Financing Healthcare: Some Innovative Options


On the 27th Annual Day of SKIMS (December 5, 2009), economist, and banker Dr Haseeb A Drabu delivered the Sher-i-Kashmir Oration suggesting a business solution for better health. He suggested a non-governmental micro finance program to provide access to afford healthcare products, services, and information till state evolves big bang health system reforms. Here follows the text of his speech that state health ministry said will be considered in prospective planning.

Haseeb DrabuI am honored to be delivering the Sher-i-Kashmir oration. I must say I was a bit surprised when I got the invite sometime back but I must thank the organizers as this has given me the opportunity to try and understand issues relating to healthcare systems in the state.

Ingrained in our society is a much idealized image of what a doctor is or ought to be: a selfless doctor working with missionary zeal in a benevolent hospital. The weight of these expectations is too heavy for a normal human being to bear. We have drawn a hallow around our doctors and that hallow has become a millstone around their neck. This utopian notion, which is neither possible nor even desirable, is the cornerstone of our social philosophy of health care. And that is where the problem starts.

I don’t for a moment question the primacy of the fact that doctors are driven to serve the patient’s interest first. Most doctors are also interested in being well paid for their services, whether by salary or on a fee-for-service basis. That in no way changes the primacy of their ethical commitment to the patient. I view doctors and medical practitioners as regular-issue human beings.

On their part the doctors, who have the same social DNA as the rest of us, want to have their bread buttered on both sides; be a government servant and yet be a businessman; to have the stability of a government job along with the profitability of a business. There has to be an either or, because there is a conflict of interest here. As to why this should be so is not greed but because of the system in which they are made to operate. I would any day prefer the doctor-entrepreneur model to the doctor-government servant model.

The biggest casualty of this kind of social thinking has been to our approach to policy and practice of heath care. In such a scenario we are unable to see health care as an economically important industry and a very critical market, which has a huge bearing on the human resource development of the state.

It is a market that is highly specific, specialized, but fragmented; a market that, like any other one, comprises of producers (i.e. doctors), consumers (i.e.; patients), and regulators (government). Indeed, healthcare is not one unified market but has five sub markets: (a) Medical education market, (b) Health service market: doctors and nurses, (c) Institutional services market i.e hospital and other infrastructure, (d) Input market; pharmaceuticals and drugs, and (e) Health care financing market.

Each has to have its own policy and strategy. Not only are all these markets underdeveloped, imperfect and inefficient, there are huge variations across these markets; for instance, the medical education markets are so competitive that only the best and brightest of our youth get in; but the institutional services market is so monopolistic and regimented that it kills initiative and has a bias against merit.

Obviously, there are huge problems in delivery of health services. And, of course, in the process we as a society incur an enormous social cost. Please remember that all the doctors here are the crème dela cream of our talent pool; the best and brightest students go into this field and by not providing them the environment to showcase their talent, we are incurring an enormous loss.

As such, I want to approach the issue of healthcare policy not from a do-good-to-humanity perspective but from a hard-nosed finance angle. Please bear with me if I sound heartless; but let us try and be realistic and pragmatic.

In all the discussions that one hears on the gaps and dismal state of health care in the state, we leave everything at the door of the government; not enough is spend on healthcare; there is a disconnect between disease pattern and resource allocation and so on and so forth.

It is a fact that J&K spends only 2.7 per cent of its SDP on health, which is half of the normative level. (Incidentally, the good news is that we are above the national average in all health indicators except the male expectancy at birth. But anyone who has been to our hospitals, the way to interpret being above national average is not that we are good but that the others are worse. No pride in this really.

Funding for the “free health care for all” is unsustainable because governments across the world are unable to generate sufficient revenues. Likewise, the “cash-and-carry” healthcare model makes healthcare accessible only to those who could afford it, excluding a vast majority from health care utilization.

There are only five methods of financing healthcare. 1. Direct payment by the users to the providers. (Which restricts access to healthcare and make it in-equitious), 2. General taxation: payment by the government to providers on behalf of the users. (Which we know is half of what we want and not good enough). 3. Compulsory social insurance set up by the government. All wage income earners pay regular contribution to the compulsory social insurance. (This we don’t have). 4. Private health insurance: A small minority of people takes private health insurance, which pays for them when they need healthcare. (Not yet evolved in J&K). 5. Donations and community health insurance/ services. (Very small component and not reliable).

