is largely unregulated and1997, well above the OECD median of 7.6 percent evolving in costly and ineffective directions without an(Anderson, 1998). Cost control in the country's private active prepayment market. Table 8 illustrates the cur-sector has been attempted through stringent utilization rent mix of public and private health care funding andmanagement and financial measures, such as capita- provision mechanisms.tion funding of integrated delivery systems with Most Indians face the risk of a financial and healthprovider risk sharing, preferred provider contracts, catastrophe in the event of serious injury or illness,and negotiations over discounted prices and fees. which can only be averted if they turn to the over-Nonetheless, between 1990 and 1997, at a time when loaded public sector for care. Because of the wide-managed care in its various forms was growing rapid- spread preference for private providers and the under-ly, the United States had a health care expenditure development of primary care in urban areas, the poorgrowth rate of 5.6 percent per year, the third-highest are less likely to receive preventive services from rep-among OECD countries. In contrast, Canada, with a utable primary care practitioners. Thus, they are pre-noncompetitive, single-payer system, had the lowest disposed, by virtue of both socioeconomic factors andgrowth rate at 3.1 percent (Anderson, 1998). patterns of health service utilization, to acute andMoreover, administrative overhead is much higher in chronic illnesses.the United States than in nations with single-payer sys- Neither ESIS nor CGHS offers social insurance mod-tems, such as the United Kingdom and Canada, or els that can be used as a basis for expanding health carethose with hybrid systems, such as Germany and systems. ESIS applies only to lower income employeesFrance. in the organized sector and is tied to a single state-

Fifth, in any situation where a government-funded owned delivery system. CGHS provides special ser-or -directed system serves as the provider of last resort, vices to many relatively wealthy public sector employ-private insurers and insured patients alike will use that ees, diverting public sector support away from thearrangement to their advantage. This will result in indi- poorer members of society In addition, both ESIS andrect subsidies to both insurers and the more affluent CGHS have been widely criticized for their limitedsegment of society that is able to purchase private cov- medical coverage, substandard medical services, anderage. For example, private care and prepayment in the inadequate administrations.United Kingdom has long focused on the provision of The GIC subsidiaries-which after 25 years are stillelective surgical procedures such as hip replacement the only players in a quasi-private health insuranceand non-urgent coronary artery bypass surgery. These market-have had a minimal impact. No true compe-procedures have predictable costs and high margins. tition and little innovation exist. Ellis et al. (1996)Patients who develop serious complications from these argue that only 55 percent of premium revenues areprocedures, however, often shift back to the National paid as claims, suggesting that state-owned companies

International Lessons, Indian Challenges 17

Table 8 The matrix of private and public funding and provision of urban health care

Provision mechanismFinancing Source Public Private

Public/Tax-funded Public hospitals Concessions on duties, taxes, and utilities inUrban primary care centers and subcenters exchange for charity care by private hospitals

Publicly Mandated ESIS/CGHS Limited purchase of tertiary services byESIS/CGHS

Private Self-pay/Prepay User charges for higher income patients in Limited prepayment (Mediclaim); out-of-public facilities pocket payments to private practitioners and

hospitals

are providing poor value for the money invested. The facilities anywhere in the industrialized world.current Mediclaim system does not audit the appro- However, there is very little hard evidence concerningpriateness of treatments, but instead seems to rely on the appropriateness of treatment in the larger privaterather arbitrary denials of claims and on the capping of institutions, as well as a palpable risk of overservicingpayments. Further, the plans operate primarily on an in an open-ended, fee-for-service marketplace.indemnity basis, leaving consumers to cover all costs Costs are several-fold higher per patient day in largeuntil they are reimbursed for some portion thereof. private hospitals, raising questions regarding the trueThis problem is avoided only when employers inter- efficiency of these institutions. Very little is knownvene through empanelment with designated providers, about the quality and efficiency of care at the existingor when private clinics and hospitals sell individual- plethora of medium and small private hospitals, manylevel guarantees against direct charges. of which are unregistered. Neither the central nor the

With regard to the direct provision of public ser- state governments have mandated the continuation ofvices, the Indian system is grossly overloaded and medical education, recertification of private practi-underfunded. Public hospitals play an important role tioners, or systematic scrutiny and reporting of quali-in providing free care to lower income groups, but lack ty of care among practitioners in the ambulatory careprofessional administration, have poor quality man- sector or smaller private hospitals. Many private prac-agement, and are both hobbled in their operations and titioners were trained first in traditional Indian systemsrendered inefficient by central controls. Most patients of medicine, and the depth of their knowledge of con-who can manage the cost seek a private hospital or temporary preventive practice remains uncertain.practitioner in times of illness rather than public hos- More generally, fee-for-service payment to both pri-pitals, which have been criticized for poor amenities, vate hospitals and physicians creates a combinedovercrowding, long waiting times, and cavalier atti- incentive for technological and procedure-intensivetudes among staff. Furthermore, resource allocation in care, without rewarding either higher quality care ormost states is skewed in favor of tertiary services (rel- socially desirable services, such as immunization andative to primary and secondary care), particularly in other preventive interventions. In addition, privateurban areas. sector health care is diverting scarce human resources

With 80 percent of all expenditures flowing through away from the public sector (Center for Socialprivate channels to private providers, a central ques- Services, Administrative Staff College of India, 1996).tion logically arises: How much better is the private In the short term, the liberalization of health insurancesector? The answer, unfortunately, is not clear. Site vis- could stimulate even greater expansion of the fee-for-its in 1995 and 1997 suggested that large, private hos- service sector and, in turn, rapid cost escalation andpitals are run efficiently Patients receive prompt atten- overservicing.tion, amenities are excellent, and the diagnostic and Finally, we acknowledge that any general optionsother infrastructure aspects are comparable to those in for restructuring Indian health care must be modified

18 A Fine Balance

because of practical implementation challenges, e.g., system, which has health care on a long list of con-local preferences, state-specific funding levels, region- current responsibilities, represents a further chal-al transport systems, and the availability of facilities lenge; this situation, however, also offers an opportu-and skilled personnel. Like most developing coun- nity for state-specific experimentation andtries, India faces an implementation gap caused by the incremental improvements. Thus, some reforms canlack of a communications infrastructure and adequate be catalyzed by the central government throughadministrative capacity In the future, these problems national legislation, while others can be tested at thewill be compounded by resistance to reform on the state level by innovative governments for later appli-part of various private interest groups. India's federal cation in other states.

