Sri Lanka's highly efficient public health sector faces new private competition

Free universal health care is enshrined in Sri Lanka’s Constitution. Its health care system delivers what is widely recognised as some of the highest-quality care in South Asia, despite spending considerably less than most other countries. The state-run public health system provides efficient, comprehensive and free medical services of all kinds. Currently, around 95% of inpatient care and 50% of outpatient care is provided by the public system, while the private sector accounts for the remaining 5% and 50%, respectively, according to World Bank data. “Sri Lanka’s health system is unusual, in that it is a mixed market, like Hong Kong or Malaysia,” Ravi P Rannan-Eliya, the director of the Colombo-based Institute for Health Policy (IHP), told OBG in October 2015. “The system is extremely efficient, truly low cost and widely used by almost all segments of society.”

Shifting Focus

Nonetheless, Sri Lanka faces a several challenges when it comes to maintaining cheap, high-quality health care. Like many other countries around the world, the medical system has seen a shift in focus from infectious diseases, which have been all but eradicated, to non-communicable diseases (NCDs), such as cancer and heart disease. “The burden of keeping the population healthy falls to the health sector,” Jacob Kumaresan, the World Health Organisation (WHO) representative to Sri Lanka, told OBG. “But NCDs are the result of much larger cultural issues, which require behavioural and societal change across the country.”

Spending

Financing the system is also widely considered to be a growing challenge, particularly given Sri Lanka’s ageing population. Despite these and other issues, most local players and market observers consider the health sector to be at the beginning of a period of sustained expansion, driven by rising per capita incomes and growing interest from foreign investors and tourists alike. As of September 2015, congestion at public hospitals coupled with low government investment has led to a pressing need for greater private-sector participation, according to a report published by the international ratings agency Fitch. Indeed, the nation’s private hospitals added new beds at a compound annual growth rate (CAGR) of 21% over the period 2010-14, compared to just 10% at public sector facilities, according to Fitch. The government, meanwhile, is working to ramp up public spending on health care in order to ensure continued provision of high-quality care throughout the state-run system, to implement new technologies across the sector and to prepare for a potential influx of medical tourists (see analysis).

History

Sri Lanka’s health outcomes have vastly improved over the past 80 years. In 2012 life expectancy was around 76 years, compared to 40 in 1930. Child mortality improved from 175 per 1000 births in 1930 to 17 per 1000 births in 2010, according to the World Bank. Furthermore, as per WHO data, in 2013 total health expenditure in Sri Lanka – including public and private spending – reached just 3.24% of the country’s GDP. Despite this low figure, many of the country’s health indicators are comparable to those found in Thailand, Malaysia and South Korea, according to the World Bank, which noted that these countries have income levels two to six times higher than Sri Lanka, adjusting for purchasing power parity, and spend 1.5-10 times more on health per capita.

Oversight & Regulation

Sri Lanka’s health sector is regulated by the Ministry of Health, Nutrition and Indigenous Medicine (MoHNIM), which has been active in some form or another for more than a century. In its current structure the ministry has a four-part mandate: to educate the population in an effort to maintain and promote public health; to support and improve medical services and delivery; to improve the nation’s health-related human resources; and to strengthen the management of public health services in an effort to maintain efficiency. In addition to the MoHNIM, several independent and semi-independent entities are involved in health care regulation and provision in Sri Lanka. The steadily expanding private sector is regulated by the Private Health Services Regulatory Council, which was established under the Private Medical Institutions (Registration) Act No. 21 of 2006. Other government entities involved in the health sector include the Medical Research Institute; the Migration, Health and Development Unit; the National Institute of Health Sciences; and the National Poison and Drug Information Centre, among others.

Organisation

According to data produced by the Central Bank of Sri Lanka (CBSL) and the World Bank, by the end of 2014 the public sector accounted for around 73% of the 750 hospitals and 93% of the 75,000 beds available. However, new facilities and beds are being added in the private sector system at a significantly faster rate. Although the private sector foresees continued growth, according to a 2015 report by the IHP, the quality of care provided in public health facilities was generally higher, despite the significantly lower cost of care. “Only the top 10-20% of the population by income tend to use private sector in-patient health facilities,” the IHP’s Ravi P Rannan-Eliya said. “It is high cost, and you do not pay for better care, but for luxury care and amenities.”

By 2011 the government operated a network of around 1070 public hospitals and primary care facilities, including some 590 hospitals with inpatient facilities and nearly 500 clinics providing outpatient care only. Most public health facilities are relatively small – the World Bank notes that fewer than 10% have more than 100 beds. The public system, which employs more than 90% of all nurses and doctors, is widely accessible, with the World Bank estimating that Sri Lankans are, on average, within 1.4 km of a basic health clinic and 4.8 km from a free government-sponsored Western-type health care facility.

The public system is organised into three tiers. Primary care facilities include central dispensaries, small-scale rural hospitals, clinics and peripheral sites. The secondary care segment comprises base, district and provincial hospitals. Lastly, specialised hospitals and teaching hospitals qualify as tertiary care institutions. Preventative health care education and promotion is managed by 310 regional health units, called Medical Office of Health areas, which cover the entire country and are largely overseen by Sri Lanka’s provincial councils.

The largest public sector hospital is the National Hospital of Sri Lanka (NHSL), which, with around 3300 beds, is among the largest hospitals in South Asia. In addition to the NHSL, the state operates 20 teaching hospitals, three provincial general hospitals, 18 district general hospitals, five specialist-care hospitals, more than 100 additional smaller hospitals and more than 470 primary medical care units across the country, according to MoHNIM data. In 2011 public health care facilities reported 49m outpatient visits and upwards of 5.5m inpatient admissions, compared to 4.7m and 270,000, respectively, at private sector facilities, according to the World Bank.

