Curbing Corruption in India’s Healthcare System

The Indian healthcare system is rife with corruption, and much of this corruption arises from the way that healthcare is regulated (or not). Because healthcare in India is inexpensive, at least by Western standards, private health insurance is relatively rare, and a sizeable majority of total health expenditures are made out-of-pocket. With little regulation, and without much meaningful price negotiation by either the government or private insurance companies, India’s healthcare system has become a vast “network of unregulated private sector hospitals.” This lack of regulation, coupled with intense competition, encourages doctors (who are often under substantial financial pressure) “to enter a happy axis of corruption where they routinely prescribe expensive investigations and perform operations which a patient might not need” in order to increase their profit margins. Doctors have also been known to take bribes from other healthcare entities in return for patient referrals, or to accept kickbacks from pharmaceutical companies disguised as “professional fees” in order to outcompete other private hospitals. As a recent WHO-Eurohealth publication concluded, health sector corruption in India includes not only “collusion, bribes and kickbacks in procurement which may result in overpayment for goods and contracted services” and doctors’ willingness to accept “payments in exchange for special privileges or treatment,” but also “distort[ions in] medical professionals’ prescribing practices.” 

Prime Minister Narendra Modi’s government has sought to address some of these concerns through a healthcare initiative known as PMJAY. The main objective of this program is to increase access to healthcare for the poorest 50% of the population—approximately 700 million people—who are given biometric government “smart cards” to purchase eligible inpatient healthcare services at both private and public hospitals. But while PMJAY is principally designed as a system for subsidizing healthcare for low-income people, it also serves as an anticorruption tool by bringing under government oversight millions of previously unregulated out-of-pocket healthcare transactions, requiring enrolled physicians to acquire digital pre-authorization before administering nonemergency services to PMJAY beneficiaries, and giving the government more power to negotiate with private hospitals participating in the program over healthcare rates. PMJAY’s computerized billing platform also serves a surprising secondary role as an AI-powered “comprehensive fraud analytics solution” for millions of transactions that were previously beyond the government’s reach. The program has already detected over 18,000 fraudulent insurance transactions, leading to penalties against hundreds of healthcare entities so far. The government has even made a list of “corrupt” hospitals available on the PMJAY website. Given PMJAY’s early successes, the government should expand the program. Not only would this increase healthcare access in general—a worthy aim in its own right—but it would further reduce corruption in the healthcare system. This is more easily said than done, however, in light of several practical obstacles to further expansions.

The most straightforward way to expand the PMJAY program would be to attract more private hospitals, most of which have not yet enrolled in the scheme. (All government hospitals are enrolled by default.) The government has already had made some progress on this front by increasing financial incentives, but it is unlikely that the government will be able to reimburse private hospitals at high enough rates to convince the majority of them to participate, at least for the foreseeable future. It may therefore make sense to invest the government’s limited resources in growing PMJAY in other ways. One possibility would be to expand PMJAY to cover outpatient services, which still make up the lion’s share of out-of-pocket health spending in India. Another possibility would be to expand PMJAY by simply insuring more people by raising the income eligibility threshold. Bringing PMJAY to more of the population would give the government the power to monitor millions more transactions that currently take place completely out-of-pocket. 

Yet even these options may turn out to be too expensive or otherwise impracticable. So in addition to trying to expand PMJAY directly, what else could be done? Another option would be to improve government hospitals. There are two reasons why investing more resources in improving government hospitals would reduce corrupt and grey-area practices in private healthcare:

