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A STUDY OF EFFICIENCY IN THE PRIVATE HOSPITALS IN MUMBAI
SYNOPSIS OF THE THESIS
TO BE SUBMITTED FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY IN ECONOMICS
BY
HIRAL J. SHETH
UNDER THE GUIDANCE OF
DR. MANISHA KARNE
FORMER READER, DEPARTMENT OF ECONOMICS
DEPARTMENT OF ECONOMICS
DEPARTMENT OF POST GRADUATE STUDIES AND RESEARCH
S.N.D.T.WOMEN’S UNIVERSITY
CHURCHGATE CAMPUS
MUMBAI - 400021.
JULY, 2012
TITLE OF THE THESIS :
A STUDY OF EFFICIENCY IN THE
PRIVATE HOSPITALS IN MUMBAI
NAME OF THE CANDIDATE :
HIRAL J. SHETH
NAME AND DESIGNATION OF THE
GUIDE :
DR. MANISHA KARNE
FORMER READER, DEPARTMENT OF
ECONOMICS
PLACE OF REASEARCH :
DEPARTMENT OF ECONOMICS OF
POST GRADUATE STUDIES AND
RESEARCH,
S.N.D.T.WOMEN’S UNIVERSITY,
CHURCHGATE CAMPUS,
MUMBAI - 400021.
NUMBER AND DATE OF
REGISTRATION :
PGSR/ECO/2007-2008/174
Dated: 01.07.2007
SIGNATURE OF THE STUDENT :
SIGNATURE OF THE GUIDE :
1
A STUDY OF EFFICIENCY IN THE PRIVATE HOSPITALS IN
MUMBAI
1. Introduction
Infrastructure is an umbrella term covering many activities relating to social, economic and
physical overhead capital, that are responsible for creating conducive environment for
productive activities in different sectors of an economy. The traditional approach to
infrastructure has been based on detailed government intervention in the sector, apparently to
protect public interest. In other words, direct state provision has been the norm and state
ownership and state monopolies always seem to have played a dominant role in the provision
of infrastructure and services. World Development Report (1994) divides infrastructure stock
into economic or physical infrastructure and social infrastructure. Former includes services
such as electricity, transport, roads, water system, communications, irrigation etc, while latter
includes education and health facilities.
The social infrastructure of a country is very important as it not only presents the human face
of economic growth process but represents the very essence of it. Universal access to
education, health and safe drinking water is a must for any society to progress. But even after
five and half decades of government intervention in form of development planning, India has
been unable to ensure a decent living for a large number of people in this country. Despite
various development plans, lack of or inadequate basic infrastructure, both social and
physical, continues to remain a major constraint to progress in numerous parts of our country.
The health scenario especially, in the country is posing challenge for the country.
The healthcare system, including hospitals, the financing of healthcare, including health
insurance, the systems for regulation and testing of medications and medical procedures, the
system for training, inspection and professional discipline of doctors and other medical
professionals, public health monitoring and regulations, as well as coordination of measures
taken during public health emergencies such as epidemics all is a part of social infrastructure.
This study is especially focusing on one of the crucial aspects of infrastructure and that is
health sector and aims to study the efficiency of private hospitals.
2
Conventionally, the word health is derived from the old English word “hall” meaning hale,
whole, healed, sound in mind and limb (Last, 1987).There are two main ways of defining
health, the positive approach where health is viewed as a capacity or an asset to be possessed,
and the negative approach which emphasizes the absence of specific illness, diseases or
disorders (Aggleton, 1990). The WHO has defined health as “A state of complete physical,
mental and social well-being and not merely the absence of disease or infirmity.” (WHO,
1946).
For an individual, health has a double function. On the one hand, perfect health represents
value of its own, a target that needs to be reached as closely as possible. On the other hand,
there are other aims in life as well e.g. good health gives good income in labor market
(Zweifel and Breyer, 1997).
World Development Report explained good health as a crucial part of well-being. It further
asserted that spending on health can also be justified on purely economic grounds. Improved
health contributes to economic growth in four ways; it reduces production losses caused by
worker illness; it permits the use of natural resources that had been totally or nearly
inaccessible because of disease; it increases the enrollment of children in schools and makes
them better able to learn; and it makes alternative uses of resources that would otherwise
have to be spent on treatment (World Bank, 1993).
In India, infrastructure facilities and services have been generally provided within a
centralized framework by public sector agencies like railways, health, education etc. The
rationale for government intervention in these activities is based on certain features of the
market mechanism described as “market failures” as also larger developmental objectives.
However, just as market failure is well known and recognized, there has been increasing
evidence of government failure. This failure has been attributed to the crunch of resources
because of which the state is withdrawing its role from various activities and reduced
efficiency of the public sector agencies especially in health care and such other facilities. The
response to this emerging feature is two-fold: One is the increasing role of the private sector
due to various incentives announced by the state and second is the efficiency of the private
sector agencies especially performance of the hospitals in healthcare system providing all the
different facilities which has paved way for its tremendous growth in recent years.
3
Though there is state intervention in the health sector in form of provision of public
healthcare in India, there has been increasing dependence on private health care services.
About 75% of the health infrastructure is concentrated in the urban areas where just 27% of
the population lives indicating serious problem of regional disparities in distribution of health
infrastructure. Despite the concentration of health infrastructure in urban areas the efficiency
and quality of healthcare in the private sector remains a matter of concern. In this context,
this study makes an attempt to examine the efficiency of private hospitals in Mumbai.
2. Statement of the Problem
There is a rationale for government intervention in healthcare services especially in countries
like India. However, there is a growing concern over the inefficiency in public provision of
health infrastructure. Several studies have been done on the evaluation of public healthcare
services which reveal declining share of the public healthcare services and increasing private
sector role in provision of healthcare services especially in the urban areas. However, there is
dearth of studies on the perceived notion of higher efficiency of the private healthcare
services as compared to the public healthcare services. Hence, this study is an attempt to
examine the efficiency of the private healthcare services on the basis of certain selected
efficiency parameters. It also tries to understand the quality of healthcare services in private
hospitals from user’s perspective.