The private sector is concentrated primarily in Colombo and other urban areas in the highly populated Western Province, and is made up of local chains and a handful of regional corporations. At the end of 2014 the five leading firms – the Dr Neville Fernando Teaching Hospital (NFTH); Asiri Hospital Holdings, owned by conglomerate Softlogic Holdings and bought into by private equity firm TPG in late 2015; Nawaloka Hospitals; Durdans Hospitals and The Lanka Hospitals – accounted for 45% of overall bed capacity in the private sector, according to Fitch.

Paying For Care

While the state-run health system dominates the sector in terms of care provision, the private sector has accounted for a larger percentage of total health expenditure (THE) in Sri Lanka since the early 1990s. A study published in 2012 and reported by the World Bank stated that private spending accounted for 54% of THE, compared to the public sector at 45%. The bulk of private spending went towards inpatient services. This is indicative of a broader trend. Public health expenditure has declined in recent decades as a percentage of THE, from 84% in 1990 to 77% in 2009.

The jump in private expenditure can be attributed to a rapid rise in out-of-pocket expenditure (OOPE), which represented around 82% of private spending in total and nearly 45% of THE in 2012, according to the World Bank. In 2010 around 50% of OOPE went towards doctors fees, including private, Ayurvedic and specialist practitioners. An additional 19% was spent on private hospital stays, while 19% went toward pharmaceuticals and around 7.4% was used for test analysis, according to World Bank data.

Many public sector doctors also hold down positions at private hospitals. Patients have been known to seek out doctors at private facilities rather than in the public system on the basis that paying for care is thought to yield better results, despite the workforce being largely interchangeable. According to the World Bank, this practice, which is particularly prevalent among Sri Lankans with high-incomes, raises important concerns regarding the actual affordability of health care in the country.

Planning For Growth

In recent years the MoHNIM has worked with international advisory organisations to improve the quality of care in the public system. The state is currently at the tail end of implementing a decade-long development plan – the Health Sector Master Plan 2007-16 – which was largely structured around the health targets of the UN’s Millennium Development Goals (MDGs). According to the WHO, the plan was designed to encourage further growth through increased investment in infrastructure, achieve more equitable development through assistance to lagging regions and strengthen the delivery of public services. The strategy has, in large part, been regarded as a success and, according to the WHO’s Kumaresan, “The MoHNIM has realised the MDGs, and the sector is on track to be sustainable,” he told OBG.

Nonetheless, over the past two decades Sri Lanka’s health care landscape has changed considerably. NCDs are now the primary area of focus for much of the country’s medical establishment. The government addressed this issue by passing the NCD Policy and Strategic Framework in 2009, which lays out a roadmap for boosting awareness of NCDs and encouraging the population to make changes to combat lifestyle-related diseases. Another relatively recent change has been the state’s effort to implement new technological systems across the public health care system, with several pilot projects currently under way in this area (see analysis).

Buying In

Private sector providers are in the early stages of exploring a variety of potentially high-growth areas of investment, including medical tourism and pharmaceutical manufacturing. According to Sri Lanka’s Export Development Board (EDB), in 2014 around 15% of patients in Sri Lanka were foreigners, primarily from nearby countries like India, Bangladesh the Maldives and the Seychelles. Given the nation’s reputation for high-quality, low-cost services, many private players are working to attract tourists in need of medical care. To this end the EDB has worked to facilitate the segment’s growth, and the 2016 budget included a proposal to regulate the growing medical tourism industry. In a speech given at the budget’s launch, Ravi Karunayake, the minister of finance, said, “Medical or health care tourism, especially our traditional medicinal practices, has the capacity to gain traction internationally.”

Another proposal in the 2016 budget called for the government to provide land and financial support for the establishment of a number of pharmaceutical zones, which would be operated by private sector firms on a public-private partnership basis. Currently, the State Pharmaceuticals Manufacturing Corporation of Sri Lanka, which was established in 1987, provides all drugs used in public sector facilities across the country and accounts for around 45-50% of all pharmaceutical manufacturing in Sri Lanka. An additional 11 private firms – including Astron Limited, Akbar Pharmaceuticals and GlaxoSmithKline, the latter of which entered the country in 2009 – make up the remainder. Despite the growing number of producers, the public sector occasionally experiences drug shortages, due primarily to complex bureaucratic procedures in the pharmaceuticals segment. In an attempt to streamline the market and attract investment, in March 2015 the government introduced the National Medicinal Regulatory Act, which favours local manufacturing. Some firms have begun to export drugs to nearby countries – the Seychelles and the Maldives primarily – which analysts have interpreted as a sign that the sector is becoming increasingly export-orientated.

Outlook

Taking into account the state’s ongoing efforts to shore up service provision and ensure the cost of care remains low, the public health care sector is likely to continue improving. “The state has achieved a remarkably high level of care with very little expenditure,” Kumaresan told OBG. “It is a very impressive sector in many ways, and it appears that this attention to efficiency will continue for some time to come.” He added that the state is in the early stages of drawing up a new 10-year health care development master plan, which will likely focus on combatting NCDs, improving facilities and management practices throughout the public system, and implementing other changes in an effort to remain competitive with the growing private system.

Meanwhile, the private sector has made big strides recently, with companies opening high-end hospitals and other specialised facilities at a rapid pace. Medical tourism also holds the potential to boost revenues considerably over the next decade, and the state’s efforts to encourage domestic pharmaceutical manufacturing bode well for private investors. According to Kumaresan, the private sector is “driving the industry forward in a range of new areas, many of which could be central concerns in only a few years.”