HEALTHCARE: MEGA BUSINESS!
Economics of scale is fuelling the explosion of the healthcare industry in India.
Everyone aspires to live a long and healthy life, ideally without experiencing the surgeon's scalpel, the nurse's needle, or the dentist's drill. However, good health is seldom achieved effortlessly. Securing a long and healthy life often necessitates using limited resources, making health inherently an economic issue. In the United States, approximately one-sixth of all economic expenditure is devoted to healthcare, encompassing services provided by physicians, nurses, dentists, hospitals, pharmaceutical research, and medical scientists.
The conventional economic model of supply and demand posits that prices guide buyers and sellers to allocate resources efficiently. However, the healthcare market diverges significantly from this standard model, necessitating government interventions to ensure resources are efficiently and equitably distributed. Indeed, governments in most nations play a substantial role in regulating healthcare markets.
Unique Economic Model
Health economics has historically been overlooked as a specialised subset within the broader disciplines of economics and finance. However, such neglect does not reflect its critical importance. A growing consensus among researchers and professionals suggests that a deeper exploration and application of healthcare economics could help mitigate crises like the one experienced during the recent COVID-19 pandemic. By applying the foundational principles of health economics, it is possible to anticipate and avert adverse outcomes in such scenarios.
Health economics represents a synthesis of two distinct domains. One focuses on defining and understanding health at individual and community levels, examining the factors influencing well-being. The other connects healthcare to its financial dimensions, analysing how adjustments in policies and practices can impact the cost burden borne by individuals accessing healthcare services. These two approaches, while distinct, converge to provide a comprehensive framework for addressing the economic dimensions of health.
The discipline's divergence from classical economic principles is a persistent challenge for health economists. Unlike the traditional market framework, none of the standard model’s features aligns seamlessly with the dynamics of the healthcare sector. While the market includes consumers (patients) and producers (healthcare providers such as doctors and nurses), several complexities distinguish it from typical market interactions:
Third-party involvement
: Insurers, governments, and even uninvolved parties are often vested in healthcare outcomes.
Information asymmetry
: Patients frequently lack the knowledge to identify their needs or assess the quality of the treatment they receive.
Indirect payment mechanisms
: Healthcare providers are often compensated not directly by patients but through private or government health insurance schemes.
Allocation dictated by rules
: The allocation of healthcare resources is shaped more by insurers' policies than market prices.
Market inefficiency
: Given these factors, the "invisible hand" of the market cannot operate effectively, often leading to substantial inefficiencies in resource allocation.
Metrics
commonly used in healthcare, such as Quality-Adjusted Life Years (QALYs), often lack precision and can introduce uncertainty into economic analyses. This complexity underscores the need for caution when interpreting results derived from such metrics.
(use the diagram on page 10: percentage of healthcare spending as a share of GDP: growing over time)
Key factors differentiating healthcare from other goods and services include the presence of third-party insurers, external interventions, significant barriers to entry, unpredictable outcomes, and extensive government involvement.
It is also crucial to recognise that healthcare differs fundamentally from other goods addressed in classical economics due to its inherent subjectivity. The perception of success in healthcare can vary widely between individuals and communities. To avoid inaccurate conclusions based on standardised metrics, it is essential to collect and analyse healthcare data within the appropriate context. A nuanced, context-specific approach is vital for accurately interpreting the economic aspects of healthcare and developing effective policies.
Indian Landscape
Several factors have driven the boom in India's healthcare sector. These include a rising population, increased life expectancy, the availability of affordable private healthcare, higher disposable incomes, and the government's focus on enhancing healthcare infrastructure. As a result, the Indian healthcare sector is now valued at over $40 billion, with more than 80 per cent of expenditures occurring in the private sector and primarily funded out-of-pocket. While this growth presents numerous opportunities, it also poses significant challenges that must be addressed to ensure sustainable success.
India has emerged as a leading destination for medical tourism, a sector valued at $2 billion. This growth is supported by the presence of super-speciality hospitals, highly skilled medical professionals, advancements in telemedicine, and government incentives. Furthermore, India's large population, diverse genetic pool, and the prevalence of a wide range of medical conditions make it an ideal hub for clinical trials and research in personalised medicine.
