Capital investment in health needs a referee

Private players are making their presence felt in health and education. What are the implications? (Illustration: C R Sasikumar)

Private equity in health and education is to be welcomed. Several lakh crores are being invested by foreign and Indian PEs, especially into hospitals, diagnostics and home healthcare services, and to a comparatively lesser degree, into education. Groups such as Apollo, Fortis, Max, Manipal and Narayana account for less than 5 per cent of India’s total private-hospital beds. Care continues to be delivered by smaller, fragmented facilities. But the infusion of equity into corporate hospitals marks two things: India has the capacity to provide quality care in health, and the country has a huge market, both Indian and international, which will assure wholesome returns.

For over three decades, policy has encouraged private investment in hospitals and allied sectors. Public hospitals have not been able to meet rising demand. India needs thousands of additional hospital beds, diagnostic facilities, specialised medical services, rehabilitation centres, home-care services and medical colleges. Without such private investment, India will struggle to meet the healthcare needs of an ageing population. The issue is not whether private investment is good or bad, but whether India has built institutions that allow investors to earn legitimate returns without leaving patients captive to the pursuit of profit.

Private equity funds carry a fiduciary duty to deliver attractive returns to their investors within a defined investment horizon. PEs have no mandate to protect patients. Their focus is almost exclusively on financial performance. Hospital boards typically track EBITDA, margins, occupancy, average revenue per occupied bed, return on capital and growth. This is neither improper nor unusual: Capital seeks returns, and boards must show financial progress while ensuring compliance with SEBI’s listing obligations and the Companies Act.

However, the government has the responsibility to ensure that returns are achieved not merely through cost-cutting or expansion, but through efficiency and quality. Unlike other industries such as banking, telecom, electricity, and civil aviation, healthcare has no independent regulator with statutory powers, appellate processes, reporting obligations, penalties, or mechanisms for public accountability. Private equity’s demand for high returns can push hospitals to raise charges for common procedures, use aggressive billing practices or restrict access through selective insurance arrangements. Transparency on both costs and outcomes is therefore essential. This only requires hospitals to disclose the relevant information on a public portal.

Because healthcare cannot be judged by consumers at the point of purchase, patients cannot assess the necessity or quality of treatment in advance. They remain unaware of which institutions have lower infection rates, better surgical outcomes, fewer readmissions within 30 days, offer shorter waiting times, or show higher patient satisfaction. Hospitals often resist the idea of such transparency, arguing that they already operate under checks such as NABH and JCI accreditation. While these are valuable, they are voluntary. They have no authority to mandate disclosure of standardised data on quality and outcomes.

Hospitals also point to the multitude of laws they already comply with — the Clinical Establishments Act, the National Medical Commission’s directives, the Drugs & Cosmetics Act, the Pollution Control Acts, and a host of fire, labour, and environmental regulations. They lament the fragmentation of oversight, but fragmentation is precisely the problem. None of these statutes mandates that hospitals provide patient-centric data in a transparent, comparable format.

Other countries, too, allow private equity investment in the hospital sector, but they regulate outcomes. England’s Care Quality Commission inspects both National Health Service hospitals and private hospitals. Its reports are public. In the US, hospital-level information is published on mortality after common conditions and procedures, readmission rates, hospital-acquired infections, complications, patient experience scores and emergency department waiting times. This allows patients to compare hospitals.

Investors know that every year their hospitals’ performance will be compared with others. Once hospitals know that their mortality, infection rates, readmissions, patient complaints and average charges for common procedures will be publicly compared, market discipline begins to work.

PEs know all this, but why should they raise it? They will follow it through their boards once it becomes a statutory requirement. The education sector is more fragmented. Private equity has entered through privately-run universities, K-12 chains, coaching businesses, and ed-tech platforms. The risks include M&A-led expansion, premium schools for affluent families, steep fee increases, coaching that crowds out education, and standardised teaching that discourages questioning. When universities treat students mainly as customers, intellectual development suffers.

The challenge before the government is not to discourage investment but to ensure that patients and students remain at the centre of the health and education systems. Institutions already collect outcome data. Government now needs the resolve to direct that it be made public.

The writer is a former health secretary and former chief secretary of Delhi