5 Some Policy Options for FinancingHealth Care in India

Opening the Private Insurance Market scribed through government regulations. Otherwise,rmany Indians will remain uninsured, opt for lower cost

We see no rationale for maintaining restrictions on pri- policies, and continue to turn to the overburdenedvate health insurance in India. A shift towards greater public system for the care of excluded conditions. Inprepayment and away from individualized out-of- t-his respect, the obvious advantage of capitationpocket purchases of medical care would distribute the schemes is that insurers and providers become jointlyfinancial burden of health services more equitably and responsible for the full array of their enrollees' healthreduce the catastrophic impact of major illness on service needs.middle-income Indian families. If accompanied by In sum, there is a need for research on insurance reg-appropriate regulations, the liberalization of health ulations and reforms that might shape the evolution ofinsurance could also draw new business and foreign ][ndia's health care prepayment market. This is oneexchange into India and open up opportunities for obvious avenue for both World Bank investment andmanaging health services. international partnerships with private enterprise.

Over time, market forces will likely drive insurerstoward tight utilization controls on the fee-for-servicesector, the development of preferred provider net- Augmentation of Private Prepayment andworks, and other elements of managed care. Market Purchasing Capacityforces will also push insurers toward capitated pay-ment plans and risk-sharing arrangements. Such plans To propel a transformation in the payment for healthin the United States have been criticized for the under- services in urban India, financial push factors must betreatment and preferential enrollment of low-cost in place. Mandated contributions by industry are a log-patients, pointing to the need for a regulatory frame- ical starting point, in turn introducing the prospect ofwork in India to prevent skimping and skimming. In r.estructuring ESIS and CGHS, the current mandatoryaddition, India's lack of experience with both capitat- schemes.ed prepayment and risk-sharing strategies makes inter- The strength of ESIS is that it is a self-financing andnational partners even more vital for the rapid evolu- inclusive plan based on the Bismarck model of manda-tion of the country's insurance market. tory social insurance for lower income employees.5 As

Even with international joint ventures in place, this noted, however, numerous studies have found thatprocess could take a decade or more. There is, accord- consumers are dissatisfied with ESIS and have raisedingly, an urgent need for policy analysts to determine questions about administrative costs and the quality ofhow-and whether-the GOI can regulate the health care provided by affiliated facilities and practitioners.care market or mandate employment-related coverage The monopoly position of ESIS compromises anyin a fashion that promotes alternatives to indemnity- leverage that employers and employees might bring tobased, fee-for-service policies. bear on the quality and efficiency of the plan.

Assuming that some indemnity plans continue to Moreover, ESIS has had limited penetration even intoexist, current exclusion clauses should ideally be pro- the organized sector that it purports to cover. While an

19

20 A Fine Balance

estimated 30 million workers (and a total of approxi- purposes, health service benefits were considered sep-mately 120 million beneficiaries) are eligible for ESIS arately from income or cash benefits under ESIS,coverage, only 7 million (or 29 million beneficiaries) employers and unions alike might seek and use alter-are currently covered. native sources of care.

One logical option is to separate the cash benefits We suggest that the direct provision of health ser-component of ESIS from its health service mandate. vices by parastatal industries merits review as part ofOver time, the elements of ESIS that are related to med- the process of concentrating employer purchasingical service delivery might be transferred to a separate power. Companies operating in remote areas, or withstate-owned entity privatized fully, or downsized, par- specific occupational hazards, will presumably contin-ticularly in the event that they are unable to compete ue to provide in-house health services. Some in-housein an open marketplace. ESIS could then be reposi- emergency coverage also makes sense for any indus-tioned as a service purchaser that negotiates block try in which employees are at risk for accidents andarrangements either with private insurers or directly injuries. In general, however, parastatals could be pres-with networks of private practitioners, private hospi- sured to provide health care benefits under the sametals, NGO facilities, and public hospitals. This step conditions that prevail in the private sector.alone would bring 30 million Indians into an open pre- From a political standpoint, restructuring CGHSpayment market. may prove difficult, since its subscribers include some

Both the GOI and state governments could also of the most influential people in India. However, itexpand the uptake of private health care coverage by should be feasible to withdraw subsidies for many ofraising the income mandate for private industry and by the CGHS facilities and to introduce charges to hospi-regulating a universal and minimum level of employee talized CGHS subscribers that properly reflect thecoverage. These steps were taken in Hawaii's statewide value of the services provided to them. Another stephealth plan, which has been successful since its imple- would be to change the status of CGHS from a providermentation in 1974. A similar strategy in India would to a purchaser of services on behalf of central govern-bring higher level employees into the prepayment mar- ment employees.ket and increase the stakes and importance of plan pur- This menu of policy options is based on the idea thatchasing decisions by industry executives. As long as government should foster competition in the provisionthe 'minimum standard of coverage was met, industries and financial management of services, but not incould tailor benefits packages to fit employees' finance per se. Such an approach has the potentialincomes. advantage that government could mandate compre-

As a variation on this theme, mandatory contribu- hensive capitation-based coverage for any third partiestions from multiple employers in a given geographic or providers wishing to bid on contracts that arise fromregion could be pooled and managed as sickness care mandatory employment-related insurance. Alterna-funds by representatives of employers and workers. tively, the form of coverage could be left to the man-This would serve the express purpose of purchasing agement boards of regional sickness funds, whichcoverage from intermediaries or contracting directly might purchase capitation-based coverage for low- andwith a range of private and NGO providers. Once gov- middle-income employees but retain a fee-for-serviceernments give greater autonomy to public hospitals option with preferred providers for higher income(see below), they could also participate in integrated employees. In any event, providers would be driven tocare networks designed to meet the needs of employ- respond to these concentrations of purchasing power,er consortia. in turn leading to vertical integration that offers a com-

Even minor revisions to current legislation could prehensive array of primary and secondary services tofuel enrollments. Currently, the ESIS legislation allows industrial subscribers.exemptions only for establishments that provide social Employment-based risk pooling does have draw-security benefits to their employees that are superior or backs. The most important one is market segmenta-similar to those available under ESIS. If, for exemption tion, which effectively excludes the poor, unem-

Some Policy Optionsfor Financing Health Care in India 21

ployed, and elderly. This problem is compounded by Government Finance Optionsthe fact that India's poor are disproportionately con-centrated in rural areas, where employment-based WNith regard to the equitable and efficient provision ofprivate insurance would be the exception rather than health care, international evidence strongly favors uni-the rule. It will be important for governments to mon- versal social insurance systems with or without unitaryitor and, if possible, mitigate the adverse equity impli- administrative arrangements. However, the combina-cations of market segmentation (see below). In addi- I ion of India's large fiscal deficit with the heavy reliancetion, health coverage that is linked to employment on private finance in the current delivery systems vir-may reduce work force mobility because of employ- tually precludes the implementation of such strategiesee concern about loss of benefits. Moreover, rising in the next decade.health care costs could become part of the labor What, then, is the role of government finance? Atexpense borne by private employers, a trend that present, governments cannot afford to subsidizecould result in general increases in the costs of goods enrollment by the poor in private prepayment schemesand services. due to the cost involved and constraints on public

