The private route

NITI Aayog’s recent proposal for the partial privatisation of district-level government hospitals has been criticised for commercialising health care. Under the proposal, private hospitals will be allowed to bid for 30-year leases that give them control over portions of government hospitals dedicated to treating non-communicable diseases. Critics argue that private hospitals focussed on profits will do no good to the poor who can’t pay for their services, so the government must step in to provide free health care.

Affordability is indeed the major issue preventing poor Indians from getting proper health care. Free health care provided by the government, however, is not the real solution to the problem. Governments often have very little incentive to provide quality health care to many citizens. This is because, in politics, it is the interests of powerful groups that get the most leverage. The poor, for various reasons related to electoral politics, often get left out of the race to influence their governments. For instance, politicians have very little incentive to care about the needs of an individual voter since the impact of a single vote on the election result is essentially minuscule. In the marketplace, on the other hand, private hospitals have huge monetary incentives to proactively cater to the demands of their customers. Each consumer’s currency note holds equal weight to a private hospital that seeks profit. This makes market-based health care a fundamentally superior way to deliver health services to the poor.

An issue of ‘how to’

The focus then should be on how to make market-based health care more affordable. The standard assumption in this regard is that for-profit health care works against the interests of the poor by making health care more expensive. So various regulations aimed mostly at reducing the profits of health-care investors and lowering the costs to consumers are imposed on investors. Unfortunately, these regulations, by denying investors the opportunity to make profits by providing health care, actually end up making health care more unaffordable. An investor facing a swathe of regulations capping his returns, for instance, has very little incentive to set up hospitals, produce life-saving drugs, or invest in medical education. This, in fact, works against the interests of the poor by reducing the supply of health care and increasing its price. The only real way to make health care affordable then is to increase its supply sufficiently, which in turn will lead to lower prices. This can only be achieved when health care is deregulated and investors are allowed to seek profits in an honest manner. In fact, this is how any good or service gets cheaper over time. As more investments are made into a sector in search of profits, the increased supply leads to lower prices for consumers and lower returns for investors.

Sadly, the thinking that health care is too essential to be left to the market has prevented the health-care market from working like any other. It is no wonder then that goods such as cell phones and cars, which are considered luxuries and thus left to the market, have become affordable to a larger population over time. At the same time, health care has largely remained unaffordable to the vast majority of people.

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