India is predicted to become the most populous country on the planet in the next decade, and is an emerging economic powerhouse that is witnessing rising prosperity and a rapid growing middle-class population (estimated to increase by seven per cent for the five-year period 2016-21). Not surprisingly, there is growing demand for high-quality medical care.
But, according to the World Health Organization, the Indian Government spent just 1.46 per cent of GDP on healthcare in 2014, one of the lowest in the world.
So, into the breach has mushroomed a private sector. It’s been largely unregulated, according to experts, and has traditionally operated in cash. That means India has one of the highest rates of out-of-pocket spending on healthcare in the world, at over 62 per cent of all spending (beating only Afghanistan, Sudan, Yemen and Nigeria). Just 20 per cent of Indians have health insurance, for example, and most of them are concentrated in the bigger cities – nicknamed the Metros.
But, things are changing. A growing number of top-tier hospitals are providing world-class services that attract a growing number of paying customers from around the world. There appears to be a trickle-down effect, with thousands of other hospitals around the country now upping their game, according to Jijo John, Director of Dart Consulting, an India-based management consultancy.

A growing number of top-tier hospitals are providing world-class services that attract a growing number of paying customers from around the world

John believes improvements to these hospitals has contributed to a corresponding rise in hospital costs. Exclusive maternity hospitals are now charging US$2,500 for a delivery – when these used to be available for $250. Better services are appealing to more middle-class Indians. “You get better treatment, ambulances to pick you up. That’s happening in the biggest cities,” he said. “This will encourage people to go for insurance. In the last five to 10 years, people have felt the need for insurance, because medical costs have been increasing.”

Reactive healthcare

At the very top of the enormous healthcare sector are some of the most famous hospitals in the world amongst domestic and international patients, including Columbia Asia, Fortis and Apollo Hospitals group. The latter is Asia’s largest healthcare group with 9,215 beds across 64 hospitals, 2,200 pharmacies, over 90 primary vare and diagnostic clinics.
Jithu Jose runs the International Business Division of Apollo for Middle East & South Asia for the group. He explains that services the hospital group provides reflect the changes in disease patterns around the world. For instance, in India, the proportion of the population aged 65 and above is expected to grow from 4.3 per cent of the population in 2000 to 6.7 per cent in 2021, according to Oxford Economics. In three years, 95 million Indian citizens will be aged over 65. Along with the rising aspirations and economic vitality of a growing middle class, this increasing share of an aged population should impose additional demands for healthcare services. It’s a trend seen in countries across the globe. “We are in a world of ever-increasing disease burden and ever-changing disease patterns,” Jose said.
That means the Group is focused on innovations in non-communicable diseases (NCDs), from cancer to heart disease, according to Jose. “A notable aspect is the substantial rise in oncology demand,” he said. “At Apollo, we can confidently state that we handle the highest oncology inflow of medical travellers to South Asia.” The Group is set to open a Proton Care Centre in Chennai later this year.
International patients, in particular, opt for solid organ transplants among other high-end specialities, including the use of shape memory alloy for spine surgery, combined heart and liver transplants and paediatric triple abdominal bypass operations. “Organisations like ours are skewing towards absolute super speciality space,” Jose said. “The case mix has changed, and today we have evolved to a very strong position in the medical travel segment covering everything from a US$100 comprehensive preventive check up to heart and lung transplants.”
But although most international patients to India come from Bangladesh, Afghanistan, Iraq, Nigeria and Kenya, the sheer scale of the domestic market actually dwarfs the international market.
That’s why there is an interest in covering health spending, according to Dart Consulting’s John. He said: “Insurance will be a booming industry in India. It has already started and will speed up in the coming years.” Certainly, healthcare spending is expected to rise from 2.5 billion in 2010 to US$3.370bn by 2021, according to Oxford Economics.
Luckily, a plethora of government, public-private and entirely private insurance schemes have launched since the government liberalised the health insurance market in 1999.
Government schemes tend to aim at the poorest, as part of a bid to provide universal health services to millions of Indians below the poverty line (BPL). Such initiatives have sparked an insurance revolution. Between 2007 and 2010, the proportion of the Indian population with some kind of health insurance roughly tripled to 25 per cent or 302 million people. Health insurance became the second largest business in the non-life insurance sector.
However, the government contribution is still small, which has prompted the growth of private enterprises. In 2010, there were 40 private health insurance providers, although only two per cent of the population had private insurance that year.

De-risking health insurance

Many of the private providers are tie-ups between Indian and international insurance firms. Apollo combined with the health arm of Munich Re to form Apollo Munich Health Insurance in 2009. Bajaj Allianz General Insurance Company is a joint venture between Bajaj Finserv Limited and Allianz. CignaTTK Health Insurance Company, between Cigna Corporation and Indian conglomerate TTK Group. It launched in February 2014.
But the insurance plans and corresponding hospitals payment systems are in their infancy. So, they end up skewing demand in strange directions say experts.

We are in a world of ever-increasing disease burden and ever-changing disease patterns

For example, a typical health insurer has a provider network of around ,000 hospitals, of which only around 60 are in the upmarket tier-1 category, (with accreditation from Joint Commission International or the National Accreditation Board for Hospital & Healthcare Providers). So, patients tend to wait for long periods or travel for treatment at these upmarket tier-1 hospitals. That means 10 per cent of the hospitals submit 80 per cent of the claims.

And policies tend to cover hospitalisation only. That has not only led to a boom in new-build commercial hospitals in rural areas. It has resulted in many hospitals encouraging patients to be admitted for a day, regardless of need, in order to be eligible for insurance coverage. Some hospitals even charge patients without health insurance less than those patients with health insurance.
These activities have had a knock-on effect on costs said Thomas K. Thomas, writing in The American Journal of Managed Care in 2011. “Instead of lowering the costs, the indemnity nature of health insurance has actually led to cost inflation,” he said. “Over the long term, health insurers have to evolve toward the more complex capitation and pay-for-performance models of provider reimbursement.”
Dart Consulting’s John said insurance-based, or so-called cashless services, almost guarantee higher costs in some hospitals. “The moment you say you get reimbursement for a cashless policy, they will do all kinds of tests and issue an inflated bill,” he said. “I don’t want to tell them I get reimbursement.”
That’s why although take-up is increasing, there is still a ‘missing middle’ or a large number of middle-class Indians who are not insured according to Ernst & Young (EY).
New insurance policies will be key, it suggests. One strategy to ‘de-risk’ the health insurance pool and develop a deeper base of customers is to insure an entire extended family, from infant children to aunts and uncles suggests EY. Insurer Max Bupa has introduced cover for an extended Indian family that can encompass 40 or 50 people, for example.
Others are looking at wellness and preventing hospital admissions altogether. They have linked health insurance programmes to smartphone applications (a totally underused resource according to EY) that monitor physical activity or visits to the gym. Aditya Birla’s new insurance programme offers a 30 per cent monthly premium reimbursement to clients who work out regularly or who record a certain number of steps in their daily activity.
But the most successful, according to EY, will be the organisations that create integrated networks. Apollo Munich, for example, has created a network of pharmacies, clinics and hospitals, and even a call centre to help prospective customers manage their diabetes risk and prevent hospitalisation altogether.