In order for employment-based coverage to suc- 1inance. Another factor is the investment already madeceed, employers and employees-or the representa- in direct service provision, which is nominally aimedtives who manage regional sickness funds-must at the poorer segments of Indian society (Shariff et al.,demand and interpret documentation on the costs and L997). This situation underlies concerns about marketquality of care that they receive from competing net- segmentation that may result from the expansion ofworks of private health care providers. They must also employment-based private plans.be prepared to purchase services on a contractual basis Over the long term, however, subsidized enrollmentwith predetermined spending limits. As the prepay- of the poor might well become feasible if some of thement market evolves, the World Bank and GOI, in con- above-mentioned reforms to publicly mandated work-cert with chambers of commerce and organized labor, place insurance were initiated. Cost-effective providercould support workshops to promote awareness of networks and prepayment plans would have to beprepayment options and cost and quality indicators, as dleveloped to compete for group contracts that coverwell as to emphasize the need for a comprehensive low-wage earners and could also compete to cover thearray of preventive services. Bank support might also ipoor on government contracts. These steps would bebe useful to catalyze local or regional demonstration particularly pertinent if the GOI follows through on itsprojects aimed at assessing the feasibility of different plans to increase spending on health care for the poor.policy options. Other options for financing these expenditures include

Finally, we assume that the emergence of a more -he more assiduous collection of income taxes, theactive prepayment market would drive providers and reduction of subsidies to unprofitable parastatal indus-payers towards the use of evidence-based, cost-effec- t:ries, and the institution of health-related taxes on, fortive technologies. Governments could accelerate this example, tobacco products or pharmaceuticals. A fur-trend by forming task forces of providers with exper- ELher option of strategic importance is the eliminationtise in clinical epidemiology and health economics to of subsidized health care for the relatively well-to-do.identify essential or core services at varying levels of The elimination of subsidies is vital not only as acare. These service packages would outline immuniza- source of revenue for reinvestment in the poor. It is alsotion schedules, approved drugs and devices, and a crucial because the public sector serves as a low-costrational array of preventive and therapeutic interven- safety net and provider of last resort for middle-classtions; and be reviewed and updated regularly Under Indians when out-of-pocket expenditures for privatedevolved authority, publicly funded institutions would care become too large, or when private insurance ben-be responsible for delivering the mandated services efits run out. Thus, as has been the case in otherand generating revenues to expand services beyond nations, the public health system indirectly subsidizesthose included in core packages. the private sector, with a net transfer of income to the

22 A Fine Balance

more affluent. The perversity of this situation is mag- Other employees also receive allowances, but they arenified by India's limited collection of income taxes. usually smaller. In addition, while the training ofThese observations underscore the points made above physicians is heavily subsidized by the states, mostabout the need for a regulatory framework for private physicians eventually enter private practice. By greatlyinsurance that eliminates barriers to comprehensive increasing tuition fees-which would be decreasedcoverage and nonselective enrollment. only when trainees agree to provide public service for

Similarly, it is urgent that user charges for middle- a specified period of time-such subsidies could beincome patients in urban public hospitals be reevalu- reduced.ated. Until such charges are sharply increased, We noted earlier that private hospitals contribute topatients who are not covered by mandatory employ- the public provision of secondary and tertiary servicesment-related insurance will have little incentive to for the poor in exchange for both municipal planningpurchase comprehensive coverage under private and building permits and various concessions onplans. While user charges have been increased in duties, taxes, and utility charges. Existing agreementsmany states, they are still small, collected inconsis- and duty exemptions are fraught with problems oftently, and not retained by the hospitals themselves. If noncompliance and potential conflicts of interest.more realistic user charges were levied and retained by Moreover, these policies represent an indirect subsidyhospitals, resulting funds could be reinvested in bet- for the well-to-do, unless the costs to a given institu-ter care for the poor. tion of providing mandatory free care to the poor are

The public sector provides other subsidies for the larger than the savings obtained through discounts onrelatively affluent. Failure to enforce registration taxes and duties. It would be prudent to review allrequirements on small private hospitals and nursing these arrangements. From the perspective of govern-homes allows these entities to operate in residential ment finance, such arrangements should probably beareas and to pay lower taxes and utility rates than eliminated in favor of appropriate taxes and duties.should be the case for commercial enterprises. Taxes Finally, regardless of the absolute level of expendi-subsidize the CGHS prepayment scheme, which cov- ture, governments also have the option of redirectingers large numbers of higher income public employees expenditures from direct service provision to the pur-such as judges and senior officials. The tax write-down chasing of services from the most efficient and effectiveon medical allowances is another case in point. In provider network. This process presupposes a pur-effect, this provision is most advantageous for middle chaser-provider split, autonomy for public hospitals,managers and senior executives in larger enterprises, and a blurring of boundaries between public and NGOwho often receive the full allowance of Rs.10,000. institutions, as outlined below.

6 Policy Options for Improved Delivery ofUrban Health Services in India

Autonomy for Public Hospitals and Partnerships of private insurance in a carefully defined department

with NGOs in order to generate revenue to provide better care forthe poor. In addition, the World Bank could support

Central policy leadership, along with the government- pilot projects that explore options for increasing themandated or -organized promulgation of data and autonomy of existing public institutions. For exam-technical standards, has played a valuable role in spe- ple, selected institutions could acquire administrativecific disease control programs in India. However, inter- autonomy under a nonprofit charter, create a com-national experience suggests that India's public hospi- inunity board of trustees, hire professional managers,tals sector would benefit from decentralization and implement modern information systems, and definegreater institutional autonomy a specific package of preventive and curative services

We acknowledge that decentralization is no with explicit attention given to its effectiveness andpanacea. Quasi-autonomous hospitals or health care costs.networks can become embroiled in the building of More generally, a case can be made for graduallylocal empires or competitive posturing, be misman- blurring the boundaries between public hospitals andaged in various ways, and deliberately or inadvertent- nonprofit voluntary hospitals. Not only can voluntaryly frustrate the efforts of planners to create an integrat- and community agencies mobilize their own resourcesed, coordinated health care delivery system. We to augment any public funds, they can also help totherefore propose that a range of pilot projects be counter concerns that bureaucratization will foster adeveloped and evaluated. The goal of such a process sense of nonparticipation and nonownership by com-should be to develop models that balance autonomy inunities at all levels of the health and social servicewith accountability, local responsiveness with system system. Furthermore, nonprofit hospitals have beencoordination, and institutional imperatives with multi- leaders in outreach programs that offer primary caresectoral integration. and referral channels for impoverished residents of

One policy option would be to replace current both urban and rural areas.controls with mandates for the provision of care and In one model, nonprofit voluntary hospitals with ato devolve to the hospitals both global budgets and f ocus on caring for all citizens could receive local, state,the right to levy and retain user fees according to spe- or central government support in various forms,cific guidelines. Governance under a nonprofit cor- including capitalization grants, land allocations, taxporate structure and professional management that is and utility concessions, and partial operating grants.accountable to boards of local trustees would be lHowever, they could still generate revenue throughpreferable to the current situation, whereby part-time private wards, user fees, and insurance claims. Anotherclinicians administer hospitals with centralized con- approach could be to provide special state grants totrols and constraints. This situation has been likened public hospitaUNGO partnerships that focus on build-to taking a first-class doctor and turning him into a ing integrated care systems for patients from lowersecond-rate manager. Once restructured along these socioeconomic strata. For example, pilot projectslines, public hospitals could also take on the business could be developed in which public hospitaUNGO net-