3. Rationale behind Undertaking Research on Private Hospitals
Government has an important role to play in the provision of social infrastructural facilities
namely, health, education and safe drinking water in the Indian economy. However,
inadequacies and failures of Government in health sector on the one hand has given rise to
the private health sector and on the other hand the demand pull factors have led to rapid
growth of the private sector in provision of healthcare services. The rationale of the present
study is to examine the role of private healthcare services, the standards which these hospitals
follow and also to study perceived notion of the efficiency of the private hospitals in
Mumbai. As the private healthcare services mainly affect the welfare of the people through
the healthcare services which in turn influence the health status of the people, we thought it is
also important to study the utilization pattern in the hospitals so as to understand the user’s
perception about the quality of care in the private hospitals.
4
4. Objectives of the Study The present study is conducted to achieve the following objectives:
1. To study the physical standards that exists in the private hospitals in the context of
Bombay Nursing Home Registration Act (BNHRA).
2. To measure the efficiency of the private hospitals in Mumbai on the basis of certain
selected efficiency parameters.
3. To identify benchmarks towards which performance can be targeted in the inefficient
private hospitals.
4. To study the users’ perception of quality of health care services provided by the private
hospitals in Mumbai.
5. To provide the policy guidelines on the basis of the present study for maintaining
efficient standards in the private hospitals.
5. Chapter Scheme Adopted for the Study Following the logical flow of thought and the objectives; the present study is presented in
seven chapters.
5.1 Chapter One: Introduction It is widely recognized that the availability of basic infrastructure facilities and services
flowing from these are vital for economic development. If well developed, they stimulate
economic development but if inadequate they prove to be hindrances in the growth process.
The concept of infrastructure was probably introduced for the first time by Singer (1950) who
identified investment in infrastructure with investment in certain facilities that are regarded as
necessary for development. According to Hirschman (1958), infrastructure consists of those
basic facilities without which primary, secondary and tertiary activities cannot function.
These facilities play an important role in creating investment opportunities in other industries.
The importance of infrastructure in economic growth and development can be noted from the
fact that developing countries invest around US $200 billion a year on new investment in
infrastructure. This is about 4% of their national income and 20% of their total investment
(World Bank, 1994). In India, in the post- independence period there was no attempt made
for restructuring the healthcare services. Due to which it is found that health sector in India is
crippled by underdevelopment, inequity, regional disparities and poor quality. India is
knocking at the global markets. The globalization of India was speeded up under the
5
Structural Adjustment Programme (SAP) designed by the World Bank to reform India’s
economy. Due to SAP, social sectors were the first to receive the axe. The government
spending on health declined and was as low as 0.9% in 2000 for India as compared to 1.1%
for low income and 6.0% for high income countries (World Development Indicators,
2003).The Mckinsey Report also showed poor coverage of population by public health
infrastructure. In spite of programs like Health for All by 2000, New Health Policy 2002,
India vision 2020, MDGs2000 etc., and health for all remains a distant dream for India.
There is state intervention in form of public health which is considered as a public good, the
theoretical implications of which means everybody benefits from it but nobody individually
pays for it. But, state failure is very much evident in this area. Failure of public healthcare
facilities due to unlimited funding, inability to assure adequate staff, essential supplies of
medicines and equipment’s, poor maintenance and reduced confidence amongst general
public has led to reduced credibility and acceptability of public health system. Lack of access
to government facilities does not seem to be a major reason for choosing private healthcare.
The reason for this preference is better availability and perceived quality of private care.
Demand has outstripped supply in India's healthcare sector, which is growing at a fast pace
year after year. The drivers of growth in this sector are steadily increasing incomes and,
therefore, demand for quality health care services. People want value for their money
incurred on treatment costs. Policy makers face the task of providing services in a world
where resources are limited. For healthcare; even in the wealthiest country it will not be
possible to provide every beneficial medical service to all citizens. Healthcare, like other
services, has to be rationed. This means that choices need to be made in the allocation of
resources, i.e. where to ‘put the money’. People would want an allocation of resources that
provides the best health improvement. Or, in other words, they want the best value for their
money (colloquially, the most ‘bang’ for the ‘buck’) which is why they prefer private health
care services.
The political economy of health in India is also increasingly following the market route and
paving way for increasing role of private sector. In spite of the decline in the public health
care, India’s health care sector is growing rapidly and is estimated to be worth 40 billion US
Dollar in the year 2012. The private sector accounts for more than 80% of total healthcare
spending in India (Emerging Market Report, 2007).The private sector has become a large and
an important constituent in the country’s healthcare delivery system. But, the private
6
providers are fragmented and unregulated. Hence, it is crucial to understand and review the
efficiency aspect of the private hospitals be it in terms of physical infrastructure, regulations,
standards etc, and understand the nature of the private health sector.
5.2 Chapter Two: A Survey of Literature Recently, the demand for better quality healthcare services in India, accordingly the medical
costs have been increased tremendously, which build a sharp contrast with very limited
government resources and fund that, could be allocated to cope with this challenge. However,
given the vast amount of resources that goes towards funding such institutions, there is a
great and growing interest in examining efficiency in hospitals with the driving force for such
concern being value for money. Efficiency measurement represents a first step towards the
evaluation of a coordinated health care system, and constitutes one of the basic means of
audit for the rational distribution of human and economic resources. Over the past two
decades, efficiency measurement has been one of the most intensely explored areas of health
services research. Healthcare is important at an individual as well as societal level.
Individual levels of promoting health are commonly referred to as micro perspective whereas
those community-based efforts are known as macro issues that relate to changing social
support and community norms or laws to positively affect health. To best serve the health of
citizens, a combination of both micro and macro efforts must be used (Evans, etal, 2008).
But, the Economic Reforms Process that was set in motion in India since 1991 changed the
entire health scenario. As a part of the policy reforms process role of the state is likely to
reduce in many investment areas including health. However, health being part of the social
sectors of the economy may have its own public good characteristics; making it necessary to
move in this direction in a calibrated way. Also a number of questions are being raised like:
Have the people of the country accepted privatization in the healthcare sector? In terms of
affordability and acceptability, is the private medical care a good substitute for the public
healthcare management? These are the issues to be tackled with and therefore it becomes
inevitable to understand the public and private health sector in India (Kadekodi, etal, 2009).
To guide brief understanding we undertake review of various studies done on the public and
private health sector in India.
