Private versus Public Health Care in India

by on December 6, 2016 at 7:21 am in Economics, Education, Medicine | Permalink

In an important paper in the latest AER, Das, Holla, Mohpal and the excellent Karthik Muralidharan compare private and public health care in India. (I once asked, “Is any economist doing more important work with greater potential for real improvement in the lives of millions than Karthik Muralidharan?” See previous posts on Karthik’s work for the answer.)

The AER paper examines health care in villages in Madhya Pradesh, one of the poorer states in India (GDP per capita of $1,500 PPP). In India, primary health care is ostensibly available for free from public health clinics and hospitals manned by professionally trained nurses and physicians. As with teachers at public schools, however, it’s very common for doctors at public clinics to be absent on any given day (40% were absent on a given day in 2010) and public clinics are not highly regarded. As a result, some 70% percent of primary care visits nationally–and an even higher percentage in Madhya Pradesh–are to private, fee-charging health-care providers. Most of the private providers do not have a license or medical degree although they may have some health-care training.

ruralhealthcareindiaThe authors sent trained actors, “standardized patients” to public and private clinics to evaluate provider effort and accuracy in response to the presentation of textbook symptoms of common illnesses (angina, asthma, and dysentery in a child at home). Standardized patients are used to train medical students in the United States and in India and the Indian SPs were trained by professionals including medical doctors, and a medical anthropologist familiar with local forms of presenting illnesses and symptoms.

The first result is that the provision of health care is uniformly and distressingly poor. Overall, only 2.6% of patients received a correct treatment (and nothing unnecessary or harmful). The private providers, however, exert much more effort than do the public providers. The private providers, for example, perform more items on a standard checklist and they spend more time with patients. But the private providers are no better than the public providers at giving a correct treatment. Why not?

Private providers exert more effort but are less knowledgeable. Loosely we might say that Quality=Effort*Knowledge. Private providers put in more effort but have less knowledge and public providers have more knowledge but put in less effort leading to similar quality levels overall.

There is one big difference, however, between the public and private regimes, the private regime is much less socially costly. Since costs are lower and the quality level is the same, the private system is much more productive. The authors note:

…our estimates suggest that the public health care system in India spends at least four times more per patient interaction but does not deliver better outcomes than the private sector

(FYI, this also holds true for public and private schooling in India and around the world. Private schooling is usually somewhat better or about as good as public schooling but much less costly so the productivity of private schooling is much higher.)

To focus on the issue of market incentives rather than knowledge the authors do a second set of remarkable tests. Indian doctors often work in a public and a private practice. Thus, the authors send standardized patients to the same doctors but in one case the patient is treated under the public regime and in other under the private, market regime. Once knowledge is controlled for the results are very clear, private, markets dominate the public regime.

…treatments provided in the private practice strictly dominate those provided in the public practice of the same doctor. The rate of correct treatment is 42 percent higher (16 percentage points on a base of 37 percent), the rate of providing a clinically non-indicated palliative treatment is 20 percent lower (12.7 percentage points on a base of 64 percent), and the rate of antibiotic provision is 28 percent lower (13.9 percentage points on a base of 49 percent) in the private practice relative to the public practice of the same doctor.

The bottom line is that the private market for health care is much bigger and less expensive than the public health regime in rural India and once we control for knowledge it’s of higher quality. These results have important implications for reform. In particular, much more effort should go into improving the knowledge of the private sector.

….the marginal returns to better training and credentialing may be higher for private health care providers who have stronger incentives for exerting effort. Current policy thinking often points in the opposite direction, with a focus on hiring, training, and capacity building in the public sector on one hand (without much attention to their incentives for effort), and considerable resistance to training and providing legitimacy to unqualified private providers on the other.

1 rayward December 6, 2016 at 7:56 am

Market incentives result in better diagnosis and treatment from the same doctors? Do doctors take the Hippocratic Oath in India? Of course, the same question could be asked of doctors in America, where doctors have market incentives for diagnostics and for treatment even for patients who aren’t sick; indeed, the for profit system we have is often criticized for delivering too much health care. Perhaps in India, where bribes and other under the table payments for government services are common, the problem is that the public health care providers don’t take bribes and under the table payments – what’s the incentive to correctly diagnose a malady if the doctor gets nothing additional in return for the diagnosis and treatment. A little market incentive for the public doctors might result in better diagnosis and treatment. Patients, I suspect, are aware of the difference between public and private health care, and patients with the resources will choose the system with the market incentives. In America we accept a for profit system that, critics believe, is highly inefficient and expensive, and that distributes health care services unevenly; doctors who primarily serve the poor are paid far less for the same services as compared to the services provided to the not poor. Designing an efficient, effective, and equitable health care system is hard. If only doctors took the Hippocratic Oath seriously it wouldn’t be so hard; but it’s unfair to expect doctors to conduct themselves any better than the rest of us sinners.

