ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Medical Industry: Illusion of Quality at What Cost?

Much of the debate on privatisation of health care has been based on the assumption that the private sector provides a better quality of services than the public sector. Efforts are on to restructure public institutions on market principles to promote efficiency. However, a recent report on Delhi's private hospitals is a shocking reveletion of their questionable management practices with regard to workers as well as patient care.

During the mid-1980s the government formally recognised private health care as an industry, helping corporate hospitals to then mobilise loans from public financial institutions. During the same period import duties on medical equipment were slashed and land was leased at extremely low rates to many of these large private hospitals. These concessions and subsidies largely benefited the tertiary, multi-specialist hospitals in the private sector.

In the run-up to the presentation of the union budget 2000-01, private hospitals made several demands for government subsidies in the wake of many of them facing severe financial difficulties. In the face of increased competition they claimed they had been unable to make profits. In this situation, many of these enterprises sought government subsidies as one way of increasing their financial viability. Corporate hospitals have also sought to cut labour costs which account for substantial total cost of operation given the essentially labour-intensive nature of these enterprises.

Some of the demands that these hospitals have made include “the granting of status of infrastructure; providing a level field for health care; giving nursing homes the status of small-scale industry; giving more financial support in terms of infrastructure, loans and further reduction of import duties on medical equipment. They want a depreciation of 40 per cent (which is twice the present rate of 20 per cent now) on medical equipment and benefits for investment in shares of hospital companies. In addition, the promoters of private hospitals also want tax exemptions to be given to doctors who practise in rural areas and more to those who set up nursing homes in backward areas. Their demands include more concessions for facilitating entry of health insurance and the privatisation of government hospitals in the future. These demands were articulated by the promoters of corporate hospitals in Chennai (The Hindu, February 28, 2000). They clearly reflect the priorities and interests of the large private enterprises which roughly constitute only 1-2 per cent of the private market but have been extremely powerful in influencing government policy during the last two decades.

While these large, private hospitals have been demanding more subsidies and concessions from the government, many of them have been found to be flouting conditionalities prescribed by the government when duty exemption for import of medical equipment was granted. An important conditionality was that 20 per cent of in-patients and 40 per cent of out-patients should be from among the poor and that they must be treated free of cost.

A major controversy was aired in the media last year relating to the fact that larger private hospitals both, ‘for profit’ and ‘non profit’, have not adhered to the conditionalities prescribed by the government. As a result of these reports a committee has been set up by the Delhi government to examine these issues. While the findings of this committee will be crucial for future policy, it needs to be recognised that there is a basic contradiction in the demands put forth by the larger private hospitals. On the one hand they demand the status of an industry for finncial support and on the other hand, they want to retain the privileges of a welfare institution. Therefore, this committee must not only take stock of the performance of the private sector and its adherance to conditionalities but also define the role of the state in monitoring these hospitals. Like any other industry, health care enterprises must also adhere to rules and regulations regarding employment conditions and minimum wages for all levels of staff; certain minimum procedures regarding pricing, billing; maintenance of medical records; financial and medical audit which become requirements for ensuring transparency and accountability to the consumer and state. All reports so far show that the private sector has fared poorly on all these counts. These issues need to be addressed particularly at this juncture when much of the debate has focused on how the private sector is more efficient and provides better quality services compared to the public sector. Much of the debate on privatisation of health care has been based on this assumption and efforts are to restructure public institutions on market principles to promote efficiency.

The assumption that the private sector is more efficient and provides better quality care does not stand up to empirical scrutiny. There are difficulties in arriving at any generalisation based on studies which tend to be unit specific in their comparisons. As Barker states: “There is a real problem in comparing public enterprises with private enterprises. This is because efficiency can only be assessed in relation to stated goals. In private business these goals are clear. They are to maximise profits or and /or economic growth. In the public sector, however, these goals are not so clear. It may not be important for a government department to make a profit, provided it performs functions defined as essential for the community or for another department” [Barker 1996:154].