7
Mahapatra and Berman conducted two studies based on secondary data of 108 secondary
level public hospitals in Andhra Pradesh. The first study looked at the utilization and
productivity, the second study dealt with the performance service-mix ratios (Mahapatra
P,Berman P,1990 and 1992).
In Mumbai city in Maharashtra in spite of having better health care services as compared to
rest of the country, residents of Mumbai do not have proper access to health care services as
32% of the ailments remain untreated (Nandraj, etal, 2001). A sizeable proportion of
deliveries are still home deliveries (NFHS-II-9%; RCH survey-7%).All these surveys show
that the public health sector in Mumbai was providing health care to less than 20% of the
population. Inconvenient location and timing were cited as the main reasons (CORT, 2000;
Nandraj, etal, 2001) for not utilizing these services. Therefore, people turn to the private
sector. A number of studies have been conducted on the private health care sector.
To examine the utilization pattern in the healthcare a number of studies are done by
organizations such as National Sample Survey Organization (NSSO), Foundation for
Research in Community Health (FRCH), Kerala Shastra Sahitya Parishad (KSSP) and
National Council of Applied Economic Research (NCAER). These studies have revealed
that around 60 to 80 percent of people utilize private health facilities in the country in both
rural and urban areas.1
Medico Friend Circle conducted a public survey in Mumbai to understand patient’s
experiences views and perceptions of the private health care system. The findings bring out
various aspects of the private practitioners functioning in terms of waiting period, treatment
provided, reasonability of charges, among others (Medico Friend Circle, 1990).
Another Study on “Improving the performance of Reference health centre”, a case study of
urban health centre (UHC), Dharavi, Bombay (1991) was undertaken by Department of
health studies. The findings showed that overall utilization of UHC was low for all services
as people preferred to use private services of health care.
1These studies are NSSO, 1987, Duggal, R. Amin, S. 1989, Kannan, K. P., etal, 1991, NCAER, 1992, George, A, etal, 1993.
8
Nandraj (1994) conducted a study of 24 randomly selected private hospital and nursing
homes in Bombay city; it documents their poor condition and an absolute lack of concern for
any minimum standards.
A study on private health sector in Maharashtra on private hospitals emphasize on the need
for maintenance of standards in private hospitals and the awareness of private health
providers regarding Bombay Nursing Home Registration Act (BNHRA) and accreditation
aspects (Deosthali and Khatri, 2011).
As one can observe from the above studies, that in India, especially in the urban areas, the
private health sector is perhaps the dominant player and therefore it is all the more relevant to
assess its efficiency. Since there no studies conducted till date on examining the efficiency of
private hospitals we make an attempt to study efficiency of private hospitals in Mumbai by
taking a sample of hospitals from different municipal zones of Mumbai.
In recent years, efficiency has been one of the most important issues for hospitals which used
limited resources for maximum value. (Chu,etal,2003). Efficiency is defined as the ratio of
outputs to the resources used. One way to increase efficiency is to decrease the level of
resources and investments and/or increase the production factors. There are different concepts
of efficiency like technical efficiency, allocative efficiency and productive efficiency. This
study is based on measuring technical efficiency of hospitals. An efficiency measurement
technique in general consists of four classes: Parametric, Non-parametric, Deterministic, and
Stochastic. This study focuses on nonparametric technique of efficiency measurement. In the
Farrell (1957) framework, a hospital is judged to be technically efficient if it is operating on
the best practice production frontier in its hospital industry. Measurement of efficiency of any
organization like hospital that uses multiple inputs and generates multiple outputs is complex
and comparisons across units are difficult.
Charnes and Cooper (1985) describe a non-parametric approach in such institutions to
measure efficiency and the technique is known as data envelopment analysis (DEA). DEA is
basically a linear programming technique used for measuring the relative performance of
organizational units where the presence of multiple inputs and outputs makes comparisons
difficult.DEA involves identification of units, which in relative sense use the inputs for the
9
given outputs in the most optimal manner and DEA uses this information to construct
efficiency frontier over the data of available organization units. We review few studies on
efficiency of hospitals done abroad with the use of DEA approach that are mentioned below-
Sherman (1984) wrote one of the founding articles on efficiency utilizing the DEA
methodology on U.S. hospitals. The study has examined teaching hospitals and included
nurses and interns trained as well as patient days as outputs. It has compared the results of
traditional ratio and regression analysis as well as DEA and found that DEA is a useful tool
for the evaluation of resources among health care organizations and can lead towards
improved hospital efficiency and reductions in health care costs. The study has further
suggested that DEA technique can help to overcome limitations of traditional regression
analysis and provide a more comprehensive measure of hospital efficiency.
In Asia, Hu and Huang (2004) produced the first study of medical centers and regional
hospitals in Taiwan. Data on 80 centers in 2001 were collected and subjected to input-based
DEA. The 5-input/4-output estimation results revealed high pure technical efficiency (92.7%)
as well as scale efficiency (96.5%), resulting in an overall technical efficiency of 89.5% for
the whole sample. On the other hand, 32 public health centers in Kenya were found to be
quite inefficient (Kirigia et al, 2004). Their average technical efficiency was 65% while the
average scale efficiency was found to be 70%.
Technical efficiency of district hospitals was measured in Namibia using Data Envelopment
Analysis (Zereetal, 2006).The findings suggest the presence of substantial degree of pure
technical and scale inefficiency. The average technical efficiency level during the given
period was less than 75%. Less than half of the hospitals included in the study were located
on the technically efficient frontier. Increasing returns to scale is observed to be the
predominant form of scale inefficiency.
Masiye (2007) did technical efficiency study using DEA in Zambia for 20 hospitals revealed
average efficiency of 64% implying that the 17 inefficient hospitals could lower their cost
by36% and still achieve their current levels of output.
Osei, etal, (2008) tried to measure the technical and scale efficiency for 84 hospitals and
health centers in Ghana and gives directions that help decision-makers for an effective
10
management in the health sector. The study divided inputs into broad categories and further
each one of them is divided into sub-category as the following: personnel, materials, and
capital. The output is divided into maternal and child health care visits, deliveries and
inpatient discharges. The study used CRS (i.e. Constant Return to Scale) and VRS (i.e.