2 kenA December 6, 2016 at 10:57 am

…if your paycheck looks the same no matter what you do or don’t do — there’s very strong incentive to do less. It is human nature and economic behavior.

“Doctors” are just human beings like everybody else, with the same weaknesses.

(the “Hippocratic Oath” is not required in India or U.S. — and there are so many conflicting versions of it… that it is just a silly custom at some medical schools)

3 Daniel Weber December 6, 2016 at 3:37 pm

Doing less is good.

Doctors on salaries don’t get paid for performing more testa and diagnostics on you. They may still have anti-lawsuit incentives, but at least one incentive to Do More Stuff is removed.

4 Justin Kelly December 6, 2016 at 12:28 pm

If oaths worked then why not require them for every job; base our entire economy of people sworn to be ethical? Politicians take them, soldiers take them, locksmiths take them (baldomeric oath) and they are gripped by rampant industry fraud at the moment.

Trust in oaths is naive.

5 rayward December 6, 2016 at 12:38 pm

I recall an episode of House in which the patient (Cuddy’s mother) had a malady that prevented her from recognizing sarcasm, a big problem for a patient of House and for readers of this blog. Straussians seldom say what they mean. What’s the fun in tha

6 rayward December 6, 2016 at 12:39 pm

I recall an episode of House in which the patient (Cuddy’s mother) had a malady that prevented her from recognizing sarcasm, a big problem for a patient of House and for readers of this blog. Straussians seldom say what they mean. What’s the fun in that.

7 anon December 6, 2016 at 8:04 am

An interesting story, with a genuine lede, “Overall, only 2.6% of patients received a correct treatment.”

Unfortunately Alex’s teaching moment “adjusts for knowledge” and discards the crux. Neither public nor private solutions are managing to deliver care. Neither.

8 psmith December 6, 2016 at 9:10 am

“once knowledge is controlled for, the results are very clear: bloodletters and faith healers dominate the Western medical establishment”

9 dearieme December 6, 2016 at 10:07 am

Seasonally-corrected, it never snows in January.

10 Cliff December 6, 2016 at 11:32 am

I think that would be quite a remarkable result

11 Decimal December 6, 2016 at 8:48 am

How is the private system more efficient if it spends more time with a patient and effects the same lousy outcome?

12 JWatts December 6, 2016 at 10:32 am

“How is the private system more efficient if it spends more time with a patient and effects the same lousy outcome?”

Because it doesn’t cost nearly as much. Per total dollar spent it has better bang for the buck.

13 dan1111 December 6, 2016 at 11:08 am

But “bang for buck” implies that something of value is delivered. When you have two systems that are utterly failing, the fact that one is cheaper than the other may be interesting, but it doesn’t tell you anything about what system works well (which presumably is what one wants to know).

I’m predisposed to believe that a private system will deliver better results. But I don’t find this to be useful evidence in that regard.

14 Cliff December 6, 2016 at 11:33 am

So you think failing at 4x the cost is better than failing at 1x the cost? Anyway it says that 2.5% of patients are correctly treated without any unnecessary treatments. By that measure, the rate in the U.S. is probably 0%

15 Decimal December 6, 2016 at 1:14 pm

So they spend more time with each patient, but its cheaper?

It must be that the private ‘unqualified’ practitioners take much less of a wage then.

I guess they don’t have to pay for the cost of medical/nursing school.

16 carolospln December 6, 2016 at 7:01 pm

“How is the private system more efficient if it spends more time with a patient and effects the same lousy outcome?”

They lose money on every transaction but they make it up on volume.

17 Just Saying December 6, 2016 at 9:16 am

It seems that trying to focus on which side of the 2.6% accuracy coin that is Indian health care is more productive is somewhat missing the point which we should be focusing on – the 2.6% accuracy number.

