Private Medicine in India is a Free Market

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Once, a farmer from a village in Bihar was diagnosed with colon cancer. He came to Patna, the capital city, to have the tumor removed. Because he was poor, my father recommended a young surgeon who trained in the UK. The surgeon was competent and idealistic. He was a Fellow of the Royal College of Surgeons. His charges were the lowest. He did not charge the extremely poor.

The farmer declined, saying “if this babu is treating patients for free, he can’t be a good surgeon.” The farmer chose the most famous surgeon in the city, whose charges were not astronomical in comparison, but certainly higher. The farmer paid full fare – there were no discounts for poverty. The practice accepted credit cards. He paid cash. Once the surgeon received half the payment, he made the incision. The surgery was uneventful. The farmer was cured.

This was a voluntary contract between surgeon and farmer. No middle man. No forms to submit. Cash for scalpel and the skill of its bearer. There is a resurgence of this model in the US, known as Direct Pay Medicine. Despite India’s socialist roots, paradoxically, much of medicine has always been direct pay, or private.

The rules of private medicine are simple. Prices are transparent. If you can cough up the money you’ll get treated. If you can’t, then it is at the physician’s discretion. I am not saying you won’t be seen, but this is at the discretion of the physician and this discretion can be, and often is, a ‘no’ in India.

Recently, Karuna Hospital in Mumbai refused to admit a dying biker with blunt trauma. The charges for surgery were Rs 20, 000 ($300). The patient was Rs 9000 ($136) short. The surgeons refused to assess the patient until the full payment was made. The patient died.

Advocates of more market and less government in healthcare balk at these stories. They protest that a market does not mean letting someone die in the street. Indeed it does not. But a market is no less a market just because a surgeon refuses to operate on a dying man because he can’t pay. The key ingredient of a market is the voluntary nature of the doctor-patient relationship. You could force a surgeon to operate on the dying, regardless of his ability to pay. But that would require government fiat and it would be a less free, even if more humane, market.

The astute reader will understand that I am not exculpating Karuna Hospital, merely indicating that their inhumanity does not contradict a free market. The surgeons in India will say that if they see one person for free they’ll open a floodgate and rapidly be out of business. They will point out that it is easy for Europeans and Americans to lecture them about humanity, when these countries have a robust welfare system supported by the state, and where abject poverty is not as rampant as in India. They might question the moral compass of such criticism when the uninsured in the US are rendered bankrupt by being charged several times the insured for no apparent reason.

The free market utopian may counter that in a free market one has a choice. A market that does not give a dying biker the option to live is no free market. This is an understandable protest, but nothing more than a lamentation. It is true that free markets increase choice. However, choice is the end product of a free market, not its pre-requisite. A market that does not deliver the choice that one expects is a failed market, or a failed free market, but a free market, nonetheless. Kenneth Arrow believed healthcare in a free market was doomed to failure.

Choice can be a caged devil and choice leads us to the belly of the beast in India. This is the determination of the gender of a fetus, using ultrasound, for selective abortion of females. For mainly economic reasons, the male child in India is more desirable. The emergence of ultrasound led to an increase in abortion of females, and a gender imbalance in many states in India where males far outnumber females.

Entrepreneurial doctors drove around the villages, and even cities, with ultrasound machines determining the gender of the fetus for a few hundred rupees, often with a non-judgmental moral ambivalence that defied belief. Free market Utopians will blame such a practice on culture, not markets. But a market is an expression of tastes of people. No matter how disgusting these tastes are, it is no less a market for our disgust. Markets are amoral. Amoral includes both moral and immoral.

To say that private medicine in India is not a free market just because it does not always deliver the ethics and results we expect, is to hold the definition of market hostage to its outcomes. This is a circular logic, much like the “there is no true Scotsman” argument. A similar logic is used by Marxists who rationalize the collapse of communism and purges of Stalin by saying “that’s not true communism.” One can make the same case for socialism. With such strict definitions, it follows that neither markets nor socialism has really been tried in the US.

India’s private medical market is better understood by understanding the psyche.  Indians are fatalistic – they blame God for their misfortunes, not fellow men. Indians do not view health as an infinite good – they’d rather horde money for their daughter’s wedding than ill health in old age. Finally, Indians expect their physicians to be paternalistic.

The idealistic surgeon from the UK is now one of Patna’s leading surgeons. He no longer waives his fees for the poor. “If I see patients for free they’ll think I’m a rubbish surgeon who needs cutting practice,” he says. Markets work in mysterious ways.

Saurabh Jha is a radiologist at the University of Pennsylvania.

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10 replies »

  1. The answer is no but do not dismiss it offhand as the opinion of a market idolater!… Again, definitions are important. “Market failure” is what mainstream neoclassical economists refer to when they identify a deviation from the expected optimum based on a theory of “free market equilibrium.”

    The theory of equilibrium is disputed by Austrian school economists who see markets in constant flux (although under free market conditions, one can identify a tendency towards an equilibrium state, such as an equilibrium price). The equilibrium is seen as a mathematical construct that doesn’t have a legitimate place in economics.

    There are many problems in this world, but they are not per se market failures. More important, state intervention may be shown to inevitably worsen the situation rather than help (on the basis of lack of knowledge, improper incentives, and other factors).

    Hope that wasn’t too detailed! Michel

  2. Micheal
    Do market failures ever occur?
    (I dont want to create a long thread with detailed answers. I ask collegially)


  3. Brad,

    It is true that the market, at time t = 0, will not have a solution for those who cannot afford health care and, in-and-of-itself, will not make people charitable if they are not so inclined to begin with.

    But over time, only market conditions can create material prosperity to reduce the scarcity. A government intervention cannot remedy the problem in a satisfactory manner, whether you’re talking about scarcity or about charity.


  4. John, Saurabh Jha is all about making points. I couldn’t see one here except maybe an interesting view of health care economics in India.

    Maybe you could give me some relevance?

  5. What an odd comment. Plenty of relevance. We compare international systems here all the time. Like it or not, our world is globalized.

  6. Thanks Brad. Entirely agree with your last sentence, which pithily summarizes the issue.

  7. I cribbed this quote long ago, and have not looked at it in years. Your post reminded me of it. I dont recall where I got it from:

    Rationing: prices and the individual’s ability to pay are the chief instruments through which free markets ration scarce resources among the unlimited wants of people. The thing about the market is that it doesn’t solve problems. It works towards efficiencies. The market’s solution to the problem of “a lot of people can’t afford health-care coverage” is that “a lot of people can’t afford health-care coverage.” That’s what the market does: Given scarce resources, it apportions them according to the capacity to pay. A lot of people can’t afford a Lexus. Thus, a lot of people don’t have a Lexus. That’s not a market failure. It’s the market’s solution.


    Nice post.