23

24 A Fine Balance

works are given block budgets and responsibility for vide grants to NGOs or quasi-autonomous public hos-providing a range of services to designated slum areas. pitals that would mandate the development and man-Good record-keeping would ensure that the state agement of primary care facilities and standardizedreceived value for its money. and transparent reporting on the success of such ini-

In cases where the private sector could provide bet- tiatives.ter quality or efficiency, both public and nonprofit hos- The expansion of primary care presupposes thepitals could contract out functions and services. availability of appropriate clinical staff. India's medicalDuring site visits, we heard many complaints from colleges continue to train large numbers of physiciansadministrators of public hospitals about the lack of who tend to settle in urban areas as private practition-equipment maintenance, while those in investor- ers. Central and state governments could mandate thatowned institutions had few such concerns. Some of the medical colleges train increased numbers of nursedifficulties with equipment maintenance and other practitioners or retrain ISM&H practitioners. Bothfunctions that exist in public hospitals are a direct con- groups could then staff an expanded primary caresequence of line-item budgets dictated by states or the infrastructure.central government. Budgets for equipment mainte-nance are chronically underfunded, and capitalapproval processes to replace equipment are cumber- Accident and Trauma Caresome. Administrative autonomy would offer immedi-ate relief, while partnerships with investor-owned hos- As shown in Table 1, 15 percent of DALYs lost in 1990pitals could prove useful. resulted from accidents and trauma. This substantial

health burden, which cuts across economic classes andgeographic boundaries, is projected to grow steadily to

Primary Care Capacity in the Public Sector account for 19 percent of DALYs lost by 2020. Despiterecommendations in the GOI's Eighth Five-Year Plan,

Numerous appraisers (from both India and outside few state govemments have taken steps to organize andagencies) have emphasized that the evolution of the enhance accident and trauma care. Ambulance servicesurban health system has been hospital-centered with a are disorganized and provide only minimal treatmentparticular focus on large, tertiary institutions. The at the scene of accidents. During our site visits in 1995,urban public system has not invested adequately in pri- some private hospitals openly acknowledged that theymrary care and preventive services. It has thereby failed redirect accident victims to public hospitals in order tothe patients who have a very limited ability to pay, but avoid the risk of nonpayment. The rationalization ofwho should be the main beneficiaries of the system. ambulance services and accident/trauma care shouldThe overcrowding of public referral hospitals is be an integral part of any health reform process.unquestionably linked in part to a lack of, breakdowns Policies to prevent or limit traumatic injury are alsoin, and the bypassing of existing primary and sec- needed.6

ondary care capacityWe agree with the Ninth Five-Year Plan's emphasis

on the expansion and upgrading of urban health cen- Regulation, Information, and Quality Assuranceters and subcenters (Planning Commission, WorkingGroup on Health Care Delivery, 1996), and view this as Policymakers in India have long recognized thea potential area for Bank lending. However, we ques- inherent problems of underregulating a rapidlytion whether these centers should be run directly by expanding private health care sector. There is an obvi-state health services. A related policy issue is the devel- ous need to regulate the qualifications of health careopment of integrative arrangements that tie primary providers, register nursing homes and large healthcare facilities to neighboring hospitals. As suggested care facilities, improve the testing of food and drugs,earlier, one option would be for governments to pro- and license pharmacies. However, because many

Policy Optionsfor Improved Delivery of Urban Health Services in India 25

attempts at regulation have failed, we are reluctant to in conjunction with referrals for consultations andrecommend major expenditures on new layers of diagnostic tests.bureaucracy India's health care information infrastructure is

As an alternative to a massive expansion of the reg- poorly developed. In almost half the states, secondaryulatory apparatus, quality of care could be improved and tertiary hospitals fail to maintain records accord-through a variety of measures designed to foster the dif- ing to prescribed formats. Indeed, the majority offerentiation and upgrading of providers, public aware- health care organizations and providers do not com-ness of care options, and an informed and controlled ply fully with the requirements of government datapurchasing apparatus. collection agencies. Most public hospitals do not have

In terms of provider differentiation, one useful early computerized information systems, and thus have astep would be to implement an accreditation process limited capacity to monitor the costs, outcomes, andfor large private facilities. The Hospital Association of quality of care. Any pilot projects that aim to developIndia has indicated its willingness to support accredi- rmore autonomous public hospitals should allow fortation activities. Health care leaders also appreciate the investment in "infostructure," with a view to buildingfact that the long-term growth of large, private hospi- capacity for the modern management of facilities andtals would be greatly enhanced if all institutions met networks.minimum standards for safe patient care. If successful, In contrast to the public sector, large, private hospi-this process could be extended to smaller institutions. tals have introduced modern information systems butWhile accreditation might initially be voluntary, gov- are not mandated to generate and release reports on theernments in collaboration with the Hospital Associ- quality and efficiency of their services. Pressure on hos-ation could greatly raise the stakes for facilities by edu- pitals for greater accountability regarding quality ofcating the public about the importance of seeking care care could be generated through a combination offrom accredited facilities. accreditation requirements, government mandates,

The diversity of registration rules that exist among and other measures (such as those outlined above) thatthe states limits the promulgation and implementation wvould strengthen the role of third-party payers,of national standards of training and contributes to including employers, insurers, and governments.uncertainty about the skills of different practitioners. Enhanced public awareness of issues relevant toWe see potential for the states and GOI to harmonize the cost and quality of services is integral to thelicensing standards on a national basis. This process reform of health care in India. At a minimum, gov-would entail clear specification of categories of regis- ernment and/or facility accreditors, as well as self-tered practitioners and their relative status, as well as regulatory medical boards, could require that all facil-delineation of core training requirements to ensure ities and practitioners display their fee structure andthat all practitioners are familiar with the essentials of provide itemized receipts for all services provided.evidence-based primary care. Public education campaigns could also help promote

Although state medical councils focus on registra- the rapid upgrading of practitioners. One potentialtion, we found little evidence of consistent oversight pilot project could involve formal certification ofof medical practices by the councils and other self- unregistered or ISM&H practitioners in the essentialsregulatory agencies. Because the states are able to of evidence-based primary care. This process couldmandate professional self-regulation, they could be accompanied by public information campaigns onaccelerate improvements in the quality of care by the advantages of such training and the names anddemanding that licensing authorities conduct ran- office addresses of certified practitioners.7 Anotherdom practice audits, institute recertification and con- potential pilot project could aggressively promotetinuing education requirements, and foster consumer lhealth education in order to provide poor people withawareness by publicizing complaint processes. the information they need to distinguish betweenProfessional self-regulators could also address ethical effective primary care and ineffective (or even dan-concerns about kickbacks and fee-splitting that occur gerous) care.

