Metropolis asks Centre to place healthcare industry in 5% GST bracket

Since 2016, India’s healthcare industry has grown remarkably, achieving a compound annual growth rate (CAGR) of approximately 22%. However, this impressive progress has not been matched by a significant increase in government funding, which has seen only marginal growth in recent years.

This disparity highlights an urgent need for a substantial and sustained increase in health resource allocation, aiming for at least 2.5% to 3% of GDP in the upcoming Budget. The ravage of COVID-19 pandemic which overwhelmed India’s hospitals is undoubtedly the main reason why the country’s healthcare system needs major reforms. Bringing down high out-of-pocket healthcare expenditure for the masses would be another primary reason.

The incoming government is poised to hit the ground running, with its first 100 days set to establish a decisive direction for healthcare over the next five years. Key issues that need immediate attention include ensuring equitable distribution and efficient utilisation of health resources, addressing severe health outcome disparities, and instituting robust oversight of private sector involvement.

The agenda also includes tackling the urban-rural health resource imbalance, enhancing accessibility in underserved rural areas, and improving the productivity of health workers. The government must prioritise practical measures over rhetoric, carefully allocate budget resources, and ensure quality implementation of new programs while fostering convergence across health initiatives.

Rationalising GST to benefit healthcare providers
Among the reforms that the government could implement, rationalising GST for healthcare could be a game changer. The healthcare credit chain through GST continues to face persistent issues with indirect taxation and the lack of input credit for providers. Both hospitals and diagnostic labs have faced increasing embedded taxes post-GST.

For hospitals, the tax rate has risen from 4.3% in 2016-17 to 5.7%, while diagnostic labs saw an increase from 3.8% to 5.8%, according to a survey by EY. As part of its reform, the government could place the healthcare industry in the 5% GST bracket, which would enable providers to offset some of the costs of embedded taxes.

Transforming diagnostics
While rationalising GST would improve the health of the healthcare sector, diagnostics, which serve as the cornerstone that guides the entire continuum of care, also needs reforms to make it more cohesive. The diagnostics sector is on the edge of transformative changes, driven by technological innovations, evolving adoption patterns, and ongoing challenges. The industry’s ability to leverage these developments will be crucial in advancing healthcare outcomes and meeting the evolving needs of both patients and healthcare professionals.

According to Praxis Global Alliance, diagnostics is expected to grow at a CAGR of 14% to reach $25 billion by 2028. But a major problem in the diagnostics sector is the lack of standardisation underlined by the presence of a significant 46% of standalone labs that are unorganised. The government needs to guide the industry toward standardisation by prioritising the accreditation and certification of labs, ensuring that patients receive reliable, consistent, and high-quality diagnostic services.

Diagnostics in India is remarkably underpenetrated compared to many developed countries. Public-Private Partnership (PPP) can address current diagnostics challenges in India and transform the country’s healthcare landscape for the next decade. And to accelerate the PPP-driven transformation of the diagnostic sector, the government should focus on policy framework development, capacity building, and fostering sustainable partnerships.

A RERA approach to healthcare reform
Fortunately, the government has recognised the importance of PPP in healthcare and has encouraged it, especially during the COVID-19 pandemic, which showcased PPP’s benefits in enhancing diagnostic capacity, accessibility, and innovation. But the problem is that the bar is set too low which allows less competent players to get into the act. Combined with a lack of accountability, and compliance issues amongst others, the result is that health outcomes are not always what they should be, or whether patients are benefitted or not.

The government should standardise the model and raise the bar for private healthcare providers to participate in PPPs, and not make it only price sensitive. Healthcare PPPs must ensure better outcomes for patients because that’s what eventually matters.

The government may set up a regulator on the lines of the Real Estate Regulatory Authority (RERA) which has transformed the real estate sector because it holds builders to account for the quality of buildings and punctuality in the delivery of finished apartments or commercial places. RERA has helped weed out poor-quality builders and has encouraged better-quality builders and real estate developers to grow better, besides helping consumers who now get better products and services.

Building a healthier nation
While improving the PPP model will benefit patients, diagnostics will continue to play a key role given that non-communicable diseases are now emerging as a major threat. The new government will do well to draw up a blueprint to face this menace. Along the lines of the ambitious ’75-25’ initiative that the government unveiled last year for screening and placing 75 million people with hypertension and diabetes on Standard Care by 2025, a similar outline for people with NCDs would set the tone for a healthier India.

Our efforts should aim to create a robust, collaborative ecosystem where public and private healthcare providers can work together to achieve desirable outcomes. Given India’s changing disease profile, these new initiatives must be implemented with the utmost diligence and sincerity to ensure they reach every individual. The principle that ‘unless all are safe, no one is safe’ must guide our actions.
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