In fact because of the difference in stated goals, it is evident that the private sector attracts and treats persons who can pay and are non-emergency situations hence there is already a selecting out of patients. The public sector, on the other hand, seeks to provide universal access and therefore the patient load is always higher than the intended capacity. These differential goals get reflected in the case mix, social background of patients and rate of patient turnover in the private and public hospitals. These differences make comparisons of efficiencies of the public and private sectors difficult and therefore generalisations are also not possible. A comparison of private and public providers in Trivandrum raises some of the methodological problems in doing such an exercise [Homan and Thankappan 1997].

Constraints in Research

Research studies on private hospitals have also encountered problems of getting access to data on personnel employed, their wages and cost of services in these hospitals. This poses a major constraint for doing any analysis of the costing pattern in this sector. The prevelance of poor qualification, wages and working conditions have been demonstrated through studies on private nursing homes in Bombay, Delhi and Hyderabad [Nandraj 1994; Nanda and Baru 1993; Baru 1998]. These studies have shown that paramedical and supporting staff often work for very low wages and are not qualified for the work that they do. Hence there is a great deal of turnover of staff at these levels and they work under abysmal conditions which is bound to have a direct impact on patient care. Since these nursing homes are not even registered, the question of getting information on the staffing or wage patterns becomes extremely difficult. While these issues have been commented on for the smaller enterprises, it is assumed that the large corporate and charitable hospitals which are located in the larger cities employ better qualified staff at all levels with better pay and working conditions. However, even in this category of hospitals there is a lack of transparency in information relating to costing of services and the wage structures of the medical, paramedical and supporting staff.

A recent enquiry conducted by Workers’ Solidarity entitled ‘Critical Condition: A Report on Workers in Delhi’s Private Hospitals’ has looked into the working condition of fourth class employees in eight of Delhi’s bigger and well known private hospitals: Apollo, Batra, Sunderlal Jain, Gangaram, BL Kapur, Tirathram, Jessa Ram and Mool Chand. The findings are, to say the least, shocking and revealing. This enquiry has primarily elicited information regarding the status of workers, viz, permanent or contract workers employed by these large hospitals, their working conditions and wages. Based on largely qualitative methods, this report provides some valuable insights into the proportional distribution of the total expenditure of a hospital on various items like drugs/equipment, wages and maintenance. The report states that 50 per cent of the expenditure is incurred for equipment and drugs, 30 per cent for wages and 20 per cent for maintenance and sundry expenses.

As the report observes: “Hospital managements try to ensure that their total wage bill does not exceed 30 per cent of all expenditures; wage expenditures above that level are deemed by managements to make a hospital unviable [Critical Condition 2000: 3]. These hospitals spend a high proportion of their earnings on paying their specialist consultants. “A considerable proportion of the 30 per cent on wages forms the fees paid to consultants. Over half the consultation fees that a hospital charges a patient is paid to the doctor by the hospital. This proportion of wages paid to consultants has gone up since the earnings of private hospital consultants have shot up in recent years; for instance, doctors in large private hospitals currently earn five times the salary of their counterparts in All India Institute of Medical Sciences” [Critical Condition 2000: 4].