26 A Fine Balance

Building Intellectual Capital for Health Reform and interpreters of relevant research. Such capacity iscrucial to ensuring that research findings are translat-

We believe that in order to advance the health reform ed into concrete changes in management and clinicalagenda, both governments and the private sector must practice. Pragmatic research results are also importantinvest in intellectual capital in several key areas. These for effective policymaking. We have observed a wideinclude health administration and management, health gulf in India between, on the one hand, the diagnoseseconomics and policy analysis, health legislation and and prescriptions of numerous expert commissionsregulation, health systems research, clinical epidemi- and planning bodies, and, on the other, the actualology, and technology assessment. For example, only a implementation of health care reforms. If, as the apho-handful of Indian universities and colleges offer train- rism goes, "politics is the art of the possible," then effec-ing for health managers, while training opportunities tive policy formulation is the art of determining realis-in other key areas are also underdeveloped. tic possibilities. The GOI and state governments may

Health policymakers in many OECD nations have be well served by developing policy units with the spe-recognized the importance of developing research cific mandate of generating practical options for thetransfer capacity, i.e., a cadre of informed consumers delivery of modern, evidence-based health care.

7 Conclusions

Since gaining independence, India has achieved vate-public mix of health care finance and delivery intremendous success in reducing mortality and disease. urban India. We envisage continued, and ideallyHowever, the country's health care system faces major greater, investment by government in the finance ofchallenges. The case for restructuring has become health care. This would entail a higher level of expen-more urgent as urbanization increases and the epi- ditures targeted to the disadvantaged and greaterdemiological transition, with expensive and chronic accountability for funded services, but less involve-noncommunicable diseases, accelerates. In addition, ment in the direct provision of care. By giving publicthe growing demand of middle-income Indians for hospitals greater autonomy, partnering with the NGOsophisticated health services and the massive expan- sector, investing to expand primary care and integrat-sion of a poorly regulated private health care sector ed hospital-clinic care networks, and assuming a pur-make change all the more critical. chaser role on behalf of the poor, governments should

The capacity of both private and public urban be able to foster the development of a more effective,health care systems to respond to these trends is inhib- efficient, and responsive health service.ited by fragmentation, poor vertical integration, and We have also outlined proposals to liberalize the pri-limited primary care services. Moreover, urban public vate health insurance market and eliminate subsidieshospitals are chronically overcrowded and handi- for middle-income Indians. Doing so would provide ancapped by a lack of administrative autonomy, a short- impetus for comprehensive self-insurance by profes-age of professional managers, and the absence of com- sionals, small business people, and others who wouldmunity involvement. Further, the financing of India's otherwise most likely remain outside of any mandato-diverse health systems remains chaotic, with poorly ry system of employment-related coverage. However,channeled purchasing power and perverse incentives. in order to concentrate purchasing power and shapeConsumers pay for most services out-of-pocket on a the evolution of a more open private insurance market,fee-for-service basis. we have proposed that steps be taken to expand the

Private health insurance is strictly controlled by a set scope of publicly mandated prepayment functions thatof noncompetitive, state-owned corporations that are based in the workplace. In addition, the monopolyoperate on a fee-for-service indemnity basis, do not position of ESIS as a provider should be eliminated. Inundertake any utilization review, and offer policies one potential scenario, regional sickness funds wouldwith numerous exclusions. The largest mandatory contract for comprehensive coverage either directlyinsurance program, ESIS, covers only a fraction of with provider networks (including investor-owned orthose who might be eligible and does not function as NGO facilities) or through managed care intermedi-an insurer or purchaser, instead directly operating an aries. These sickness funds would also have the optionunpopular health service targeted at lower income of purchasing more open-ended coverage for higherworkers. Moreover, the public sector provides numer- income employees.ous subsidies for the comparatively wealthy To facilitate reforms in finance and delivery, we have

In response to these concerns, we have suggested a noted a need for a stronger health "infostructure,"number of reform options aimed at improving the pri- enhanced regulatory and self-regulatory capacity, and

27

28 A Fine Balance

education of the general public and insurance pur- options outlined in this report reflects both intema-chasers. Investment in intellectual capital would also tional experience and lessons learned from India'sexpand the number of Indians with skills in health care health care successes and failures in the past and thefinance, evaluation, and management. present. Only the GOI and state governments can

We emphasize that India's daunting size, diversity, determine which options are politically feasible and setand complexity means that there is no single solution priorities for their timely implementation. The Worldto the nation's health care crisis. An incremental and Bank may be able to assist in this important process bypluralistic approach is inevitable, with different states supporting further analyses as well as through lendingand regions pursuing divergent paths in health care for demonstration projects and, eventually, for the mit-reform. However, we believe the package of policy igation of short-term restructuring costs.

Notes

1. Fragmentation is exacerbated by the existence of separate Maharashtra Chamber of Commerce and Industry in

directorates for hospitals and health centers that promote Mumbai, and the Bombay Chamber of Commerce.traditional Indian systems of medicine and homeopathy 5. The first workplace-based health insurance legislation

(ISM&H). was introduced in the German Empire in 1883 by

2. One of the more lasting impressions in this regard was cre- Chancellor Otto von Bismarck. The Sickness Assurance Act

ated by a site visit to the 1,500-bed Safdarjang Hospital in rnandated contributions to an insurance fund by industrial

New Delhi. Leaders of the medical staff presented researchers employees and employers, but excluded all middle and

with an exhaustive list of complaints concerning processes for upper income persons.

capital renewal and technology acquisition at their center. 6). Focusing on traffic trauma alone, there are various oppor-

3. Various informants advised us in 1995 that Chennai had tunities for prevention; e.g., better traffic control, use of seat-about 40 operational CAT scanners in the private sector. belts, use of light-weight protective headgear for cyclists,4. Officials interviewed were from the Associated Chambers vehicle safety inspections, etc. These issues are outside the

of Commerce in Delhi, the Confederation of Indian scope of this report.

Industries, the All India Organization of Employers, the 7. We are grateful to Ronald Ridker for proposing this idea.

29

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a reproductive and child health approach. Report No. Family Welfare Department, Government of West Bengal.