Variable Return to Scale) models to assess the efficiency of the selected hospitals. Measuring
efficiency of the DMUs is calculated in three steps; first, the efficiency was estimated
through CRS and second, through VRS. Third, scale efficiency was obtained by dividing
each hospital's CRS efficiency score by its VRS efficiency score.
Kirigia, etal, (2010) presented a recent paper to evaluate hospitals efficiency in Benin. DEAP
free software was used and the study includes the years between 2003 to2007. Results
showed that a large percent of hospitals are inefficient. Results showed that the size of the
hospital is an important factor in assessing its productivity.
Studies on efficiency of hospitals in India are very few irrespective of numerous studies
available at the international levels. In India there is dearth of literature as very few studies
are done on efficiency of hospitals using DEA analysis.
Mathiyazhgan (2006) highlights the cost efficiency of public and private hospitals in
Karnataka state in India. Efficiency is estimated through parametric as well as non-
parametric DEA method. The findings indicate that the choice of econometric approach did
not make any significant difference in the results and they are robust. The analysis infers that
(a) hospitals (both public and private together in the analysis ) are cost inefficient in the state,
which is due to technical and allocative system of resources of the hospitals (b)the private
hospitals appear relatively less inefficient than the public hospitals and (c) the main
determinants of the technical and allocative inefficiencies of the public hospitals are due to
inappropriate interventions of inpatient days care, share of medical personnel, bed capacity,
quality indices and choice of the location, while in the case of private hospitals, it relates
only to bed capacity and quality indices.
Another successful model study of privately funded quality healthcare is of LV Prasad Eye
Institute (LVPEI), and Ophthalmologic Institute in Hyderabad, conducted by Razz, Samandri
(2001) using DEA approach. The study has attributed the success of LVPEI to close attention
paid to three areas of health administration namely, fiscal solvency, programmatic focus &
11
quality management. Detailed financial audits and policy studies are also conducted annually
to implement standards for cost contentment and maximize the institute’s efficiency.
Even though efficiency is accorded a central place in the health policies of most countries, in
practice much remains to be done. The dearth of literature on hospital efficiency studies in
India may perhaps indicate that in practice not much attention is given to efficiency by health
care administrators. Much of the attention of policymakers and health system researchers
seem to be focused on health sector reforms. In such situation, it becomes imperative to
understand the system of healthcare in India.
5.3 Chapter Three: The System of Healthcare Provision This chapter focuses on the framework of health care system in India. In India, healthcare
services are provided by public as well as private players. Therefore, this chapter is
segregated into:-
I. Public healthcare and
II. Private healthcare.
I. Public healthcare
The mission of public health is to “fulfill society’s interest in assuring conditions in which
people can be healthy.” (The Future of Public Health, 1988).
Public health carries out its mission through organized, interdisciplinary efforts that address
the physical, mental and environmental health concerns of communities and populations at
risk for disease and injury. Its mission is achieved through the application of health
promotion and disease prevention technologies and interventions designed to improve and
enhance quality of life. Health promotion and disease prevention technologies encompass a
broad array of functions and expertise, including the three core public health functions
1. Assessment and monitoring of the health of communities and populations at risk to identify
health problems and priorities;
2. Formulating public policies, in collaboration with community and government leaders,
designed to solve identified local and national health problems and priorities;
12
3. Assuring that all populations have access to appropriate and cost-effective care, including
health promotion and disease prevention services, and evaluation of the effectiveness of that
care (Associations of Schools of Public Health, 1990).
From, the above discussion it is clear that public health calls for public action. However,
according to classical economists like Adam Smith the invisible hand of the market would
lead to optimal economic outcomes as markets are assumed to be ‘Pareto-efficient’. Pareto
efficiency criterion allocates scarce resources in a way that no reallocation can make any
individual better-off without making at least one other individual worse-off (Sen, 1970). This
is the idealized picture of a private market economy. This according to Smith would help to
allocate scare resources efficiently for the health sector. But, in reality various difficulties
arise due to market failure or market inadequacies (Wolf, 1979). A market inadequacy
implies that a market may fail to produce economically optimal or socially desirable
outcome. In the context of health, market failure refers to possible mismatches or
disequilibria between what the market supplies, and what fully informed, rational consumers
of healthcare would demand. Therefore, there is a case for government intervention in health
care.
The ultimate objective of a healthcare delivery service, to quote the famous words of Aneurin
Bevan, is that the ‘rich and the poor are treated alike, that poverty is not a disability, and
wealth is not advantaged.’ It is the duty of the state to provide access to universal health care,
because of inability to pay, by providing some risk protection to the poor against the costs of
serious illness. Government intervention can occur in different forms like providing
information, forming regulations, making it mandatory, financing health care and delivering
services. For this public health expenditures must be incurred by the state and central
governments. However, as noted by Selvaraju (2000) that when economic liberalization was
initiated in 1991, healthcare, as other sectors, faced expenditure contraction. In the 1990s, the
public health sector was woefully neglected with new public investment virtually stopping.
Other evidence of the collapse of public health facility is from the national survey of public
health infrastructure, which reveals that in 1999 to 2000 critical public health facilities were
grossly inadequate. The above trend is a global phenomenon that is well documented in the
2003 Social Watch Report that focuses on private health sector expanding rapidly for hospital
services.
13
Before independence, we made a number of solemn pledges to the people of India in whose
name we fought the war for political independence, viz., that we shall abolish poverty,
ignorance, and ill health and raise substantially the standard of living of the masses but we
adopt hidden and implied goals of pursuing our own class interest. This is understandable
(but not excusable) because a ruling class rules for its own benefit optimistic empathy for the
health needs of the people, particularly the poor and under-privileged, had hoped to provide
‘Health for All by the year 2000 AD’, through the universal provision of comprehensive
primary health care services. In retrospect, it is observed that the financial resources and
public health administrative capacity which it was possible to marshal, was far short of that
necessary to achieve such an ambitious and holistic goal.
The diminishing role of the government as provider of healthcare infrastructure is much
beyond India’s commitment at General agreement on trade in services (GATS). India has
autonomously liberalized its health sector to a greater extent than required as observed by
New Delhi based policy think tank Centre for Trade and Development (CENTAD Paper,
Health services liberalization in India, 2007). Interestingly The National Commission on
Macro Economics and Health in its report in 1995 had indicated this evolution of India’s
health system. The commission had pointed out that India’s health policy is shifting towards
privatization of services. In such a situation, it is essential to study the private healthcare
sector growing by leaps and bounds in recent times in the country.
