Rural India has an access-to-healthcare problem. Especially tertiary healthcare, which requires specialist intervention like cardiology, urology, oncology. Certain private hospital chains like Cygnus Medicare and Vaatsalya Healthcare have taken a tier-II-and-III-first approach to reach underserved areas, but there still remain gaps.

The biggest gap being a lack of funds.

To get a sense of how expensive the hospital business can get, here’s something to chew on. Just the cost per bed for a hospital—not accounting for the cost of real estate—can go up to Rs 2 crore ($280,497) depending on the specialities offered. This, without counting operational expenses either.

While India has tried to beat these odds with what the government claims is the “world’s largest health insurance scheme”, Ayushman Bharat, it hasn’t been enough. The scheme, which offers health insurance to 100 million poor families—around 40% of the population—has so far empanelled 21,217 hospitals, of which 9,310 are for-profit, since September 2018. Just to put that number in perspective: there are 31,000 private hospitals in the country. 

So, what does India do? 

Instead of building public facilities in rural India, a massive country with 732 districts, it empowers the Ayushman Bharat programme to bridge the supply gap. The programme, which was started to indirectly encourage hospitals to grow and invest more by improving the purchasing power of India’s poor, is now all set to directly expand India’s private healthcare sector through viability gap funding (VGF). 

The VGF, which is proposed to come out of proceeds from the tax on medical devices, is meant for building hospitals in India’s most disadvantaged 112 districts—primarily across Uttar Pradesh, Bihar, Chhattisgarh and Jharkhand—where there are no private hospitals or they’re not empaneled with the government’s scheme.

This move from the government may not appear traditional. But neither does its latest Budget for the year ended March 2021,  which allocates a modest 5% increase for healthcare over last year. Though the Indian government is yet to clarify how much of its Rs 67,484 crore ($9.5 billion) budget allocated to healthcare is meant for VGF, it is estimated to cover  up to 40% of total project costs—as proposed by the government in December 2019. 

The VGF appears to be a clear U-turn from the government’s earlier stance that the Ayushman Bharat scheme alone could catalyse private hospitals to develop a new business model. It’s an admission that the creation of demand via insurance does little to pull in investments.

So, the government is now encouraging private hospitals to take the rural healthcare torch and run with it.


Ruhi Kandhari

Ruhi writes on the impact of healthcare policies, trends in the healthcare sector and developments on the implementation of Electronic Health Records in India. She has an M. Sc. in Development Studies from the London School of Economics.

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