Private Sector Presence in Healthcare in India: Econometric Analysis of Patterns and Consequences

Abstract

The presence of private providers in the Indian healthcare sector remains one of the most debated issues. This article attempts to contribute to this debate from the angle of the ultimate goal of healthcare provision—a healthy population. We explore whether private sector presence (PSP) has improved the general health status of the people. We develop a theoretical argument to hypothesize that PSP in India would lead to better health status through the route of competition-driven quality, which in turn could lead to adverse economic consequences. We use district-level secondary data from government sources to confirm our hypotheses using robust tools of applied econometrics, correcting for serious problems of endogeneity. Constructing a district-level index of PSP, we identify distinct spatial/geographical clusters, explained by socio-economic prosperity as well as demonstration effect. We also find a robust positive association between PSP and general health outcomes, accompanied by an adverse economic consequence of rising catastrophic out-of-pocket expenditure. In terms of policy, the article concludes that rather than restricting the growth of the private sector, the government must strengthen the quality of the existing public healthcare delivery system and ensure effective monitoring and regulation.

JEL Codes: 110, 111, 112, 115