II. Private healthcare
The last four decades have seen the expansion of the private sector’s role in healthcare in
India. A lot of public debate and research has focused on the private sector in the
provisioning of medical care. Macroeconomic policies and structural adjustment program
influenced health sector reforms in a major way. The nature and the trend of health services
experienced tremendous change due to liberalization and privatization policies practiced in
different countries especially the developing ones like India. The crucial transition in the
orientation of the health care has been from ‘service delivery mode’ to ‘profit making mode’
due to immense development in technology and decline of the public sector vis -a –vis
growth and boom of the private sector (Patel, 2006). Health care being treated as a
commodity has serious implications for people in developing countries particularly in the
context of increasing poverty levels and growing unemployment rates (Duggal, 1999).
14
The private health sector consists of the not for profit and for profit health sector. The not for
profit health sector which is very small includes various health services provided by
nongovernmental organizations, charitable institutions, missions, trusts etc. healthcare in the
for profit health sector is provided by various types of practitioners and institutions. These
practitioners range from general practitioners to the super specialists, various types of
consultant’s nurses licentiates, registered /rural medical practitioners (RMPs) and a variety of
unqualified persons. Then there is an informal sector which consists of practitioners not having
any formal qualifications like the hakims, vaidyas, tantriks who also provide health care.
The institutions falling within the ambit of the private health sector are hospitals ranging from
small nursing homes with fewer than five beds to large corporate hospitals and medical centers
as well as medical colleges, training centers, dispensaries, clinics, polyclinics, physiotherapy
and diagnostic centers, blood banks and the like. In addition the private health sector includes
the pharmaceutical and medical equipment industries that are predominantly multinational.
In the private sector, some hospitals have been functioning from pre-independent times.
These are mostly ‘mission’ hospitals run by charitable institutions under Religious authority.
Some hospitals, mostly small urban hospitals are under private proprietary ownership, Often
of doctors’ themselves. But, a recent phenomenon is the explosive growth of large, multi-
specialty, urban hospitals in the corporate sector. In India, the provision of health care has
been always both by public financing and private funding. However, compared to other
developing countries, government spending on healthcare in India is woefully low looking at
its huge population requirements (Kutty, 1999).
The state’s insufficient commitment to provide health care for its citizens is reflected not only
in the inadequacy of the health infrastructure and low levels of financing but also in declining
support to various health care demands of the people. Since the public spending on health
care is quite low there is definitely an important role for and need to emphasize on the private
sector.
Therefore, the presence of private healthcare is predominant in India. Evidence from studies
in 1963 reveals that most illness episodes in rural areas were treated by private providers and
that only around 10 percent of the population used government facilities (India Health
Report, 2002). The reason again for this preference of private over public is better availability
15
of doctors and perceived quality of private care even by people in rural India. Data from the
NSSO 52nd round reveals that 44% of the patients chose the private sector because the doctor
was more easily available, 36% because they we not satisfied with the treatment in the public
sector, and 7% because medicines were not available. Distance and long waiting are also
quoted as reasons for the poor use of public health facilities. The two NSSO surveys clearly
show that between 1987 and 1996 private health sector utilization in Maharashtra increased
from 56% to 68% in rural areas and from 54% to 68% in urban areas for inpatient services. In
case of outpatient care the private health sector was already accounting for three-fourths
share in 1987 and this increased marginally to 77% in 1996. This period coincides with the
declining investments by the state in public health care.
Due to inadequate public health facilities, the private healthcare sector grew by leaps and
bounds in India. It is said, “The Indian health sector is among the most privatized in the
world” points out K.N. Nagaraj of the Madras institute of development studies. (Sainath,
2000).The involvement of the private sector is based on the argument that it helps to improve
the efficiency of existing limited resources and it also ensures the availability of services,
which is important to improve access to health care. The private sector in India has managed
to permeate through primary, secondary and tertiary levels of healthcare, in both rural and
urban areas.
Besides, it is important to reemphasize the role of the state in contributing to the growth of
the private health sector. Direct and indirect support to the private health sector by the state is
the main form in which privatization takes place in India. Some instances highlighting this
point are as under:
1. Medical education is overwhelmingly state financed and its major beneficiary is the doctor
who sets up private practice after his/her training; three fourths of the medical college
graduates from public medical schools work in the private sector. Though they are trained at
public expense their contribution to society is negligible because they engage in health care
as business activity.
2. The government has allowed the highly profitable private hospital sector to function as
trusts which are exempt from taxes. However, their contribution to the state exchequer is very
less even when they charge patients exorbitantly.
16
3. The government provides concessions and subsidies to private medical professionals and
hospitals to set up private practice hospitals. It provides incentives, tax holidays and subsidies
to private pharmaceutical and medical equipment industry. It manufactures and supplies raw
materials (bulk drugs) to private formulation units at subsidized rate/low cost. It allows
exemptions and duties in importing medical equipment and drugs, especially the highly
expensive drugs and new medical technologies.
4. The government has been contracting out its programs and health services selectively to
NGOs in rural areas where its own services are ineffective. This will further discredit public
health services and pave the way for further privatization.
5. The government has pioneered the introduction of modern health care services in remote
areas by setting up PHCs. While the latter introduces the local population to modern health
care it also provides the private sector an entry point to establish them.
6. Construction of public hospitals and health centers are generally contracted out to the
private sector. The latter makes a lot of money but a large part of the infrastructure created,
especially in rural areas are inadequately provided. Hence, it cannot meet the health care
demands of the people.
7. Medical and pharmaceutical research is largely carried out in public institutions but the
major beneficiary is the private sector. Development of drugs, medical and surgical
techniques, etc.are pioneered in public institutions but commercialization, marketing and
profit appropriation is left with the private sector. Many private practitioners are also given
honorary positions in public hospitals which they use openly to promote their personal
interests.
8. In recent years the government health services have introduced selectively fee for services
at its health facilities. This amounts to privatization of public services because now utilization
of these services would depend on availability of purchasing power. Increasing private
sources of income of public services would convert them into elitist institutions, as is evident
from the functioning of certain specialty departments of public hospitals. This automatically
compels people to switch to the private health care.