By 2030, India is projected to have approximately 200 million individuals aged 60 years or older. This demographic shift is exerting immense pressure on the country's healthcare infrastructure. Urbanisation and the rise in infectious and lifestyle-related diseases have further strained national resources.
One of the primary challenges is that healthcare in India is predominantly financed through out-of-pocket payments, with over 75 per cent of hospitals and nearly 50 per cent of hospital beds privately owned. The lower socio-economic strata often lack access to private health insurance, exacerbating inequities in healthcare access.
India’s healthcare expenditure is insufficient, constituting only 4.1 per cent of its gross domestic product (GDP), the lowest among BRICS nations (Brazil, Russia, India, China, and South Africa). There are also stark disparities in resource allocation and infrastructure across socio-economic regions. Compared to the World Health Organization’s (WHO) global average of 3,960 hospital beds per million people, India has only approximately 860 beds per million inhabitants.
Challenges in Health Care
While population growth does not directly affect individual health, it imposes significant economic challenges. Providing food, healthcare and managing the illnesses of a large population require substantial financial resources. Households with elderly members (aged 60 and above) face disproportionately higher health expenditures. For instance, 33 per cent of households with one elderly member and 38 per cent of households with two or more elderly members experience catastrophic health expenses, compared to just 20 per cent of households with younger members.
Overpopulation also exacerbates the spread of infectious diseases such as tuberculosis (TB) and COVID-19, overwhelming healthcare facilities with latent cases. Waste management becomes a critical issue, contributing to the spread of diseases and environmental pollution. Malnutrition, particularly protein-energy malnutrition, remains a significant concern, compounded by overcrowding and inadequate living spaces.
Respiratory illnesses, including chronic obstructive pulmonary disorders and severe allergies, are prevalent in India, often necessitating clean air, which is increasingly scarce due to high pollution levels. India's air quality index frequently ranks poorly, increasing the healthcare burden.
Lessons from the Pandemic
Addressing these challenges requires urgent attention from the government, including increased funding and targeted initiatives. The growing demand for end-of-life care and hospice facilities, driven by population-related morbidity, underscores the need for a stronger economic commitment to healthcare. Without substantial reforms and investments, India’s healthcare system may struggle to meet the escalating demands of its burgeoning population.
The pandemic experience is enlightening. The COVID-19 pandemic was a global crisis that placed unparalleled strain on healthcare systems worldwide. However, during the pandemic's second wave, no country faced as severe a shortage of medical resources as India.India’s corporate medical sector played a significant role in managing the crisis, contributing to over two-thirds of inpatient care. However, it was slow in gearing up to the challenge, and the initial onslaught had to be borne by the public sector hospitals. In response to the outbreak, many private hospitals made substantial investments in infrastructure, procured essential equipment, and increased their workforce to address the rising demand for treatment. Nevertheless, extended treatment times for other illnesses and the deferral of elective procedures led to a sharp decline in revenue for clinics and laboratories. Consequently, private healthcare institutions faced an anticipated reduction in operating profits by nearly 50 per cent during the pandemic.
In collaboration with federal and local agencies, the medical industry implemented a comprehensive response strategy to combat the outbreak. This included establishing dedicated COVID-19 treatment centres, isolation facilities and leveraging technology for resource identification and allocation. The Government of India also utilised digital tools to manage the crisis effectively, launching various national and local initiatives. One notable effort was the Aarogya Setu mobile application, widely deployed across the country, which facilitated symptom tracking and contact tracing.
Despite these efforts, the pandemic led to an unprecedented surge in hospitalisations and fatalities. Successive waves of infections were exacerbated by inadequate government regulations, highlighting systemic vulnerabilities.
Pharma Healthcare Nexus
Private investment in biomedical research has grown significantly over recent decades, earning widespread recognition as a transformative force within the field, comparable in importance to technological advancements. This influx of private capital has attracted considerable academic talent to lucrative roles within the private sector, fostering collaborations between applied research and venture capital-funded industries. While this partnership has proven mutually beneficial in many ways, it has also introduced substantial challenges.
