Hospitals 3: District and municipal hospitals can work well

Health insurance, some wrongly believe, will take care of all the problems of making decent health care accessible to the poor.  Nothing of the sort will happen, we need another mechanism, and it will be the district and municipal hospitals funded by governments and community which will form the backbone of our health care system.

Insurance requires too much paperwork, is very poor yet costly means of screening, gives all kinds of wrong incentives to doctors and hospitals, and yes even the patients.  Consequently the cost build up is inordinately high and needs to be addressed through all kinds of undesirable cross-subsidization.  It does not matter whether insurance is under government or private domain, it will help no one, apart from a few financial sector types.  I wouldn’t recommend banning it, but yes tax incentives for health insurance should be withdrawn, and the money saved should be used to improve district and municipal hospitals!

How could I say something so preposterous – municipal hospitals are India’s future? Stinky toilets, overcrowded corridors, mosquitoes, poor hygiene, absent nurses and doctors, fawning and submissive relatives hoping to get that little bit extra, etc.  Yes it is these same hospitals that I believe can be made much more functional and improved dramatically.

What makes charity hospitals work? The community working through the governing body.  The administration and governing boards get quick feedback from the community, and so they can respond and see quick results.  Moreover, the administration has some flexibility in charity hospitals in a range of areas related to day-to-day working.  Whereas very limited flexibilities exist in government hospitals.

And what makes some government hospitals work?  Senior government officers using the facilities. The rules are simple, the hospitals where senior officers go work better.  Not only are these hospitals slightly better resourced with facilities and suchlike, the doctors are also recognized a bit more for good work and punished that much faster for bad performance (transferred to a rural hospital for instance).

Table:  In search of Honest and Good Health Care: What Drives Hospitals
Type of Hospital
Key Compensation Principle  Benefit to the Doctor/Provider  Category For- Prof Cha-rity High Govt Def-ence Low Gov
1. Decent Lifestyle Maintenance Salary Low powered incentives Y Y Y ?Y
2. Monetary


Per procedure or per case fees High powered incentives Y
3. Honour and recognition Awards, medals, honours Non-monetary incentives Y Y Y
4. Skill/Ability improvement Ease of work and learning Efficient workspace Y Y Y Y
5. Greater work satisfaction Greater  responsiveness Stakeholder control ? Y Y ?

So even before we start to allocate more funds to these hospitals.  Let us make the following changes.  Create an independent governing board.  The constituents of the governing board should be from the community that uses the facility. Appoint them, elect them, nominate them, do whatever, but just get going on that, we will figure out how to improve it as we go along.  Who could these people be?  Elect a homemaker or take out a lottery, get a school teachers, college professors, some religious head from that area, head of a business chamber, trader, etc.  What will they do? They will make sure that the administration gets quick feedback, whether positive and negative.

Let the hospital administrator report to this group rather than a government functionary like the MLA or district commissioner or whoever oversees the hospital.  Somehow India forgot when it was designing its institutions, that just as companies work better when the CEO takes the word of a good and independent board seriously, so do all organizations work better when the board is focused and the administrative head reports to it.

It is only when we get the core reporting structure right can we even think of changing the doctors and nurses incentive structure.  How do different kinds of incentives work?  You don’t have to be an economist to know that different methods of payment lead to different kinds of behavior by the service provider.  Salary is termed as a “low powered incentive”, in that whether you do more or less, give better quality or not so good, you get the same salary.  Government hospitals typically provide a standard salary to all doctors based on experience.  The difference between good and bad government hospitals has to do with the non-monetary incentives of which Padma shris and transfers are two examples.  In the better government hospitals these are closely related to doctor performance, in the bad ones they are related to other factors.

Private for profit hospitals tend to prefer payment on a per case basis, providing some part of the revenues from a patient, cut practice, referral fees, bonus for successful completion of a task, etc. are all forms of “high powered incentives”.  They may also give a salary type of a payment, but a high powered incentive is a critical part of their compensation package to consulting doctors.  This works the other way round, doctors are frequently accused of over-medication, unnecessary procedures etc.

In other words, the doctor has a lot of power over the patient, but he or his employer should not be able to use that power for self-gain.  If they do, they will misuse it, whatever be the regulatory mechanisms we put in place.  One way to address this problem is to reduce the gain, and that is possible by not using high powered incentives.  Rewards in terms of greater training and sabbatical options, better postings, etc.  And yes, why can we not have district or city level performance award.

To sum up, the best hospitals in India compensate the health care providers through a combination of salary and recognition and an efficient workspace where the health care provider can grow over time.  Whether it is defense services or AIIMS or religious charity hospital, whether you treat more or less only partially impacts how much you earn, but yes if you do a good job, you do get recognition in different ways.  The best of medicine happens that way, for the healthcare provider is not incentivized to over-medicate, or provide incorrect information.  In other words, a combination of recognition and salaries that enable good lifestyles in an environment where the administration is in sync with the objectives of the care providers can create far more in terms of health care outcomes in monetary rewards.    And it is not so difficult, if we simply started to decentralize more to local governments and communities.


2 thoughts on “Hospitals 3: District and municipal hospitals can work well

  1. Very interesting suggestion. Another element which could perhaps be included in this analysis is the competitive setting of the hospitals, and whether and how it impacts on performance. While the experience with regard to competitive healthcare environment may be limited, one could perhaps draw some inferences from the private physicians and clinics. Quite of them seem to be able to fit well withing the community where they are located, and achieve a cost – service balance. And the professional reputation which they build prove enormously valuable in determining their economic viability. So, one point to consider might be the regulations that either make it difficult for investors / people to enter the formal health care sector easily, and the cost of regulations that make it quite costly to operate and meet the requirements, which would naturally deter smaller and newer entrants.


  2. yes,only government health ifra-structure can ensure life expectancy of the masses,precisely less privileged class,who comprised the majority of the total population.but on the other hand well coming private players to insurance market will be of not much potential,if poor people’s health standard may not enhanced.then the market of health insurance will not gain right momentum and foreign players will no longer stick for a long term.virtually this reformation measures in the economic sector might jeopardize the economic strength of our country.


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