Free Essential Drug Scheme Proposed

BMI View: Implementation of the free essential drug scheme in India will benefit the population, as the private sector currently accounts for the majority of healthcare expenditure. However, extensive bureaucracy, exemplified by the requirement for support from individual states and union territories, will limit the scheme's roll-out.

According to India's Union Health Minister Harsh Vardhan, the newly elected Narendra Modi administration is keen to improve healthcare. As a result, the health ministry announced in June, its intention to provide 50 essential drugs free of charge to every citizen in India. Vardhan stated that these drugs will provide 75% of the population's healthcare needs. These 50 medicines include treatment for pain, infection, hypertension and diabetes. The programme will be rolled out in phases, and will focus on efficient procurement, quality control and rational drug use.

This is not the first time the idea of free, universal provision of drugs in India has been proposed. In June 2012, the former Indian Minister for Health and Family Welfare Ghulam Nabi Azad stated that the country's 12th five-year plan (2012-2017) will include a new initiative to supply essential drugs for free at public health facilities in order to provide affordable healthcare to all patients. [1] The INR286bn (USD5bn) free medicines programme was scheduled to start in October 2012. However, the programme was shelved in May 2013 due to financial constraints and the government's inability to implement a drug procurement policy. Instead, each state was told to formulate its own scheme for free drugs and seek funds under the National Health Mission.

Private > Government
India Health Expenditure (INRbn)

BMI View: Implementation of the free essential drug scheme in India will benefit the population, as the private sector currently accounts for the majority of healthcare expenditure. However, extensive bureaucracy, exemplified by the requirement for support from individual states and union territories, will limit the scheme's roll-out.

According to India's Union Health Minister Harsh Vardhan, the newly elected Narendra Modi administration is keen to improve healthcare. As a result, the health ministry announced in June, its intention to provide 50 essential drugs free of charge to every citizen in India. Vardhan stated that these drugs will provide 75% of the population's healthcare needs. These 50 medicines include treatment for pain, infection, hypertension and diabetes. The programme will be rolled out in phases, and will focus on efficient procurement, quality control and rational drug use.

This is not the first time the idea of free, universal provision of drugs in India has been proposed. In June 2012, the former Indian Minister for Health and Family Welfare Ghulam Nabi Azad stated that the country's 12th five-year plan (2012-2017) will include a new initiative to supply essential drugs for free at public health facilities in order to provide affordable healthcare to all patients. [1] The INR286bn (USD5bn) free medicines programme was scheduled to start in October 2012. However, the programme was shelved in May 2013 due to financial constraints and the government's inability to implement a drug procurement policy. Instead, each state was told to formulate its own scheme for free drugs and seek funds under the National Health Mission.

India is now in a better position to implement the free drug scheme than it was in 2012, when the country was starting to prepare for the April/May 2014 general election and policy continuity was uncertain. The next general election is scheduled to take place in 2019, which gives the current administration time to plan and implement the free essential drug scheme.

The eventual implementation of the programme will be positive for the population, given that out-of-pocket health expenditure is high in India. According to the World Health Organization (WHO), per-capita health expenditure reached USD61 in 2012 and private health expenditure was INR2,713bn (USD50.8bn), which represented 67% of total health expenditure. Consequently, the free drug scheme will help to lower private health expenditure as a percentage of total spending on medical services.

BMI expects government health expenditure as a percentage of total spending to increase over time, as improving healthcare conditions is one of the aims of the Modi administration. Between 2013 and 2023, health expenditure will grow at a local compound annual growth rate (CAGR) of 11.2% (11.1% in US dollar terms), to reach a value of INR13,074bn (USD222bn) by the end of the forecast period. Government health spending as a percentage of the total will increase from 34% in 2013 to 46% in 2023.

Private > Government
India Health Expenditure (INRbn)

However, the extensive bureaucracy of policy planning and implementation in India constitute a risk to implementation. More critically, the decentralised nature of India means that state and union territory support is needed for this plan to push through in the respective states and union territories. Under India's constitution (Part XI), the states and union territories are able to enact their own laws - which will prevail in the state - should provisions be granted in the original law made by the Indian parliament (Lok Sabha and Rajya Sabha).

A Multi-Industry Concern

An example of this is the legislation enacted in 2013 regarding foreign direct investment (FDI) in the multi-brand retail sector, whereby only 12 of the 36 states and union territories approved the legislation (these include Andhra Pradesh, Assam, Haryana, Himachal Pradesh, Jammu & Kashmir, Maharashtra, Manipur, Rajasthan, Uttarakhand, Daman & Diu and Dadra and Nagar Haveli). Consequently, the success of the free essential drug scheme is dependent on each state government.

Initiating the free drug scheme requires concurrent efforts to improve healthcare in other segments of the medical services sector. We identify China, which initiated medical reform in 2009, and not only introduced a National Essential Drug List and National Drug Reimbursement List, but also systematically improved national health insurance funding for urban and rural patients, increased the number of healthcare facilities, reformed the public health sector and increased overall government healthcare spending. Similarly, we highlight that for the free essential drug scheme to be successful in India, there needs to be a concerted effort to address the lack of public health facilities and qualified medical professionals.

[1] Business Monitor International - Industry Trend Analysis - Underlying Risks To Free Drugs Scheme - June 26 2012.

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