9. The government has allowed private health sector to proliferate uncontrolled. Neither the
government nor the medical council of India has any control over medical practice, its ethics,
its rationality, its profiteering, etc. (Duggal, 1999).
The above are a few illustrations of how the state has helped strengthen the private health
sector in India.
17
The private health sector has always been a very substantial entity in India, especially for
ambulatory care. From the 1970s, private spending on healthcare grew gradually, peaking
around the early 1980s. However, for hospitalizations until the mid-eighties the private sector
was a reasonably small player. But, since then it grew rapidly by leaps and bounds and
overtook the public hospital sector around the mid – 90s. Private spending contributes as
much as 87% according to the World health report, 2000 and 82% according to the World
Bank, 2001. The bulk is out-of-pocket, estimated at 84.6% by World health report, 2000. The
other private mode, voluntary insurance, covers only 1.7 million people, an insignificant 0.16
% of the total population. Further, less than 10% of the workforce is in the organized sector
which has social insurance or medical benefits coverage from employers. Therefore, the
burden falls on the household budgets and poor people.
Thus, in recent times we see tremendous growth of the private healthcare sector which goes
unregulated, with lack of minimum standards and therefore needs to be studied. At the outset,
the next chapter on research methodology provides a background profile of Mumbai city and
its health infrastructure and then discusses about the methodology adopted for the present
research study.
5.4 Chapter Four: Research Methodology Mumbai is one of India’s largest cities and an important commercial and industrial center. It
is primarily divided into 2 regions- city & suburbs. It is one of the most populated cities in
the world. The business capital of India is home to more than 20.5 million people according
to 2011 census. Like other metros of India, the population of Mumbai has also grown rapidly
in last 20 years. According to 1991 census, the population of Mumbai was only 12.5 million;
so population of Mumbai has grown almost double in the last 20 years. This population
explosion in Amchi Mumbai has caused serious health related problems for a large number of
people in the city.
While there has been considerable improvement in healthcare indicators since independence;
Mumbai still remains well behind most developed Indian and international cities. Healthcare
infrastructure in Mumbai in terms of hospital beds per 1000 population lags behind several
key peer Indian cities such as Gurgaon, Delhi, Chennai, Hyderabad and Bangalore. Alongside
the shortfalls in hospital beds, there is also a shortage of healthcare professionals, equipment
18
and infrastructure needed at various levels in the healthcare delivery supply chain. Despite
everyday pronouncements of major breakthroughs and advances in medical and health
technology, the basic health needs of a majority of the population in Mumbai are not yet met
even in a rudimentary manner.
For the general population, the Municipal Corporation of Greater Mumbai (MCGM) provides
major facilities in the public sector along with the State Government. The Public Health
Department of the MCGM not only provides basic health care facilities but also manages
other aspects related to preventive and social or community medicine. The Department is
divided into zonal set-ups for administrative purposes. There are six such zones, which cover
24 Wards of the city.
The infrastructure at municipal public hospitals has been stretched to its limits. Public health
sector’s out-patient and inpatient care is inadequate or under-utilized because of inconvenient
timings or location, long queues, language barriers and rude staff (which, in turn, is because
of the over burden of work). Inadequate equipment’s, poorly maintained equipment’s, lack of
manpower, delay of financial approvals from the bureaucracy, overcrowding and the sharp
deterioration in the quality of their services have forced many patients to turn to private
hospitals. But only a fraction of the population can afford private healthcare. As much as
52.5% of the population in Mumbai lives in slums (Census2011), half of which comes under
below poverty line (BPL) status, who cannot afford costly health care in private hospitals
and, thus, depend on public hospitals. Even for the subsidized public health care, the poor
have to pay extra as bribes due to rampant corruption. The other expenditure is on the
medicines, which the public hospitals do not provide, the reason often quoted as “not in
stock”, although they are funded to provide medicines. Mumbai city’s public healthcare
system does not meet more than 40%of hospitalization demand which means that 60% of the
needs of the people are met by the private sector. The Bombay Municipal Corporation listed
907 private hospitals and nursing homes in Bombay city alone (excluding Thane), on the
basis of its registration data which is also an underestimate (Nandraj, etal, 1997). The private
sector, as per CEHAT database, consists of 1,157 private hospitals/nursing homes in Mumbai
city run by individuals, co-operatives, corporate bodies, companies, religious bodies, trusts
and NGOs.
19
Hence, the situation is very complex and multi-dimensional; on one side is the pitiable
situation of health of individuals and, on the other side, is the inadequate and insufficient role
played by the State to provide healthcare for the needy and on the third side is the rapid
growth of the private sector. In urban areas like Mumbai, demand for quality health care
services is increasing that is provided by private sector in spite of rising costs? Firstly,
consumers have become increasingly aware of their rights vis-à-vis the health care system.
Secondly, the middle class has increasingly been demanding better quality of health care.
Finally, the health insurance sector has now been opened up to private participation.
In this context, this research study is an attempt to measure efficiency of Private hospitals in
Mumbai which is flourishing day by day not only in Mumbai but in other parts of the country
as well. Besides, there is an increase in the use of private health care services by the people of
Mumbai who also desire value for their money spent on treatment. In this situation, it
becomes inevitable to understand the functioning of private hospitals and assess their
efficiency so as to help private hospitals in optimal utilization of resources and reduce
wastages in the health sector.
The research methodology used in the present study conforms to the objectives of the study.
It has used both primary and secondary data sources in order to collect relevant data for the
private hospitals. For assessing physical standards and efficiency, the primary data was
collected using questionnaire method for 35 hospitals in Mumbai. These 35 private hospitals
were selected from all the six zones covering all the 24 wards in the city. For measuring
technical efficiency of private hospitals we have used non-parametric DEA technique.
Certain efficiency parameters were identified from the hospital data to measure efficiency of
the private hospitals by DEA technique in order to identify benchmarks towards which
performance can be targeted by the inefficient hospitals. DEA method assesses the relative
efficiency scores of a particular set of Decision-Making-Units (DMU), which produce a
variety of outputs by using several inputs. This approach uses a mathematical programming
method to create a set of weights for each inputs and outputs, which considers how efficiency
in the DMUs (hospitals in this case) can be improved, and ranks individual DMUs based on
efficiency score (Liu et al., 2007; Bakar et al., 2010). DEA computes each hospital’s
efficiency by maximizing the ratio of the weighted sum of output variables and the weighted
sum of input variables (Kumar, 2010).