Hospital managements keep their expenditure on wages low in two ways. One is through the contractualisation of fourth class employees by paying them much less than the stipulated minimum wages and the prescribed benefits. The other way is by gradually undermining the established rights of permanent workers. Economic efficiency justifies paying low wages to the paramedical and supporting staff in order to make profits. In the selected hospitals, the contract system prevails among fourth class employees, viz, ayahs, ward boys, sweepers, security guards and also among canteen workers, laundry workers and pharmacy workers. While the older trust hospitals employ a higher proportion of permanent compared to contract workers, in the newer hospitals there is a much larger presence of contract labour. As the report observes: “The contract workers often work without a weekly break. This is a violation of section 17 of the Delhi Shops and Establishments Act, 1954, which states that ‘every employee shall be allowed atleast 24 consecutive hours of rest in every week’. Section 18 of the Act states that no wages shall be deducted for this weekly holiday...Principal employers tend to wash their hands off the responsibility of stipulated and fair wages, despite the law clearly stating that the responsibility of payment of minimum wages and other shortcomings lies with the principal employer (in this case the hospitals) in case the contractor does not fulfil his obligations” [Critical Condition 2000: 6-7]. The report shows that the contract workers are overworked in terms of long hours of work often without even a weekly break. When there is a shortage of labour the available workers are made to work overtime without adequate break or rest from their earlier shift. These kinds of conditions will definitely affect the productivity of these workers and in fact reduce their efficiency.

The job insecurity and poor working conditions of this class of workers is bound to affect the quality of care provided to patients. In any hospital it is the paramedical and supporting staff who interact closely with patients by attending to their physical and emotional needs while the medical personnel look after the clinical aspect of treatment. Therefore a hospital that is responsive to patient needs, requires well trained personnel at various levels who interact together as a team, coordinating and complimenting each others role. It is not enough to have well qualified specialists alone, it is equally important to have well trained paramedical and supporting staff for ensuring good quality patient care. The problems of contractualising the support staff without adequate supervision will definitely cut costs for the hospitals but will not necessarily help in improving quality of care since it does not generate a sense of belonging and loyalty among the workers, towards the institution in which they are employed. This is definitely not conducive for building commitment among the workers towards the hospital that employs them.

While contracting out is seen as a way of responding to the inefficiency of permanent workers and of reducing costs, there is no reason why the institutions that employ these measures cannot put in place administrative mechanisms that can monitor and ensure that there is adherance to minimum conditions of work. These would be essential to provide and maintain quality services in hospitals. In fact overworked, ill trained and insecure workers are likely to make more mistakes and hide them too! In short, the reputation of the consultant alone supported by a shaky and overstretched staff at different levels is responsible for whatever quality of service that is provided.

Contracting Services

Like the contractualisation of workers, a similar issue of concern for both the public and private sectors is the contracting out of ancillary services. These measures are very often viewed as promoting better efficiency, in narrow economic terms. This is indeed the dilemma that all health care institutions must face when they demand the status of an industry since the profit motive leads to cutting costs which has a bearing on the quality of care. Like all other industries, hospitals also need to be governed by rules to ensure the quality and safety of their workers. Experiences of contracting out of laundry, diet and other ancillary services in other developing countries show that this process requires administrative structures which can periodically monitor the quality of services provided by the contractors since there is a tendency for them to cut costs which affects the quality of care. In fact in some African countries the administrative costs to oversee the contracting out in public hospitals has proven to be an expensive proposition [McPake and Banda 1994].

Yet another way of saving costs in the private sector is to discharge patients early in order to ensure quick turnover. Studies from both developed and developing countries have shown that private hospitals often discharge patients even before they are ready for it in order to maximise patient turnover and increase interventions. According to a promoter of a corporate hospital, it is only during the first few days of hospitalisation that a hospital makes profits on beds after which the profit margins tend to fall. It is during the first few days of hospitalisation that all the procedures, both surgical and non-surgical are completed, there is little scope for charging patients more than bed charges. The only charges that the hospital is likely to derive profits from during the recovery phase are on drugs, and nursing care.

This is an important reason why private hospitals tend to discharge patients much earlier than public hospitals. As the report points out: “Much of a private hospital’s profits are derived from the usually steep charges for in-patient services and diagnostic tests. It is also extracted from exorbitant bed charges” [Critical Condition 2000].