In J&K we operate largely on direct payment and government paying for us. It is a fact that in the near foreseeable future, government will not be able to double the spend on healthcare; and even if it does, it does not guarantee improvement in healthcare; there is cross country evidence on the fact that a higher spend doesn’t translate into better health care.

So lets us look at it from a market perspective, where the medical professionals are producers; people/patients are consumers of health services. What is the spending pattern of these consumers for this service:

– 25 percent of our population do not seek any treatment whatsoever for illness, not even in the public sector (National Commission on Macroeconomics and Health, 2004).

– Nearly 65 percent of the poorest have to borrow money, often at high interest rates, to finance medical care

– 21 percent dig into their savings as a result of hospitalization (Institute of Health Systems, 2006).

– Out of the section that can afford and access routine medical care, more than one third would face economic catastrophe if hospitalization with surgery or equivalent major health services would be needed and end up in a vicious circle of indebtedness.

– And to give you a last statistic, in 2009, medical debt was the single biggest reason for personal financial bankruptcy in the world. It is astounding.

So it all fundamentally boils down to financing of health and medical care.

Recognizing all these challenges of healthcare in J&K, I have a simple-minded proposition: let us try applying a business solution for better health. The innovation I propose is to have a micro finance program outside government that applies tested business methods to provide access to affordable healthcare products, services, and information.

Till such time we can carry out big bang health systems reforms that will improve health markets, this intervention can build on existing structures, attempting pragmatically to improve and change them rather than replace them overnight.

To my mind a micro finance model of financing health may be best suited to fill the gap in improving access to healthcare in J&K where we have adequate supply of medical professionals, moderate levels of income and poorly developed financial systems.

A micro-finance-organized and managed alternate healthcare financing system can provide access to preventive and curative health services as well as financing in the form of health savings plans and emergency health loans. These financing schemes are different from health insurance schemes as these are not about health insurance per se…they are there to protect people from the financial risk incurred by having to pay high costs for health care service.

Why would micro finance institutions (MFI) or banks do this? Not for charity or social obligation. For the MFI or the bank, providing health-care coverage can become an important business of lending money to improve lives.

Another business reason for a finance institution like J&K Bank to offering health care to its clients is my on the ground experience; many times I have seen clients falling behind on their loan payments because they are using their money to pay their own health costs or the health costs of a sick family member rather than to repay the loan. This can inspire the micro finance institution to begin to provide health care to its clients.

For the consumers of health services, we can look emulate what was done in Singapore, introduce medical savings account schemes (MSAS). The Singaporean government like many others was unable to finance its nation’s health care, but since they implemented MSAS in 1984, Singaporean government’s share of the nation’s total health care expenditure dropped from about 50% to 20%.

For the providers of health care, financial institution can look at financing provision of highly customized care. It is worth our while to finance for-profit, high-volume, low-cost hospital providing quality and affordable healthcare. A group of doctors can network together and look at creating a 25 to 30-bed boutique hospital or health center. How much will each cost: a crore per bed; so it is Rs 25 crore per facility. Lets us do a pilot of five or 10 in the state. I commit to you here that we at the J&K Bank will finance it. It is all of Rs 150 to 250 crores of investment. But the implementer has to be non-government, though one expects government to support innovative models. Pricing of the services can be worked out.

It is possible to use micro finance to ensure franchise sustainability. We are willing to makes small loans available to members, enabling them to improve their clinics (purchase beds, drugs, lab equipment, and other medical equipment; paint and renovate; and purchase furniture and fittings) and services to meet quality standards. I have a full financing mechanism worked out and will be happy to share it.

The possibility of micro financing as an alternative channel to finance health care is real, rough and ready. I will explore the possibility of our new entity, the J&K Grameen Bank, an affiliate of J&K Bank; tie up with health companies to provide cost-effective health care to our people.

The critical difference of this approach form what we are doing now is that it is a bottom-up health care infrastructure building and services as against the existing top down approach. And of course, it is outside the government whose role is to regulate and enforce quality standards and ensure fair pricing of services.


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