The increasing collaboration between academia and industry has given rise to numerous conflicts of interest in biomedical research. Issues such as disputes over patents and royalties, strained relationships between academic institutions and industry, public-private tensions, legal entanglements, instances of research misconduct, negative media portrayals, and lobbying by patient advocacy groups have all contributed to a climate where commercial priorities often overshadow patient welfare. The pharmaceutical industry, in particular, has faced ethical scrutiny for its profit-driven practices, including suppressing negative clinical trial findings.
A related concern is the influence of pharmaceutical companies on the development of clinical practice guidelines (CPGs), which shape diagnostic and therapeutic decisions within healthcare. A 2002 survey revealed that approximately 60 per cent of CPG authors had financial ties to pharmaceutical companies whose drugs were under review, raising questions about the impartiality of these recommendations. This highlights the need for guidelines that prioritise both efficacy and cost-effectiveness. Initiatives like the Appraisal of Guidelines Research and Evaluation (AGREE) Collaboration and the Guidelines Advisory Committee (GAC) aim to improve the rigour and transparency of these processes, warranting closer examination.
The pharmaceutical industry's reach also extends to foundations focused on disease amelioration and the establishment of "Best Practices" for interactions between industry and clinicians. These initiatives play a critical role in ensuring ethical practices that benefit patient care. Similarly, the introduction of Good Publication Practices (GPP) for pharmaceutical companies represents a step toward greater accountability and transparency in reporting industry-sponsored drug trials.
The growing influence of the pharmaceutical sector has prompted responses from leading medical and academic organisations. For example, the Association of American Medical Colleges (AAMC) has issued guidelines to mitigate conflicts of interest in clinical research at both the individual and institutional levels. Academic medical centres and research institutions are being urged to adopt stricter measures to address these conflicts. Medical associations and journal editors have also expressed concern, leading to the 2001 revision of the International Committee of Medical Journal Editors (ICMJE) guidelines, which mandate full disclosure of sponsors' roles in research and emphasise the need for investigators to maintain control over trial design, data access, and publication decisions. However, a 2002 study found that many academic institutions still engage in clinical research practices that fall short of these standards.
A fundamental tension persists within the pharmaceutical industry: the drive to produce marketable products often supersedes the pursuit of genuinely effective treatments. This emphasis on innovation is frequently motivated by the availability of research funding, which tends to favour the development of new, potentially profitable therapies over the study of traditional or non-pharmacological interventions that may offer comparable or superior effectiveness.
Protecting the interests of research subjects remains a critical ethical concern. Patients who participate in clinical trials do so in hopes of personal medical benefit and to contribute to advancements in medical knowledge for the broader community. While it is understood that pharmaceutical companies must generate profits to sustain research and development, the ethical standards governing pharmaceutical marketing should differ fundamentally from those applied to consumer goods. The ultimate measure of a drug's success must be its capacity to enhance patient welfare. Any product that compromises this principle risks failure in the long term.
The commercialisation of substandard drugs poses a dual threat: it endangers patient health and undermines the credibility of the pharmaceutical industry. The industry's greatest error may lie in adopting the marketing tactics of newer, less-established players, relying on secrecy and manipulation to safeguard profits. While such practices may offer short-term competitive advantages, they have no place in disseminating clinical trial results, particularly when those results do not favour the marketed product. Ethical transparency is essential to maintaining public trust and ensuring the sustainability of biomedical innovation.
Key Takeaways
The pandemic experience must serve as a critical wake-up call for policymakers to devise robust strategies for future public health emergencies. Such policies must prioritise strengthening the fragile state of India's healthcare economy to ensure resilience against similar crises.
With modern healthcare becoming expensive, the financial dimensions cannot be neglected, especially at the policy level, while making budgetary allocations at the national level. However, policy adjustments and practical interventions must work in collaboration to keep the cost burden low and prevent purely market forces from ballooning it beyond the reach of the common man.
For a developing nation like India with millions under the poverty line, healthcare is more than a business; it is a social responsibility not only for the government but also for the private healthcare industry. Addressing
healthcare
challenges
in India
necessitates immediate and strategic government intervention, including enhanced financial support and the implementation of targeted initiatives. Without significant reforms and increased investments, India's healthcare infrastructure risks being unable to adequately respond to the growing demands of its expanding and ageing population.