20
The interview schedules were used to understand user’s perceptions regarding quality of care
in the private hospitals for 100 users. Data was collected in a time span of four months i.e.
from January to April 2011 for the period January 2010 to December 2010 (i.e. one year) for
the private hospitals. User’s responses were also collected during the same period. Secondary
data sources have helped to understand the situation of public and private health sector in
India and specifically in Mumbai. The secondary data was obtained from published WHO
reports, Government of India reports on health sector and hospitals and various books,
publications of CEHAT and so on.
The primary data collection was initiated with the pilot study conducted for five private
hospitals. The hospital questionnaire included questions on costs and expenditure. But, the
private players did not respond to the questions on costs and expenditure at all and informed
that it was confidential. However, they responded to certain questions on capacity utilization
and indicators of their growth. Accordingly, modifications were incorporated in the final
questionnaire and the research study was carried ahead. Besides, it was incorporated in the
research proposal that data would be collected for five years. But, majority of the sample
private hospitals had no proper records excepting a very few; so data was collected for the
time span of one year. Data was then collected for rest of the thirty private hospitals. Besides,
one of our research objective was to take study WHO guidelines to understand the situation
of health sector (minimum standards in the hospitals). But, after undertaking the research it
was realized that since the study is based in India, in Mumbai it would be better to study the
laws and guidelines existing in Mumbai for the functioning of private hospitals.
As far as users are concerned we began with the pilot study for ten users in order to examine
their perceptions regarding quality of care rendered in the private hospitals. There were no
issues in collection of data from the users. So the responses were then collected for the rest
ninety users from different hospitals. The only limitation as far as user’s data collection was
concerned is that we suggested that responses for users will be collected from the sample
private hospitals. However, the study includes responses from different hospitals including
the sample hospitals. So these are the few limitations of the research study. The next chapter
deals with the analysis of the primary data collected and the findings of this research study.
21
5.5 Chapter Five: Data Analysis and Findings At the outset, the data analysis done provides a brief understanding of the attributes of the
sample thirty-five private hospitals. Next the DEA analysis was performed for measuring the
technical efficiency of the private hospitals. Finally, we have tried to evaluate user’s
perception regarding the quality of care given by the private hospitals and their preference for
seeking treatment from the private service provider whether for inpatient or outpatient care in
this study. Ultimately, all of these have helped us to realize the objectives of this research
study.
Characteristics of the private hospitals focus on different aspects of physical infrastructure,
personnel and information. It also provides a profile of private hospitals in terms of year of
establishment, size, facilities etc. Physical infrastructure is analyzed on aspects like space
availability, equipments, ambulance facility, intensive care unit, pharmacy and basic facilities
like water supply, power supply, etc. Personnel aspects include number of doctors, other staff
including nurses, ward boys etc. Information data is analyzed on perspectives such as fee
schedule used by the hospital, autonomy to the doctors in setting fees and so on. Some of the
key findings point out that though basic facilities like refrigerator, water supply and toilets
are present; none of the hospitals follow any proper physical standards that lead to inefficient
utilization of inputs at their disposal. The study also found that small sized hospitals located
in suburban areas are struggling with inadequacy of human resources. Besides, most of the
hospitals decided fees on case to case basis which also raises the issue of transparency in the
private hospitals.
Technical efficiency refers to the minimum amount of resources (inputs) to be used for a
given level of output or, alternatively, the maximum amount of output that should be
produced for a given level of resource use. DEA technique uses efficient frontier to calculate
the efficiencies of the other organization units (hospitals) that do not fall on efficient frontier
and provide information on which units are not using inputs efficiently.DEA calculates the
efficiency of a given organization in a group relative to the best performing organization in
that group. By providing the observed efficiencies of individual organizations, DEA helps to
identify possible benchmarks towards which performance can be targeted. Input-oriented
DEA approach was used as decision making units (hospitals) have better control over inputs
than outputs; hence our interest in the input based approach. Besides, the study has
22
concentrated on the variable returns to scale (VRS) model. This is so because the VRS model
isolates the pure technical efficiency and scale efficiency components which are related to the
size or structure of the decision making unit (DMU). Hospitals that are overall efficient
exhibit constant returns to scale (CRS). Scale efficiency can be thus be measured by dividing
the CRS efficiency score by the VRS efficiency score.
In order to measure the efficiency of thirty-five private hospitals the following step by step
procedure was adopted:
• Firstly, technical and scale efficiency were measured by using the DEA technique.
• Secondly, input and output slack values were calculated in order to observe the
efficiency savings possible by using the resources in its optimal form and
• Lastly, Efficient Private Hospital peer groups were identified which served as
benchmarks for the inefficient hospitals.
It is important to note that efficiency scores range from 0 (totally inefficient) to 100%
(efficient). The study has shown that out of the 35 private hospitals in the analysis 10
(29%) private hospitals were technically efficient whereas the remaining 25 (71%) where
technically inefficient. On the other hand, 4 (11%) private hospitals were scale efficient
whereas the remaining 31 (89%) where scale inefficient as shown in the table. The results
point to grave technical inefficiency in Mumbai’s private hospitals. Thus, a significant
proportion of the available resources are wasted in the private hospitals.
Table 1: Technical and Scale Efficiency Scores of the Thirty-Five Private Hospitals
Efficiency
Brackets(Percent)
No. of hospitals
Technical
Efficiency
Scale
Efficiency
less than 50 1 14
50-74 8 7
75-99 16 10
100 10 4
Total 35 35
Source: Estimates with the DEA, Sample data, N=35
23
Finally, the user’s responses were collected through interview schedules to study the user’s
perception of quality of care provided by the private hospitals. This is to understand various
dimensions of quality of care provided by the private hospitals as well reasons for seeking
treatment from private providers. This analysis would play a significant role in policy
implications of the study.
The major empirical findings of this study can be summarized as follows:
Exercises to study the physical standards in the private hospitals indicate that though
there are several basic facilities present/existing; many other components of service
provision need to be improved. Private hospitals are run without any minimum
requirements for physical standards. They neither suffice the standards laid under the
BNHRA.