Glossary of Health Insurance andRelated Terms

This report contains a variety of technical terms. The ing the public of the quality of institutions. In some sit-following brief glossary is deigned to assist general uations, governments recognize accreditation in lieureaders in understanding these terms and the related of, accept it as a basis for, or require it as a conditionconcepts. The glossary was developed by Dr. David of licensure. Public or private programs often requirePeters, drawing primarily on the following sources: accreditation as a condition of payment for covered

services. Accreditation may either be permanent orSubcommittee on Interstate and Foreign Commerce, granted for a specified period of time. Unlike licensure,

U.S. House of Representatives. A Discursive accreditation is not necessarily a condition that reflectsDictionary of Health Care. Washington: U.S. lawful practice, but simply indicates a high quality ofGovernment Printing Office, 1976. practice. However, when payment is effectively condi-

tioned on accreditation, both aspects may apply.Last, John M. ed. A Dictionary of Epidemiology, 3rd

edition. New York: Oxford University Press, 1995. adverse selection: The disproportionate insurance ofpatients who are considered high risks because they are

Ron, Aviva, Brian Abel-Smith, and Giovannit Tamburi. poorer or more prone to suffer loss or make claims thanHealth Insurance in Developing Countries: The the average person. Adverse selection may result fromSocial Security Approach. Geneva: ILO, 1990. the tendency among poorer patients or sick people to

seek or continue insurance coverage to a greater extentSamuelson, P A., and W D. Nordhaus. Economics, than healthy people. In contrast, insurers may make

12th edition. New York: McGraw-Hill, 1983. favorable selection of subscribers which, when inten-tional, is called skimming.

Sykes, J. B. ed. The Concise Oxford Dictionary ofCurrent English, 6th edition. Oxford: Clarendon beneficiary: A person who is eligible to receive, or isPress, 1976. receiving, benefits from an insurance policy or prepay-

ment plan. Beneficiaries usually include both peopleaccreditation: The process by which an agency or who have contracted for benefits for both themselvesorganization evaluates and recognizes a program of and their eligible dependents. (See also subscriber andstudy or an institution as meeting certain predeter- insured.)mined standards. The recognition itself is also calledaccreditation, while a similar assessment of individuals benefit: In the insurance field, a sum of money pro-is called certification (see below). Standards for vided in a policy that is payable in the event of certainaccreditation are usually defined in terms of an insti- types of loss or for covered services, according to thetution's physical aspects, governing body, administra- terms of the policy Benefits may be paid to the insuredtion, medical and other staff, and scope and organiza- or on his behalf to others. In prepayment programstion of services. Accreditation is usually granted by a such as those run by health maintenance organiza-private organization created for the purpose of assur- tions, benefits are defined as the services that a pro-

32

Glossary of Health Insurance and Related Terms 33

gram provides to a member whenever and to the community rating: A method of establishing premi-extent needed. urns for health insurance based on the average cost of

actual or anticipated health care used by all subscriberscapitation: A method of payment for health services in in a specific geographic area or industry Communitywhich an individual or institutional provider is paid a raLings do not vary for different groups or subgroupsfixed, per capita amount for each person served, of subscribers or according to such variables as the par-regardless of the actual number or nature of services ticular group's claims experience, age, sex, or healthprovided. status.

catchment area: A geographic area defined and served compulsory insurance: An insurance program inby a health program or institution, such as a hospital which legislation defines the population and benefitsor community mental health center. Such areas are covered, the conditions of eligibility, and the sources ofdelineated on the basis of various factors, including funds. An insurance plan may be compulsory only forpopulation distribution, natural geographic bound- the employer or for individuals as well. (Coverage mustaries, and transportation accessibility They are differ- be offered to employees and, if they opt to take it, aent than service, medical market, or medical trade specified portion of the premium paid.) Any universalareas. All residents of the catchment area who need the public plan is necessarily compulsory regarding theprogram services are usually eligible to receive them, payment of taxes (which support the plan), and thusalthough eligibility may depend on additional criteria not optional for the individual.(e.g., age or income).

co-payment: A type of cost-sharing arrangementcertification: The process by which a governmental or wh-ereby insured or covered persons pay a specific, flatnongovernmental agency or association evaluates and amount per unit of service or time (e.g., $2 per visit,recognizes an individual, institution, or educational $] 0 per inpatient hospital day) and the insurer pays theprogram as meeting predetermined standards. A prac- rest. The co-payment is incurred at the time that thetitioner or entity that is so recognized is considered cer- service is rendered. Unlike co-insurance (see above),tified. Certification is essentially synonymous with which involves payment of some percentage of the totalaccreditation (see above), except that it usually cost, the amount paid does not vary according to theapplies to individuals, while accreditation relates to cost of a service.institutions.

coverage: The guarantee against specific losses pro-claim: A request to an insurer by an insured person (or vicLed under the terms of an insurance policyby the provider of a good or service on behalf of the Frequently used interchangeably with benefits or pro-insured individual) for payment of benefits according tection, coverage is the extent of insurance afforded byto the terms of an insurance policy a policy. It also often means insurance or an insurance

contract.

co-insurance: A cost-sharing provision of a healthinsurance policy that requires the insured to assume a creaming: See skimming.portion or percentage of the cost of covered services.The health insurance policy provides that an insurer credentialing: The recognition of professional or tech-will reimburse a specified percentage (usually 80 per- nical competence. The credentialing process maycent) of all or some specified, covered medical expens- include registration, certification, licensure, profes-es that are in excess of any deductible amounts payable sional association membership, or the award of aby the insured. The insured is then liable for the remain- degree in a particular field. Certification and licensureing percentage of the costs until the maximum amount affect the supply of manpower in health care by con-payable under the insurance policy, if any, is reached. trolling entrance into practice and influence the stabil-

34 A Fine Balance

ity of the labor force by influencing geographic distri- should probably be measured in terms of the cost ofbution, mobility, and retention of workers. achieving various health outcomes, since defining it inCredentialing also determines the quality of personnel terms of productivity assumes that what is produced isby providing standards for evaluating competence and both efficacious and used in an effective manner.defining the scope of functions and how personnel maybe used. eligibility conditions: Conditions that insured per-

sons must meet in order to be entitled to the benefitsdeductible: The amount of loss or expense that is of the scheme. These include a maximum duration ofincurred by an insured or otherwise covered individ- benefits (the time during which the insured mayual before his/her insurer assumes liability for all or receive benefits); a qualifying period (a minimum peri-part of the remaining cost of services. Deductibles may od of contributions before the insured person orbe either fixed dollar amounts or the value of specified dependents can qualify for benefits); and a waitingservices (such as two days of hospital care or one physi- period (the time an insured person has to wait beforecian visit). Deductibles are usually tied to some refer- qualifying for specific benefits).ence period over which they must be incurred (e.g.,$100 per calendar year, benefit period, or illness exclusions: Specific hazards, perils, or conditions list-episode). Deductibles in existing policies are generally ed in an insurance or medical care policy that are notof two types: static, or fixed dollar amounts, and covered by benefit payments. Common exclusionsdynamic, which are adjusted periodically to reflect include preexisting conditions, such as heart disease,increasing medical prices. Some national health insur- diabetes, hypertension, or a pregnancy which beganance plans have proposed a third type of deductible, before the policy was in effect. Because of exclusions,the sliding scale deductible, in which a deductible is persons who have a serious condition or disease arerelated to and increases with income. often unable to secure insurance coverage either for a

