PPP: Private Profits Promoted

In a PPP framework, the private sector partner needs to maximize profit, which is not always compatible with the stated objective of providing universal access to quality services

The news of how much a private hospital recently charged a patient’s family for dengue treatment, despite not being able to save the patient’s life, has was met with outrage and revulsion. The private healthcare facility, based in the National Capital Region, has denied accusations of over-charging and has justified the bill raised on the family of the deceased.

While social media users may have been hasty and impulsive in apportioning blame for the alleged fudging, it is imperative that the matter be investigated and, if wrongdoing is proven, future remedial measures provided. This is easier said than done. This simple act, normal in any rules-based jurisdiction, is unlikely to reach any logical conclusion or create mitigating circumstances for avoiding repeat performances in the future. One reason is the lack of a proper regulatory framework—whether sector-specific or for entities shadowing the public-private partnership (PPP) model.

At its core, this unseemly incident also questions the nature of government’s ties with the private sector. While there is no doubt that the government needs to partner the private sector in multiple areas, one unavoidable question keeps popping up: How is the lack of sectoral regulators, coupled with the government’s increasing and unflinching faith in the private sector’s capacity to deliver social sector targets despite evidence to the contrary, affecting outcomes?

NITI Aayog vice-chairman Rajiv Kumar hit the nail on the head during a conversation with The Indian Express staffers recently: “All these private hospitals...they have been given land at a very cheap cost—it is really like a public asset—on the premise that they will do what they promised.... I am convinced that private hospitals in the tertiary space need far better regulation than what is in place now. They must be made to stick to what they have promised.”

Indeed, the lack of sectoral regulators is aggravating the risk profile of numerous sectors. In many sectors, the government doubles up as both service provider and regulator, creating serious conflict of interest. It also raises questions about sequencing: should private sector be allowed entry into various sectors without first establishing independent or autonomous regulatory structures? In the absence of a credible regulator or a regulatory framework, empirical evidence shows the sector often falls prey to regulatory capture and cronyism.

Even the Vijay Kelkar committee, set up to revitalize the PPP model in infrastructure, endorsed the setting up of independent regulators: “The committee cannot overstate the criticality of setting up independent regulators in sectors going in for PPPs.”

The Indian healthcare industry is a prime example of how lack of sectoral regulation has resulted in government ceding space to the private sector, even in urban primary healthcare centres in some cases. This has multiple consequences, especially with regard to levy of user charges which remains unregulated. From there, it is just one step to billing a patient for over 600 syringes during a two-week stay, which works out to an absurd consumption figure of 43 syringes a day.

Ironically, the National Health Policy 2017, while advocating a larger role for the private sector, has reserved the regulatory role for the ministry, albeit with a deadpan display of diffidence: “The regulatory role of the Ministry of Health and Family Welfare—which includes regulation of clinical establishments, professional and technical education, food safety, medical technologies, medical products, clinical trials, research and implementation of other health related laws—needs urgent and concrete steps towards reforms. This will entail moving towards a more effective, rational, transparent and consistent regime.”

The PPP framework has many in-built infirmities: there are asymmetries in how the government and the private sector partner share revenue and risks.

There is another fundamental problem with PPPs in the social infrastructure space: the private sector partner needs to maximize profit, which is not always compatible with the stated objective of providing universal access to quality services.

The World Bank’s page on public-private partnerships, while describing the Indian model, says that bids are usually evaluated based on the lowest cost to government. It is common knowledge that the lowest cost bid mode is a slippery slope and prone to abuse and sub-optimal outcomes.

Perhaps, as McKinsey, World Bank and the World Economic Forum have told us on different occasions, the PPP model is indeed the way ahead to improve healthcare delivery in India. But, it is also important to get the design right to make the delivery cost-efficient, timely, affordable and profitable for all stakeholders.

Beyond the PPP nuts-and-bolts, there lies a larger moral question centred around the philosophy of social contract and the elasticity of powers afforded to an elected government. Part of the understanding or compact between the citizen and the elected legislative is that taxation revenue will be used to provide public goods, especially to those who are unable to pay user charges. Over the past 10-15 years, the government has steadily relinquished its space to the private sector as the sole provider of public goods and services, with the private sector player gradually introducing arbitrary and unregulated user charges. This breach of contract has serious implications for society.

The above article was originally published in Mint newspaper and can also be read here