Health spending: How States splurge on salaries

‘Cost of an inpatient episode is much higher in private sector’

Bulk of the total public money spent in State-level healthcare system is not spent on medical services, but goes to wages and salaries of human resource, reveals a study of health accounts of six States.
Wages and salaries account for 86 per cent of the total public expenditure in Punjab, 72 per cent in Maharashtra, 65 per cent in Kerala, 52.5 per cent in Madhya Pradesh and 35 per cent in Odisha.
However, the per capita ‘total cost of care’ — which includes money spent by patients as well as that spent by the government on paying salaries to staff, for health subsidy etc — is mostly cheaper in the public sector than in the private sector.

The only exception is outpatient episode — treatment that does not involve an overnight stay in a hospital — in Maharashtra. The total cost incurred per outpatient episode in the State is more expensive in public sector (Rs.1,082) than in private sector (Rs.964).

Indranil Mukhopadhyay from the Public Health Foundation of India (PHFI), who was part of this study, says that the outpatient cost is largely driven by spending on medicines. “In Tamil Nadu, more than 95 per cent patients get free medicines from the government. The cost of public sector outpatient treatment is hence lesser than private in Tamil Nadu because when the government itself procures medicines, it is 300 per cent cheaper than the market. Maharashtra is not doing that and hence the public sector cost is higher,” Mr. Mukhopadhyay told The Hindu.

These findings come from a study of State Health Accounts of Kerala, Tamil Nadu, Odisha, Maharashtra, Madhya Pradesh and Punjab. Researchers from PHFI and its partners, in collaboration with the State governments, studied health accounts for these six States for the year 2013-14 — the latest for which estimates have been made available.
Another finding has important implications for public health policy: in all States studied, the total cost of an inpatient episode — which involves hospitalisation — is much higher in private sector compared to public sector. In the past, some health economists have argued that the unit cost in public sector would be higher than private when subsidies that are provided in the public sector are accounted for. “If that would have been the case, it makes sense for the government to purchase healthcare from the private sector rather than providing it directly via government institutions. But we now have evidence which contradicts that theory as public sector costs are much lesser,” Mr. Mukhopadhyay says.

The bulk of the total money circulating in Indian healthcare (69 per cent) comes from Out Of Pocket (OOP) payment by households, The Hindu had reported earlier. The OOP is the money which individuals pay out of their own. The same was true for health finances at the state level.

Local bodies chip in
Contrary to the popular perception that only the State health department funds healthcare at the State level, the findings show important contribution by other sources. For instance, in Maharashtra, 23 per cent of healthcare money comes from local bodies, which is significantly high compared to Kerala, the next best State, where local bodies contributed 5.8 per cent.

In fact, firms pay a considerable amount of money in Maharashtra — constituting 8.6 per cent of the total money spent on healthcare in the State — to provide healthcare for their workers and families, signifying high spending for a few people, the report says. This is because Maharashtra is the major financial centre of the country. In other five States, this figure didn’t exceed 1.5 per cent.

Health accounts monitor the flow of resources in a health system and provide estimates of spending and utilisation by various entities including both government and private sector. For the first time, Health Accounts Estimates have been conducted at the state level in India.


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