Many of the older, charitable hospitals in Delhi have become more commercial in their operations. The report refers particularly to the case of BL Kapur hospital that was established as a trust in 1959 but during the 1990s there was a move by some of the trustees to allow a private company to takeover this hospital in order to ‘re-develop and renovate the hospital into a state of the art super speciality hospital with 250 beds to be set up with a substantial investment”[Critical Condition 2000:10].Hospitals like BL Kapur, Moolchand , Jessaram, Tirathram and Gangaram had earlier employed a larger proportion of supporting staff as permanent workers. The recent trend among these hospitals is to supplant or replace the permanent workers with contract workers. However, compared to the newer, corporate hospitals, the proportion of permanent workers is still much higher in these hospitals. If these are the trends in the larger hospitals then one can well imagine what the conditions of the paramedical and supporting staff would be in smaller hospitals and nursing homes.

While there has been some discussion on the need to specify physical standards in private nursing homes and hospitals, there needs to be more specific policy initiatives with regard to qualifications of the various levels of personnel employed and also some norms for remuneration and working conditions. This would have to be built into the initiatives of the efforts at accreditation that are now under way. The concern here is that the initiatives at cutting costs by employing contract labour would definitely show private hospitals as being cost effective however this has serious implications for quality of patient care.

In view of the increasing demands on the government by these hospitals, it is imperative that they ensure certain minimum working conditions expected in all industries for their employees. Hospitals are labour intensive organisations which are not merely dependent on medical expertise but require the coordination of different levels of staff to provide quality patient care. However, the report points to poor working and wage conditions and raises issues of setting standards for working conditions of supporting staff. Here,the state needs to play a more proactive role in ensuring that hospitals comply with certain norms and standards for the subsidiy that they receive and ensure that they do not deny access to the poor. It is clear that for the private sector efficiency is seen only in terms of profits that can be generated and ruled by market principles. It is therefore imperative that the state have effective administrative mechanisms which will ensure that these private hospitals comply to conditionalities for receiving subsidies.

This report raises some important questions regarding the expertise and working conditions of different levels of staff in these hospitals which has a direct bearing on the quality of patient care. With increasing privatisation it is quite apparent that the private hospitals have been adopting practices that undermine consumer needs and also the minimum rights that workers are entitled to in such institutions. The larger hospitals that have received subsidies should be made to comply and ensure greater transparency in their operations.

This could well be an important step in setting up a regulatory framework for private institutions in medical care. It is incumbent the government to regulate the market in an important area like medical care and introduce measures to ensure quality and equity in the provision of services. This is more so when the government has in fact supported a “for-profit” sector with subsidies at the taxpayer’s expense.

[The authors would like to thank the research support provided by Narendra Kakade as part of an ongoing project on ‘Critical Review of Studies on the Private Health-Care Sector in India’ sponsored by the union ministry of health, government of India and the World Health Organisation.]


Barker, C (1998): Health Care Policy Process, Sage Publications, London.

Baru, R (1998): Private Health Care in India: Social Characteristics and Trends, Sage Publications, New Delhi.

Homan, R and Thankappan (1997): ‘An Examination of Public and Private Sector Health Providers in Thiruvananthapuram District, Kerala’, Discussion Paper No 20, UNDP.

McPake, B And E Banda (1994): ‘Contracting Out of Health Services in Developing Countries’, Health Policy and Planning: 9(1).

Nanda, P and R Baru (1993): ‘Private Nursing Homes and Their Utilisation: A Case Study of Delhi’, Research Report, Voluntary Health Association of India, New Delhi.

Nandraj, S (1994): ‘Beyond the Law and the Lord:Quality of Private Health Care’, Economic and Political Weekly, July 2.

Qadeer,I (1985): ‘Health Services System:An Expression of Socio-Economic Inequalities’, Social Action, 35, July-September.

Ritu, Priya (1997): Review of Private/Public/NGO Sector Collaboration Within TB Care in India, DFID Consultancy Report, New Delhi.

Workers Solidarity (2000): Critical Condition: A Report on Workers in Delhi’s Private Hospitals, New Delhi, February.


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