particular disease or in general. Sometimes conditionseffectiveness: The degree to which diagnostic, pre- are excluded only for a defined period after coverageventive, therapeutic, or other actions achieve the begins, such as nine months for pregnancy or one yearintended result. for illnesses. Exclusions are often permanent in health

insurance coverage for individuals and temporaryefficacy: Often used synonymously with effectiveness, (e.g., one year) for small group insurance. They areefficacy more accurately connotes the results of actions uncommon in large group plans that are capable ofundertaken under ideal circumstances. In contrast, absorbing extra risk.effectiveness implies results under usual or normal cir-cumstances. Actions can thus be efficacious and effec- fee-for-service: A method of charging whereby ative, or efficacious and ineffective, but not vice versa. physician or other practitioner bills each encounter or

service rendered. This is the usual method of billing byefficiency: The relationship between the quantity of the majority of India's private physicians. Under a fee-inputs or resources used in the production of medical for-service payment system, expenditures increase notservices and the quantity of outputs produced. only if fees go up, but also if charges are made for moreEfficiency has three components: input productivity units of service or more expensive services are substi-(technical efficiency), input mix (economic efficiency), tuted for less expensive ones. This system contrastsand the scale of operation. Efficiency is usually mea- with salary, per capita, or prepayment systems, where-sured by indicators such as output per man hour or cost by payments do not change according to the numberper unit of output. However, such indicators fail to of services actually used or if none are used.account for numerous- other relevant dimensions (suchas the quality of both inputs and outputs) and are there- fee schedule: A listing of accepted charges or estab-fore only partial measures. Colloquially, efficiency lished allowances for specific medical or dental proce-

Glossary of Health Insurance and Related Terms 35

dures. It usually represents either a physician's or a H 40 and the enrollee. The HMO must employ or con-third party's standard or maximum charges for the list- tract with health care providers who undertake a con-ed procedures. tinuing responsibility to provide services. HMOs are of

interest in connection to public policy because proto-group insurance: Any insurance plan under which a types appear to have demonstrated the potential forgroup of employees (and their dependents), or mem- providing high-quality medical services for less moneybers of a similar homogeneous group, are insured than is possible in other parts of the medical system.under a single policy that is issued to an employer or Specifically, rates of hospitalization and surgery arethe group itself. Employees may either be insured auto- considerably lower in HMOs than in systems outsidematically by virtue of employment, only after meeting prepaid groups, although these low rates may be duecertain conditions (employment for more than a to skimping or skimming.month), or only when they elect to be insured andmake a contribution to the cost of the insurance. Group indemnity, indemnity benefits: Under health insur-health insurance is usually rated based on experience arice policies, benefits in the form of cash payments(except for small groups, all of which are given the rather than services. An indemnity insurance contractsame rate by an insurance company). Group coverage usually defines the maximum amount that will be paidis less expensive than comparable individual insur- for covered services. In most cases, after the providerance, in part because an employed population tends to of a service has billed the patient in the usual way, thebe healthier than the general population, and in part insured person submits to the insurance companybecause of lower administrative costs, particularly in proof that he/she has paid the necessary bills. He/shemarketing and billing). Note that a policy holder or is then reimbursed by the company for the amount ofinsured is the employer or group, not the individual covered costs and makes up the difference him/herself.employees or group members. In some instances, the service provider may complete

the necessary forms and submit them to the insurancehealth insurance: Individual or group insurance company directly for reimbursement, thereafter billingagainst loss by disease or accidental bodily injury the patient for costs that are not covered. IndemnityHealth insurance usually covers some of the medical benefits are different than service benefits (see below).costs of treating the disease or injury. It may also pro-tect against associated problems, such as loss of pre- insurance: The contractual relationship that existssent or future earnings. when one party (the insurer) agrees to reimburse

another (the insured) for loss caused by designatedhealth maintenance organization (HMO): An entity contingencies. The contract refers to insurance policy,with four essential attributes, as follows. (1) it is an thie consideration is a premium, the loss is the risk, andorganized system for providing health care in a geo- thie contingency is a hazard or peril. Insurance is a for-graphic area which accepts the responsibility of pro- mal social device for reducing the risk of losses to indi-viding or otherwise ensuring the delivery of (2) an vi duals by spreading the risk among groups. Insuranceagreed upon set of basic and supplemental health ch-iaracteristically, but not necessarily, involves equi-maintenance and treatment services. These services are table contributions by the insured, the pooling of risks,provided to (3) a voluntarily enrolled group of persons and the transfer of risks by contract. It may be offeredand the HMO is (4) reimbursed through a predeter- on either a profit or nonprofit basis to both groups andmined, fixed, periodic prepayment made by or on individuals. (See also prepayment.)behalf of each enrolled person or family unit regardlessof the actual services provided. An HMO is responsi- insurance pool: An organization of insurers and rein-ble for providing most health and medical care services surers through which particular types of risks arerequired by enrolled individuals and their families. shiared or pooled. The risk of high loss by any particu-These services are specified in the contract between the lar insurance company is transferred to the group as a

36 A Fine Balance

whole, i.e., the insurance pool, with premiums, losses, times called direct costs. Unless covered by insurance,and expenses shared according to agreed-upon they include patient payments under cost-sharingamounts. The advantage of a pool is that the size of provisions.expected losses can be predicted with much more cer-tainty for a group as a whole than for any individual payroll deduction: A specific amount withheld frommember it. Pooling may be initiated within a single the earnings of an employee to finance a benefit.company by pooling the risks for the insured under Payroll deductions may come in the form of a set pay-various policies so that high losses incurred through roll tax or a required payment for a benefit, such as aone policy are shared among others. group health insurance premium.

intermediary: A public or private agency or organiza- preexisting condition: An injury that occurs, a diseasetion selected by providers of health care. An interme- that is contracted, or a physical condition which exist-diary enters into an agreement with the financier (usu- ed prior to the issuance of a health insurance policyally a government agency) to pay claims and perform Such conditions usually result in an exclusion fromother functions for the financier with respect to the rel- coverage under an insurance policy due to costs of careevant providers. for the condition.

license: Permission granted to an individual or orga- premium: The amount of money or consideration paidnization by a competent authority, usually public, to by an insured person or policyholder (or on his or herengage in a practice, occupation, or activity which behalf to an insurer or third party for coverage underwould be unlawful if not licensed. Licensure is the an insurance policy Premiums are generally paid peri-process through which a license is granted. Since a odically and are related to the actuarial value of thelicense is needed to begin lawful practice, it is usually benefits provided by the policy, plus a loading fee togranted on the basis of examination and/or proof of cover administrative costs, profit, etc. Premiumeducation rather than measures of performance. A amounts for employment-related insurance are oftenlicense, once granted, is usually permanent but may split between employers and employees. Premiumsbe conditional on annual payment of a fee, proof of paid by an employer are considered to be nontaxablecontinuing education, or proof of competence. income for the employee. Premiums are paid for cov-Common grounds for revocation of a license include erage whether or not benefits are actually used. Theyincompetence, commitment of a crime (whether or should not be confused with cost sharing mechanisms,not it is related to the licensed practice), or moral such as co-payments and deductibles, which are paidturpitude. only if benefits are actually used.