Further, unless you’re taking the position poor people should get their health care through charity or they should die, then you will always have some level of public health care system, and due to the nature of public services (namely, they for the most suck, and are designed for those with no other options), you will also have a private system.

So, instead of pitting one against the other, maybe let’s see if we can get that 2.6% number up across the board, because I feel like I could beat that by guessing random ailments constrained by common sense (e.g., “the rash on your face makes it unlikely you have a broken bone, so I’ll guess some form of skin ailment”).

18 Cliff December 6, 2016 at 11:35 am

I wonder if there is any comparison for that figure to other countries? What’s the % in the U.S.?

19 WORLD-ISN'T-FLAT December 6, 2016 at 9:31 am

“Is any economist doing more important work with greater potential for real improvement in the lives of millions than Karthik Muralidharan?”

If his work is so important, why is it hardly talked about in India, where much of his work is focused? Here are some reasons:

– He writes a good experimental paper that apparently has some economists in America swooning.
-The findings themselves are fairly intuitive and in some cases downright misleading like that paper on biometric cards
– Most of his work is reliant on access to data from government. So in efforts to preserve access, he neither poses the right questions, nor can arrive at the right answers. At best the findings of his research are a sophisticated nods to government policies that are contested by people who have a real stake in them. But among academia of american economics, the wonkiness of framing arguments and sophistication in methods can help paper over such issues.

So why I am not happy about Tyler Cowen showering undue praise on Karthik Muralidharan? Because Mr. Cowen who is the nearest thing to a Thomas Friedman (of NYT) in Economics. Thomas Friedman didn’t just proclaim the “world was flat” after some trips to Bangalore, and chats with cab drivers. He lent his credibility to IT entrepreneurs, who milked it to make progress in politics and government. So when Tyler Cowen praises Karthik, we need ask why is he doing that. The answer could lie in the coming debates about the form of universal healthcare in India. Perhaps because people like Karthik once they become part of the government can help move it closer to the U.S. model rather than the NHS model?

20 rayward December 6, 2016 at 9:48 am

Tabarrok, not Cowen. Tabarrok will soon be on his way to India where he will reside and teach for awhile. Maybe you and Tabarrok can do lunch.

21 WORLD-ISN'T-FLAT December 6, 2016 at 10:29 am

@rayward: Thanks. I should’ve noticed. I hope Dr. Tabarrok’s stint there makes him less exuberant about Karthik. I hope he meets economists whose research is rooted more in the lived reality of Indians than the offices of its bureaucracy.

22 Seb December 6, 2016 at 10:29 am

Muralidharan was recently appointed an honorary adviser to NITI Aayog, a big deal.

23 WORLD-ISN'T-FLAT December 6, 2016 at 11:14 am

Niti Aayog is filled with Indian economists schooled in the right wing school of thought mostly in the U.S. These are the same guys who have cooked up Indian GDP figures, imposed demonetization on a largely cash based economy and inflated savings from cash transfers for energy subsidies, so public will stop asking questions about lack of privacy or development rationale for an all encompassing nationwide biometric program.

Karthink’s elevation is a bit like Ben Carson’s elevation, although the power he wields will be far less. He may not be disqualified, but we all know he will be clueless and hope the bureaucrats will prevent the coming catastrophe. Thankfully we only have about 30 months before the next election in India.

24 Greg December 6, 2016 at 4:35 pm

Take your pick of aphorism:

Garbage in, garbage out.

Looking for your keys under the streetlamp.

What am I missing?

25 chuck martel December 6, 2016 at 9:58 am

Public sector doctors absent 40% of the time. The same doctors working in both public and private sectors. Pretty easy to see that the doctors themselves prefer the private sector. If knowledge is the key, the public doctors working privately are providing the best care. Since they’re also being paid from the public purse, their portion of private health care is being subsidized by the government.

26 rajhans December 6, 2016 at 1:37 pm

Correction: The doctors prefer being able to have a cushy government job and also make money on the side in their private practice; many even try to convince public hospital patients to meet them in their private clinic.

27 charlie December 12, 2016 at 2:34 pm

“their portion of private health care is being subsidized by the government.”

I am conflicted over this statement. In the United States, healthcare providers are not allowed to decrease the charge to indigent persons for healthcare that is being provided. This occurs for the same reasoning — paying patients, say those covered by Medicare — do not want indigent persons to be “subsidized” by those that pay. It has an unethical air about it.