  • First, private hospitals face insufficient competition from the public sector. Government hospitals are often perceived as lower quality than private hospitals. (Both are perceived as corrupt, though perhaps in different ways.) Accordingly, people generally prefer the private sector when they can afford it. Thus, private facilities can remain corrupt without losing business. This problem is especially acute in rural areas where there are too few private hospitals to compete with one another. Some experts have posited that when direct government oversight of private hospitals is not feasible, increased competition from the public sector could “help discipline the private sector.” At least one study has confirmed this intuition, finding that an “increase in the perceived quality of public hospitals” was associated with significantly cheaper out-of-pocket costs in private hospitals—perhaps due in part to doctors facilitating fewer kickback referrals and unnecessary procedures for extra cash. Further, evidence from the state of Tamil Nadu (and several other countries) indicates that increased investment in the public sector decreases healthcare costs in the private sector as well. Accordingly, improving the quality of government facilities—which would be easier for the government to do than to directly regulate all of the private facilities currently out of PMJAY’s reach—would force private facilities to take a hard look in the mirror and reduce some of their corrupt practices that hurt them in an actually competitive market. 
  • Second, improving public facilities may also augment the PMJAY program itself. Some especially fraud-prone procedures can only be reimbursed by PMJAY in government hospitals. Thus, improving the actual (and perceived) quality of public facilities would attract to government hospitals new PMJAY recipients who would otherwise have sought private out-of-pocket care (or no care at all) outside of the government’s watch. Attracting patients to public hospitals for these procedures would not only reduce the incidence of fraud in private facilities, but it would also bring more PMJAY transactions into public hospitals overall, expanding PMJAY’s reach as a corruption-monitoring tool. This appears to be what is happening in Tamil Nadu, where PMJAY use at government facilities is higher than in other states due to good preexisting infrastructure.

Fully addressing the shortcomings of India’s labyrinthine healthcare system will, of course, require more comprehensive reform, one that tackles a slew of interconnected problems—including not only issues of low quality, limited access, and inequality, but also corruption and conflict of interest. These issues cannot be solved in isolation. Without a concerted effort to curb corruption in both the public and private sectors, merely increasing access to healthcare for the country’s neediest will fail to solve many of the fundamental problems that plague the system, from wasteful and unethical prescribing practices to higher-than-necessary costs and astronomical levels of institutional distrust. Expanding the PMJAY program and investing more in improving public hospitals would be significant steps toward these goals, and will contribute to the larger goal of making high-quality, ethical, and affordable healthcare for hundreds of millions of people in India a reality. 

5 thoughts on “Curbing Corruption in India’s Healthcare System

  1. Fantastic post Josh! Improving public hospital systems seems to provide a two-fold reduction in the risk of corruption (in addition to providing greater healthcare access!) Do you think doctors in public hospitals, however, could fall to similar corruption risks as those operating in private spaces? Or are these financial incentives not available in public health care systems?

  2. Great post! Adjacent to the main points of your piece, I was wondering whether you had considered ways in which the government could entice private hospitals to join the program without compensation or reimbursement. Were there reasons to believe those ways would be ineffective or inaccessible?

    • Fantastic post as always. My question is similar to Magd’s. Do you think a lack of incentive/funding has been an obstacle to expanding PMJAY? Additionally, I am curious to hear your insights as to whether you think PMJAY itself is susceptible to corruption.

  3. A very interesting piece! It’s positive to see the zero tolerance approach taken by India’s government against fraud and corruption in the healthcare sector. I am interested in your view as to whether a further obstacle that could arise upon expanding the reach of the program is its implementation as an anticorruption tool. Expanding the program would seemingly result in an influx of additional fraudulent transactions and corruption cases which are uncovered (potentially, beyond the 18 000) and, if so, I wonder if the government / law enforcement agencies has / will be prepared with sufficient resources to continue its zero tolerance momentum to take on these cases and hold healthcare entities and others involved accountable, to ensure deterrence in these other regions.

  4. This is a very insightful set of recommendations. Medicare has served a very similar role to PMJAY in terms of raising red flags and generating data for law enforcement. It’s also interesting to consider, like you point out, the role that private insurance companies play in monitoring for unnecessary charges, which could in turn kickstart investigations into kickbacks and the like. You note that in India, this is all left to the individual — I wonder if there have been any efforts to raise public awareness about medical corruption, such that people can know to report it when they’re suspicious.

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