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Way Forward for PPP in Healthcare

The transformation expected by the healthcare industry continues to remain unfulfilled in all previous budgets, as the healthcare industry has failed to gain the priority infrastructure status. This may slow down private investment and will adversely affect the spread of secondary healthcare in Tier 2, Tier 3 cities and rural areas surrounding these cities. The new government should bring forward a comprehensive policy on Public Private Partnerships (PPP) for use by Central and State Governments which may help in promoting the much needed PPP projects in Healthcare.

In Nascent Stage

India has PPPs and related reforms evolving in many states, with PPP-in-Healthcarethe governments across the country promoting them as a means for bridging the disparity in infrastructure so as to meet the needs of the citizens. In the past one year, states like Karnataka, Uttarakhand, Maharashtra and Andhra Pradesh have adopted a number of PPP projects in the healthcare sector. Some of the projects introduced in these regions include Yeshasvini Health Insurance Scheme, Emergency Response Services, Development and Operation of Radiology Diagnostic Centres and Rajiv Aarogyasri Community Health Insurance Scheme. In fact, the governments of Uttarakhand and Himachal Pradesh have appointed RAHI Care to install dialysis facilities at hospitals through a PPP model. Maharashtra also hasn’t been far behind. Last year, the state decided to address one such problem through a PPP model, as 22 government hospitals in Maharashtra will be provided with the diagnostic services of the Mumbaibased Enso Healthcare Private Limited. Similarly, another contract was bagged by the same firm in Punjab. Chhattisgarh has started outsourcing its diagnostic needs through a bonus and penalty PPP model. Other states such as Karnataka, Rajasthan and Gujarat are expected to follow suit.

Governmental source is the most common mode of financing a PPP, even as the entities of both the public and private sectors contribute to the financing of the project. The scheme is supported by the public sector in the form of subsidies, grants, land and capital expenditures.The government also provides Viability Gap Funding (VGF), a scheme that aims at supporting infrastructure projects that are economically justified but all short of financial viabilities. The total funding provided under the scheme does not exceed 20 per cent of the total project cost, provided that the government or the rightful entity that owns the project provided additional grants out of its budget, but not exceeding a further 20 percent of the total cost.

It can be observed that almost 40 percent of all the PPP projects proposed till March 31st, 2104, are already in the operational phase, indicative of the fact that PPP in Indian healthcare is still in a nascent stage compared to other countries. A large number of projects are in the bidding and construction phases – 12 percent and 9 percent respectively, which once operational, will add to the penetration of PPP in the country.

A look at the list of the operational PPP projects in the healthcare domain reveals that currently, 44 projects are functional across the country. Majority of these projects are concentrated in the states of Karnataka, Uttarakhand, Andhra Pradesh and Maharashtra. These projects include
insurance schemes, emergency response services such as mobile vans, management of Community Health Centres etc., indicating a majority of O and M type projects. The cost of these projects range from Rs 30 lakh to Rs 900 crore.

Types of PPP

The type of a PPP chosen depends on the project’s objective, its complexity and the extent of involvement of the private entity.
Build Operate Transfer (BOT)
The private sector is assigned the task of building, operating and eventually transferring the project to the public sector. It is ensured that the private player attains the breaking point as the government purchases a pre-specified amount of the project like in the case of Deendayal Chalit Aspatal Yojana in Madhya Pradesh. Further, it is divided into three segment; BOOT (Build, Own, Operateand Transfer), DBFOT (Design, Build, Finance, Operate and Transfer).

Operation and Management

It involves the management of a part/whole of a public facility by the private sector. The private player is paid a fixed fee by the awarding authority for performing specific task, and is dependent on the tariff or risk involved. Such contracts allow the entry of private sector skills into operations, design, delivery, and labour and equipment procurement. For example, the Rajiv Gandhi Gramin Mobile Medical Vahan in Rajasthan.


The role of the public sector here shifts from being the service provider to a regulating authority for the quality and cost of the service. The private sector is hired for construction, maintenance and management of the project. As opposed to BOT contracts, the concession beneficiary obtains revenues directly from the consumer.

In this case, the private player is engaged in providing services and management of the infrastructure. The capital investment is made by the public sector, however, the operational costs are borne by the private entity.Public-Private-Partnerships

Joint Venture
The project is jointly owned and operated by the public and private sector entities that share costs, risks and revenues. Most of the times, a joint venture is undertaken when the public sector seeks technical skills from a private entity.

There are 70 upcoming PPP projects which include development of hospitals, development of radiology diagnostic centres and emergency medical services. A drastic shift in terms of the type of projects can be noticed, as most of the projects are variations of the BOT type rather than the O and M. This indicates that India is now relying more on the private sector, by handing over the development process rather than the management of projects to private entities.

Regulatory Aspects
A system for the approval or appraisal of projects to be undertaken through the PPP mode has been laid out by the central government. The procedure applies to all the projects involving a lower capital i.e. of less than Rs 100 crore detailed instructions are issued by the Department of Expenditure. These projects do not require approval of the PPP Appraisal Committee and are cleared by the Expenditure Finance Committee (EFC)/ Standing Finance Committee (SFC) as applicable.

Benefits To The Public Entity

  • PPPs enable improved operation and enhanced efficiency of public services by accessing private sector innovation, technology and processes.In certain cases, it also provides an alternate source of funding for infrastructure and services.

Benefits To The Private Entity

  • As partnerships have become more complex, the benefits have also become more diverse and include elements such as publicity, influence and prestige.
  • Partnership help build legitimacy as they allow the private sector to work with respected organizations.
  • Research work that can be used in the future for product development.
  • Enhancement of brand image and name recognition.

Implemental Issues

  • Lack of Trust, adaptation and consensus at the administrative level, which hinders the decision making process.
  • Absence of independent regulators and lack of strong regulatory environment.
  • PPPs possess the potential to enhance access to healthcare;still the belief that PPPs lead to inflation through commercialization of healthcare is an important issue that needs to be addressed.
  • Inconsistencies in measurement of performance indicators due to lack of set of standards for service quality.
  • Constraints associated with budget and delay in payments from the public sector affect the projects leading to disruption of services.
  • Lack of proper mechanism for identification of beneficiaries.

Road Ahead
The objective of these projects cover a wide spectrum of application, spanning health insurancesschemes, systems for urgent  delivery of healthcare services, installation of healthcare equipment in hospitals, upgradation of diagnostic services and development of healthcare facilities. The government has also been taking initiatives to promote private investment into healthcare. It has been addressing issues constraining participation of private players and has also drafted a national PPP policy and promoted the formation of the Public Private Partnership Approval Committee (PPPAC) in order to streamline the projects. After such steps, immense domestic as well as foreign interests are expected from private players for improving healthcare in the country of over a billion people.

States such as Uttar Pradesh, Bihar and Jharkhand, where rural areas account for a major chunk of the population, the access to the affordable healthcare is low. These states need to focus on increasing PPP activity in their respective healthcare sectors.

As the population of India continues to grow, significant rise in the demand for healthcare products and services is expected. In such scenario, participation of the private sector, which brings along resources and technical expertise, is inevitable. Therefore, in order to meet the rising needs of the country, both public and private sectors will have to work in close collaboration, sharing responsibilities, resources, risks as well as benefits at every step of the project


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