medical audit: Detailed retrospective review and eval- prepayment: Inconsistently and sometimes synony-uation of selected medical records by qualified profes- mously used with insurance, prepayment can refer tosionals. Medical audits are used in some hospitals, any payment made ahead of time to a provider forgroup practices, and, occasionally, private independent anticipated services (for example, an expectant moth-practices. They serve to evaluate professional perfor- er who pays in advance for maternity care). It is alsomance by comparing it with accepted criteria, stan- sometimes distinguished from insurance by referringdards, and current professional norms. A medical audit to payment organizations (such as HMOs) that, unlikeusually regards the care of a given illness and is under- insurance companies, take responsibility not only fortaken to identify deficiencies in care and, consequent- payment of needed services, but also for their arrange-ly, to develop educational programs to improve it. ment and provision.

out-of-pocket payments or costs: Costs borne direct- private practice: A medical practice in which the prac-ly by a patient who lacks insurance benefits; some- titioner and his/her practice are independent from any

Glossary of Health Insurance and Related Terms 37

external policy controls. This status usually requires regulation: The intervention of government in thethat the practitioner be self-employed, except when he health care or health insurance market in order to con-or she is salaried through a partnership with similar trol entry into or change the behavior of participants inpractitioners. The term is sometimes incorrectly and that marketplace through specific rules. This does notsynonymously used with eitherfee-for-service practice usually include programs that seek to change behavior(whereby the practitioner sells his or her services by through financing mechanisms or incentives. It alsoanother method such as capitation), or solo practice does not include private accreditation programs,(since many private practices are group practices). aLthough government regulatory programs may rely onNote that physicians practice in many different set- them. Regulatory programs can be described in termstings, and there is no agreement as to which of these of their purpose (control charges), what or who is reg-does or does not constitute a private practice. ulated (hospitals), what or who regulates (state gov-

ernment), and method (prospective rate review).quality assurance: Activities and programs intendedto ensure the quality of care in a defined medical set- reimbursement: Payment by an insurance scheme toting or program. Such programs must include educa- a health care provider, or to protected persons, as ational or other components intended to identify and refund for all or part of fees for services.remedy deficiencies in quality (such as peer or utiliza-tion review) and to assess the program's own effective- service benefits: Those benefits that are received as aness. A program that identifies quality deficiencies and result of prepayment of insurance, whereby paymentresponds only with negative sanctions, such as the is made directly to the provider of services or to thedenial of reimbursement, is not usually considered to hospital or other medical care program for servicesbe a quality assurance program, although the latter provided to eligible persons. These may be full-servicemay include the use of sanctions. benefits, meaning that the plan fully reimburses the

hospital, for example for all services provided during areferral: The practice of sending a patient to another certain period so that a patient has no out-of-pocketpractitioner or to another program for services or con- expenses. Full-service benefits may also be availablesultation which the referring source is not prepared or when a program provides a service, as is the case in aqualified to provide. In contrast to referral for consul- prepaid group practice. Partial service benefits covertation, referral for service involves a delegation of only part of the expenses incurred, with the remainderresponsibility for patient care to another practitioner or to be paid by the beneficiary through some form ofprogram. In this case, the referring source may or may cost-sharing.not follow up to ensure that services are received.

skimming: The practice in health programs and insur-registration: The process by which qualified individ- ance companies that are paid for on a prepayment oruals are listed on an official roster maintained by a gov- capitation basis of seeking to enroll only the healthiesternmental or nongovernmental agency Standards for people as a way of controlling program costs. This isregistration may include such aspects as successful possible since the income of a program or company iscompletion of a written examination given by the reg- constant whether or not services are actually used.istry, membership in the professional association main- Skimming is also called creaming and contrasts sharplytaining the registry, and education and experience such with adverse selection (see above).as graduation from an approved program or its equiv-alent. Registration is a form of credentialing and is sim- skimping: The practice in health programs that areilar to certification (see above). Registration is also used paid for on a prepayment or capitation basis of deny-to describe the recording of diseases that require noti- inig or delaying the provision of services needed orfication to authorities, or the listing and follow-up of dlemanded by enrolled members. Skimping is a way ofpatients with such diseases. controlling costs, since a program's income is constant

38 A Fine Balance

whether or not services are actually used. A classic providing it (the second party), and the organizationexample is the denial or delay of a cataract extraction. paying for it (the third party). (See also service benefits(See skimming and adverse selection.) and indemnity benefits.)

standards: In general, measures undertaken by a com- universal coverage: Coverage of all the citizens of apetent authority to determine quantity or quality, country under a particular insurance scheme or vari-Conformity with standards is usually a condition of ety of schemes.licensure, accreditation, or payment for services.Standards may be defined in relation to the actual or user charges: Payments that a person is required topredicted effects of care, the performance or creden- make at the time of service. These accrue in additiontials of professional personnel, and the physical condi- to the regular contributions to the scheme, or premi-tion, governance, and administration of facilities and ums, that are paid for by the insured person. Generally,programs. For example, the criteria for care of a uri- these charges cover only part of the cost of services andnary tract infection might be a urinalysis in 100 per- may take the form of a circumvention fee, coinsurance,cent of cases and a urine culture only in previously or copayment.untreated cases.

utilization review (UR): An evaluation of the necessi-subscriber: Often used synonymously with member ty, appropriateness, and efficiency of the use of medicalor beneficiary, the term in a strict sense refers only to services, procedures, and facilities. In a hospital, thisthe individual (family head or employee) who has includes a review of admissions procedures, serviceselected to contract for or participate in (i.e., subscribe ordered and provided, length of stay, and dischargeto) an insurance or HMO plan for him/herself and/or practices on both a concurrent and retrospective basis.his/her eligible dependents.

waiting period: The period of time that an individualthird-party payer: Any organization, public or private, must wait either to become eligible for insurance cov-that pays or insures health or medical expenses on erage or to become eligible for a given benefit afterbehalf of beneficiaries or recipients. The individual overall coverage has commenced (see exclusions). Somegenerally pays a premium for such coverage in all pri- policies will not pay maternity benefits, for example,vate and in some public programs and the organization until nine months after the policy has been in force.then pays bills on his/her behalf. Such payments are Another common waiting period occurs in groupcalled third-party payments and are distinguished by insurance that is offered through a place of employ-the separation between the individual receiving the ment, whereby coverage may not start until an employ-service (the first party), the individual or institution ee has been with a firm more than 30 days.

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