28 yenwoda December 6, 2016 at 10:56 am

“private providers… perform more items on a standard checklist and they spend more time with patients… once we control for knowledge [the private market is] of higher quality”

Seems fair to assume the market understands that private providers don’t know much about medicine, so maybe the extra effort is a way to capture market share by being the attentive alternative? In this case with more knowledge you may see some private providers raise prices, and others adopt the baseline work habits of the industry.

29 charlie December 12, 2016 at 2:42 pm

“extra effort is a way to capture market share”

It could very well be that lower-experienced private providers perform more on the SP check list. However, those checklists include items that should be done for the standard problems being presented to the physician.

Given that the sensitivity and specificity for various elements of the history of present illness and physical exam are not that great, especially so if you assume the healthcare provider is not highly trained/experienced, this raises problems. The checklist items, at least in the United States, reflect the “standard of care” — that is, every provider should be performing these items to collect information that changes ranking of elements in the differential diagnosis.

Given two providers, the one who performs more items on the standard of care would potentially have a more useful dataset for the assessment and plan. The marketing hypothesis is attractive, but from a procedural standpoint, I’d prefer a provider who does the standard of care over those who do not. Whether or not that makes a difference could be a focus of additional investigation.

30 Ninja December 6, 2016 at 11:00 am

“The authors sent trained actors, “standardized patients” to public and private clinics to evaluate provider effort and accuracy.”

“Overall, only 2.6% of patients received a correct treatment.”

Here is how medicine works in India. First, you only go to the doctor when you are feeling *really* sick. Were these “trained actors” really sick? If the doctor took their vitals, perhaps he/she would realize that the so-called patients were indeed actors, who were not sick at all. In which case, the incorrect treatment would make perfect sense (as in, just a symbolic act to make the patient happy).

The second point about medical care in India is that “pharmacists” (meaning the owner or operator of a drug store) often take on the role of doctors (BTW, such people are unlikely to have a pharmacy degree.) A poor patient typically goes to the local pharmacy and tells the pharmacist, “I am sick…I feel xxxx…give me something”. The pharmacist then simply prescribes a medicine, which the patient buys. This “advice” is free, and much quicker than seeing a doctor. If the patient gets better, he/she would continue to be a customer at that pharmacy for the next illness. If the patient does not get better, he/she would go to see a doctor.

People in the West may cringe at this state of affairs, but it is arguably quite efficient.

31 whatsthat December 6, 2016 at 11:56 am

Correct. 2.6% is a vast under-estimate.

In fact, going to the pharmacy first, doctor later if you don’t get better is a rational response to a badly performing system. But is it 97.4% bad? And how bad is bad when you need to account for the pharmacy as proxy doc innovation?

32 Justin Kelly December 6, 2016 at 12:33 pm

This was also the practice in S. Korea until about 15 years ago. I would wager this is SOP for most developing nations.

33 Floccina December 6, 2016 at 12:18 pm

Sounds quite Hansonian, the results are the same. It fits well with Robin Hanson’s hypothesis on health care that some how we get the stuff that really helps but most care does not help.

34 Dmitri Helios December 6, 2016 at 7:49 pm

Quite attractive female Indian doctor.

35 Jalowhat December 6, 2016 at 9:28 pm

I read an article about how privatizing water infrastructure resulted in only marginally better sanitation and plumbing in manila, Philippines. Basically, the privatized system was more labor efficient but it seems that privatization was only a limited success based on how the rate of coverage of parts of manila with a privatized water system weren’t that much better than in the government run areas.

Privatization and higher living standards aren’t one and the same but privatization does mean better efficiency.

36 jorod December 7, 2016 at 12:22 am

Socialism breeds lazy workers. The good get paid the same as the bad so they have no incentive to perform in a high manner. Duh…..

37 Troll me December 7, 2016 at 4:01 pm

It should not be taken as an iron clad truth, but it pretty obviously seems relevant in this case. More about public sector complacence than socialism per se, I’d think.

But … maybe the private sector rejects unprofitable and difficult situations? This will always be at least somewhat true and can be easily understood as systematically biasing the data in a way that makes public sector performance look worse than underlying reality merits.

So, I’m not a fan of kidding myself. A 20 or 50% difference… MAYBE could be explained by that logic. Four-fold?

38 Rafael R December 7, 2016 at 10:13 pm

So private is more efficient than public. Ohhhhhh…. indeed very important paper there discovering something we never knew. (Sarcasm)

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