PMJAY: A view from the frontlines

It’s been a little over five years since the Pradhan Mantri Jan Arogya Yojana (PMJAY) came into being. From its launch in 2018, it has issued over 27 crore insurance cards till 2023 and financed over 5.75 crore hospital admissions, with an average payout of about Rs 12,250 per admission, with around 27,000 empanelled hospitals nationwide.

An impressive track record that needs to be celebrated. However, any programme or scheme, however well-designed and executed, has both strengths and weaknesses. Five years is an excellent interval for reviewing these.

Of the 27,000 empanelled hospitals, of which around 20,000 are active, 15,000 are in the public sector. While not yet formally evaluated, anecdotal evidence suggests that these public sector hospitals outperform those not part of the scheme. One of the challenges of the public sector, not just in India but globally, is its non-responsiveness.

Starting in the 1980s with the UK, governments worldwide, including Thailand, Turkey and most recently Vietnam, finance the public sector based on outcomes. They have gradually moved away from automatic financing based on annual expenditure budgets.

This change has allowed them to improve the performance of the public sector, and it is not surprising that something similar is being seen in India with PMJAY. Over time, the full power of this can be realised if all financing to the public sector moves in this direction, including at the primary care level.

Given its funding limitations, PMJAY has not yet moved towards total health system financing in any part of the country. Its move towards paying hospitals on a package basis and not on a procedure-by-procedure basis has, however, shown beneficial impacts.

For example, increasing the length of stay after a successful surgery in a hospital is often due to poor infection control at hospitals. A fixed package approach has persuaded hospitals to pay particular attention to this and control it so patients can be discharged quickly.

The low package rates offered by PMJAY have come in for much criticism. However, there is global evidence which suggests that low package rates do not necessarily imply low quality. Hospitals and entire health systems can respond to controlled pricing by innovating, bringing down costs, shedding unnecessary frills and keeping the quality high.

When Japan moved to a fixed-price regime, Switzerland enacted its comprehensive healthcare legislation and Germany instituted strict price controls, there were fears that their health systems would be unable to cope. These proved unfounded.

As a negotiating strategy, the approach adopted by PMJAY has been optimal—start at the lowest point and then revise prices upwards selectively, based on actual experience (not lobbying). If they had initially started with higher package rates, these rates would have become sticky, and any downward revisions would have proved impossible.

There is, however, significant room for improvement. While the scheme has many empanelled hospitals, over 25 per cent are inactive, and the number varies significantly across the country—from over 500 active hospitals per crore population in Karnataka to only about 60 per crore in Bihar.

As a direct result, hospitalisations under the scheme have been mainly concentrated in the southern states of Andhra Pradesh, Karnataka, Tamil Nadu and Kerala; and range from almost 16,000 admissions per lakh population in Kerala to only about 600 in Bihar.

The case of Uttar Pradesh is particularly noteworthy—at over 18,500 cards per lakh population, it has issued nearly as many cards as Kerala’s 21,500. However, it has only about 1,200 hospitalisations per lakh population compared to Kerala’s 16,000.

These huge differentials are a reflection of the lack of availability of hospitals in lower-income states. This can also be seen from the fact that in over 200 districts of India, all based in the North and the North-East, total C-section rates are well below 10 per cent. These low rates are the principal reason why pregnant women and their newborns are dying in these districts.

In order to address this, there is a need to build and staff more public-sector hospitals in these districts and, where appropriate, devise incentives for the private sector to set up facilities in these remote regions.

The UDAN (‘Ude Desh Ka Aam Nagrik’) scheme of the ministry of civil aviation, designed to make flights affordable for ‘common’ citizens, could provide an excellent learning model. The highly successful Advanced Market Commitment (AMC) schemes that spurred vaccine development in the Indian private sector could also provide helpful lessons.

Putting aside concerns relating to low rates, while the move towards package rates within PMJAY has been a helpful development, it still falls within the ambit of what is referred to as a fee-for-service payment model. The danger of insurance schemes funded in this way—as the US discovered with Medicaid and Medicare only when it was too late—is that it leads to massive price inflation in the healthcare sector.

The only durable way to address this is to move, with adequate funding, towards total health system financing based on population norms, as Thailand has done with the public sector and Israel with the private sector.

Research suggests that in several Indian states, including Delhi, Goa, Kerala and Himachal Pradesh, current government expenditure is already adequate to finance all healthcare needs. If, in these states, the independent state health authorities (SHAs) could be given charge of the entire state health budget, they would have sufficient funding to implement district-level total health system financing strategies and take responsibility for overall district- and state-level health outcomes.

The durability of tax-financed purchasing schemes like PMJAY both at the central and state levels speaks to the continued political and mass appeal of such an approach towards financing healthcare.

Over time, stable structures like the NHA (National Health Authority) and the SHAs, which now run these schemes, have evolved, albeit with varying levels of capability. These schemes have also successfully built navigation capability, allowing them to purchase services from the private sector without getting embroiled in corruption scandals.

This durability, stability and ability to navigate is rare in the healthcare sector in India. It has set the stage for the next big move—the complete transfer of state health budgets to their SHAs, which will pay the public sector (and, where necessary, the private sector) based on defined outcomes, and thus do away entirely with automatic budget-based financing of the public sector.

There is also the opportunity to develop and launch schemes like UDAN and AMC, which will fill gaps in the availability of hospital care in the remoter parts of India. More than two decades of experience with tax-financed insurance schemes in India has indicated that the availability of insurance schemes is a necessary but insufficient condition for a robust supply response from the hospital sector.