N. Devadasan and P Bore Gowda: Private healthcare providers threatened by the Vajpayee Arogyashree Scheme

devadasanThere have been some recent newspaper reports that networks of private hospital owners have threatened to stop providing services to patients if the government of Karnataka expands the Vajpayee Arogyashree Scheme (VAS) from the poor to the rest of the population. [1,2] We look at the reasons for this reaction.

Healthcare services in India are provided by both government and private healthcare providers. Most patients use the private sector for curative care, while they go to government facilities for preventive services. The large network of government hospitals and health centres is not enough to provide health services to all the 1.2 billion Indians. Moreover, the government spends a small amount of money on healthcare, around US$18 per person per year. [3] This is one of the lowest in the region and could account for the flourishing and unregulated private healthcare sector. [4]

Unfortunately, patients who go to the private sector have to make out-of-pocket payments at the time of illness. These are significant and can be a major barrier in seeking care. Those who do seek care have a high chance of becoming indebted or even impoverished because of medical illnesses. It is estimated that nearly 63 million Indians are pushed into poverty every year because of healthcare expenses. [5]

It is in this context that the national and state governments have introduced measures to protect patients from these high medical expenses. The national government launched the National Health Insurance Scheme—Rashtriya Swasthya Bima Yojana (RSBY) in 2008, [6] the Andhra Pradesh Government launched the Rajiv Aarogyasri (RA) [7]  in 2007, and the Karnataka Government launched the Vajpayee Arogyashree Scheme (VAS) [8] in 2010.  Some common characteristics of these schemes are that they target the poor (people below the poverty line—BPL), the government pays the premium to an insurance company (RSBY) or an independent trust (RA, VAS) and all schemes protect against hospitalisation expenses. Most of the providers are private sector hospitals. VAS provides protection against tertiary care expenses, e.g. cardiac conditions, cancers, renal conditions, etc.

In 2014, the government of Karnataka plans to expand the coverage of VAS to the rest of the Karnataka residents. This means that any citizen of Karnataka with a tertiary condition (447 of them have been listed) can approach an empanelled hospital for care. The hospital will provide free care and the claim will be reimbursed by the Government of Karnataka through the Suvarna Arogya Suraksha Trust (SAST). The main objective of this is to achieve universal coverage for tertiary care for residents of Karnataka. In such a situation, why are the private hospitals agitated about this expansion? Let us review some of the objections expressed by them.

There are many false positives in the BPL list, so rich patients are benefiting from the scheme. While it is true that there are a few false positives in the BPL list, this should not be a problem for the hospitals. Irrespective of whether a patient is poor or rich, as long as they can prove that they are a citizen of Karnataka, the government will pay the hospitals for their treatment (provided the disease belongs to the list of 447 conditions). So the private hospitals should be happy as this will remove financial barriers for patients and permit more patients to access services.

The SAST is not reimbursing the hospitals in time, so the hospital’s financial fluidity is affected. The SAST databases shows that once claims are submitted with all the necessary documents, the hospitals are reimbursed within seven days. So this is also not a valid objection.

The VAS packages are priced very low. These packages were priced following extensive consultations with concerned specialists from both the government and private sector. And some of the packages have been revised in the past three years.

The hospitals were using a Robin Hood policy by charging the rich substantially and subsidising the poor. Now if all the patients come under the VAS scheme, they cannot charge the affluent patients high rates. This is the crux of their objection. The VAS introduced various measures to improve quality and control prices. For example, it insisted that hospitals would be empanelled only if they had the necessary infrastructure, equipment, and personnel. Secondly, and in a first for the country, it insisted on broad treatment protocols for key diseases like cardiac surgeries and oncology. And finally, it priced these procedures at rates that permit the hospitals to make reasonable profits. SAST’s hypothesis was that while the hospitals would get lower but reasonable profits, the higher number of admissions will compensate for this lowering of tariffs. The hospitals were unhappy with this form of control by the SAST. Now that the scheme has been expanded to the rest of society, it means that all the patients in Karnataka with any of the 447 conditions will go to hospitals empanelled by the SAST. And if a hospital has to be empanelled they have to adhere to essential quality and price standards. This is not acceptable to some private hospitals as they would like to continue with their unregulated ways. Many would like to continue doing unnecessary procedures and charge exorbitant rates from the affluent patients, which will not be possible once VAS becomes universal. This is the main reason why 400 private hospitals stopped work and did not see patients.

In order to achieve universal health coverage, the government may need to purchase care from the private providers. This would involve regulations in quality and in prices. The private sector will have to change its current working style to fit this new environment.

Competing interests: All authors declare that that we have read and understood the BMJ Group policy on declaration of interests and we hereby declare the following interests:

  • Dr N. Devadasan is a member of the Empanelment and Disciplinary Committee of Vajpayee Arogyashree Scheme.
  • Dr Bore Gowda is the executive director of the Suvarna Arogya Suraksha Trust.

N Devadasan is currently the director of the Institute of Public Health, Bangalore. He is researching measures to strengthen health systems in Karnataka. He is also adjunct faculty at various schools of public health in India.

P Bore Gowda is the executive director of the Suvarna Arogya Suraksha Trust.


1. Rao SR. Government health schemes bleeding us, private hospitals say. Times of India 02/02/2014.

2. Express News Service. Health Schemes: Revision of charges sought. The New Indian Express 06/02/2014.

3. The World Bank. Health Expenditure per capita (current US$). Accessed on 06/02/14

4. Peters DH, Muraleedharan VR. Regulating India’s Health Services: To what end? What future? Social Science and Medicine. 2008: 16(10); 2133-2144.

5. Berman P, Ahuja R, Bhandari L. The impoverishing effects of health care payments in India: new methodology and findings. Economic & Political Weekly. 2010: 45(16); 65-71.

6. Ministry of Labour and Employement. Rashtriya Swasthya Bima Yojana. Accessed on 06.02.2014.

7. Ministry of Health & Family Welfare. Rajiv Aarogyasri. Accessed on 06/02/2014.

8. Ministry of Health & Family Welfare. Vajpayee Arogyashree. Accessed on 06/02/2014.

  • V R Muraleedharan

    Dear Dr Devadasan and Dr Gowda: Thank you for your clear and succinct
    explanation for the private sector’s resistance to expansion of RSBY in
    Karnataka. RSBY’s coverage in proportion to the overall total cost of
    most of the tertiary care procedures is quite small. So naturally, both
    the patients and the providers know that the uncovered cost of care
    should come from patients’ pocket or from some other third party
    insurance payer, if he/she is an insured patient. In most instances,
    going by the experience in TN (where the coverage is more than three
    times RSBY’s coverage), the private providers will recover the
    additional expenses from the patients. What is not clear in your account
    is: Whether the government (under the RSBY scheme) states that “no one
    should be charged more than what is covered by the RSBY?”; does it say
    “RSBY will reimburse up to 30k…for these services…”? My
    understanding is that RSBY covers up to a level and beyond this level,
    depending upon the gradation of a hospital, the patient will have to pay
    from other sources. Pl clarify this. But if what I am saying is
    correct, then we need to reexamine closely the reasons for private
    sector’s reasons for not resistance.