Exercises to examine the efficiency of private hospitals done by using DEA indicated
that there is technical inefficiency in a number of sample private hospitals. As per the
estimates of this study only 29% of the hospitals in Mumbai are technical efficient
and around 71% of them are technically inefficient. Resources (inputs) are not utilized
efficiently to produce maximum output. Very few hospitals are fully efficient and are
functioning on the efficiency frontier.
Scale efficiency results for private hospitals analyzed indicate that 4 (11%) were scale
efficient whereas the remaining 31(89%) where scale inefficient. Scale inefficiency
shown by increasing returns to scale for a number of sample private hospitals indicate
that some of the hospitals are too small for the scale of operations it undertakes.
Our findings indicate that though in terms of technical efficiency, most private
hospitals are technically inefficient; the input slack values for those inefficient private
hospitals shows the areas wherein they can improve by minimizing the wastage of
resources (inputs) and earn efficiency savings.
User’s responses indicate that in Mumbai majority of the sample population used
private hospital facilities especially for outdoor treatment. (Note: this result is limited
for the users in the sample study).This has important policy implication as far as
regulation of private sector is concerned.
These findings are perfectly in line with other findings from other countries. Its policy
implications with regards to health care provision (given the limited resources in the health
sector) are of serious concern.
24
5.6 Chapter Six: Policy Implications and Limitations
Policy Implications of the empirical findings:-
This study has highlighted a number of policy issues which relate to potential strategies to
improving the access to and performance of the private hospital market in Mumbai city, and
in other large urban areas in general. Policymakers are debating several issues about the
private hospital sector in the state such as accessibility, equity, regulatory issues and
determination of minimum standards.
Certain important policy implications derived from our study can be given as under:
No proper physical standards are currently followed by the private hospitals. As a
result, in many hospitals there is inefficient utilization of inputs.
Results obtained by using DEA for measuring efficiency not only helps health care
policy makers and managers to answer the question’ How well are the hospitals
doing’ but also ‘how much and in what areas they can improve?’ It suggests
performance targets. In addition, it identifies the hospitals which are performing best
and their operating practices can then be examined to establish a guide to ‘’best
practice’’ for other inefficient hospitals to emulate. The potential benefits of
replicating this kind of study in other parts of Maharashtra and indeed in other states
cannot be over-emphasized.
Several independent physicians and hospitals expressed concern over the “intense
competition in the market” and how, as a result, they are “not doing well.” Although
not substantiated with hard data, it cannot be discarded as a deliberate attempt by all
providers to project such negative picture of the hospital market. There is little
argument that much of hospital market’s performance is driven by the larger politico-
economic policy environment, which is beyond stakeholders’ reach and influence. But
efforts can be made from both within and outside the healthcare system for better
performance in delivering care and in monetary terms. For example, private hospitals
could voluntarily initiate steps to develop networking among them and develop
physical standards by involving various stakeholders in the process. On the other
hand, the state could, for example, initiate steps to revive the sick hospitals wherever
necessary. Positive moves taken in this dimension will also definitely benefit the users
25
by reducing their burden of treatment and receive quality care from the providers of
health care which yields value for their money.
Limitations of our research study can be discussed as under:- Firstly, the inputs and outputs data were collected for only one time period; thus, in
order to aid monitoring and evaluation of the effects of different health care reforms
on the efficiency of individual health care facilities over a period of time through the
Malmquist Productivity Index analysis, it would be necessary to collect data for more
than a year before the introduction of specific reforms, and for subsequent years.
Secondly, given that the study was conducted in only one city, it would not be
advisable to generalize the findings for the whole country. Thus, the study has limited
application.
Thirdly, DEA has been criticized for attributing any deviation from the estimated
frontier to inefficiency since it is deterministic or non-stochastic. In other words, it
does not capture random noise, e.g. epidemics, civil war and natural and technological
disasters.
Fourthly, the study focused only on technical efficiency and not allocative efficiency.
Thus, the scores do not capture total efficiencies or inefficiencies.
Finally, the study used proxy outcome measures. One of the intrinsic goals of the
health systems is to improve beneficiaries health status, and thus, the ultimate
outcome of the health care system ought to be its effect on life expectancy and health
related quality of life of all those who come into contact with it. Therefore, ideally we
should have used indices like Quality adjusted life year and disability adjusted life
year that combine the two dimensions of health into a unitary measure. It would have
been interesting and relevant to unearth the causes of inefficiency in the hospitals.
Unfortunately it was not possible to get complete and reliable data that could be used
to unpack the causes of technical inefficiency using a second stage Tobit regression
analysis.
Finally, the last chapter is a summarization of the entire research done which forms the thesis
with a suitable conclusion.
26
5.7 Chapter Seven: Summary and Concluding Remarks
This chapter compiles the entire work of the thesis by providing its summarization in brief.
To conclude, setting up of minimum physical standards is essential to help to improve the
efficiency of the private hospitals in Mumbai. The terms of the BNHRA Act were not being
enforced in many of the private hospitals and monitoring did not appear to be taking place.
The state, therefore, needs to play a stronger role in regulation not just of quality of care but
also by setting, monitoring and enforcing minimum standards and determining the scope of
the private sector.
DEA approach has been fruitfully used in many countries especially in Asia and Europe and
in the United States to shed light on the efficiency of health facilities like hospitals and
programs. The current study adds to this literature. The study has revealed the prevalence of
high levels of combined pure technical and scale inefficiencies. In a country with very low
levels of per capita expenditure on health US dollar 44.80 in 2009, according to a World
Bank report, published in 2010 and very limited access to health services, the current levels
of inefficiency in the private hospitals would seriously impede the government's initiatives to
increase the population's access to quality health care services. Furthermore, progress towards
the achievement of the cherished health policy objectives, and global and regional health
targets would be seriously hampered.
In the current situation, there is a decline in allocation of resources towards health but an
increase in the health care demands due to growing population. It is therefore, recommended
that the causes of the inefficiencies in the private hospitals be unpacked and necessary
efficiency measures be instituted to augment the government's efforts to address the health
care access issues of the people. Thus, to conclude, it is necessary, for hospitals rendering
healthcare facilities to be efficient by minimizing wastage of resources in order to provide
maximum satisfaction to the users.
27
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