U.S. — India Business Relationships in the Healthcare Sector are on the Rise, as appeared in Business in South Asia: Legal Views and News

This article is reprinted with permission from the January, 2009 issue of Business in South Asia: Legal Views and News. © 2009 North American South Asian Bar Association, Inc. Further duplication without permission is prohibited. All rights reserved.

In late October of 2008, I participated in an interesting delegation to New Delhi, consisting of approximately 35 U.S. health care executives from hospital systems, health plans, life science companies and other organizations. The delegation was organized by the Academy of International Health Studies, which organizes trade/study missions to different countries each year to examine their health care systems. The missions are intended to facilitate an intellectual exchange between participants in the health care systems of the U.S. and the host country and, thereby, foster an improved understanding of the global health care marketplace.

By way of professional background, I am a partner in the Health Care and Life Sciences practice at Epstein Becker & Green, which was founded 35 years ago as a law firm dedicated to the health care industry. In recent years, I have had the opportunity to work on an increasing number of transactions between U.S. and Indian businesses in the health care space. Given my professional experience, and being of Indian origin (I grew up in Mumbai), the mission to India obviously provided me with invaluable insight and considerably broadened my horizons. I learned, first hand, about the rapidly evolving health and life sciences industry in India through a series of meetings with key local players and analyzed my observations with seasoned U.S. health care executives in the delegation. We had the opportunity to compare the mature but over-regulated and increasingly inaccessible health care system of the U.S., which is in the midst of a health care crisis, with the nascent and highly privatized health care industry in India, which is largely unfettered by regulation but which is facing its own health care crisis. Interestingly, the health care crisis in each country has created many opportunities for industry participants in each country, through a somewhat symbiotic relationship, to create value for each other and each other's health care systems. This has fostered an interesting synergy between the U.S. and Indian health sectors that is likely to flourish in the coming years.

Drawing on the insights gained during my recent trip, as well as my experiences as a legal practitioner in the health care sector, this article is intended to highlight the developing business relationships between the U.S. and India and the entities involving hospital systems and health insurance companies in each country, and the legal and regulatory issues relevant to those relationships.[1]


A quick overview of the health care sector profile of each country would be useful to an understanding of the synergy between the two systems. The U.S. spends more on health care per person than any other nation in the world.[2] Current estimates put U.S. health care spending at over 16% of its gross domestic product.[3] Americans lacking health insurance coverage at some point during 2007 totaled about 15.3% of the population, or 45.7 million people.[4] Health insurance costs are rising faster than wages or inflation in the U.S.[5] There are hundreds of insurance companies in the U.S.[6] This system has considerable administrative overhead, far greater, as a percentage of health care spending, than in nationalized, single-payer systems, such as Canada's.[7] If approved by Congress, the health care reforms expected to be proposed by the Obama administration are intended to increase accessibility to quality health care, provide health insurance coverage to a greater number of Americans at a lower cost and invest in prevention and public health.[8] While there is a room for much improvement and reform, it may be unrealistic to expect overall spending to dramatically decrease or for the entire uninsured population to obtain coverage overnight under the new administration.

It is well-known that India has a population of over 1.1 billion people, growing at an annual rate of 1.7%, and an economy that has been growing, in recent years, at an impressive rate of over 9%. Despite the global financial meltdown, India's Prime Minister still forecasts a growth rate of about 7% for 2009.[9] Assuming a continued annual growth rate of at least 7.3%, McKinsey & Co. predicts that the middle class in the country, which now comprises about 50 million people, will grow to about 583 million people by 2025, which would represent 41% of the country's population and a number larger than the entire current population of the United States.[10] India's total health care expenditures are estimated to be 4.8% of its annual gross domestic product[11] compared to 16% in the United States. Given the rapidly increasing middle class, McKinsey predicts a growth in private health care spending of almost 11% a year[12], which is even more impressive than the overall continued projected growth of 7% annually.

However, India's health care system is woefully inadequate to keep up with the growing demand. During the AIHS mission, we learnt that, currently, only one bed is available per 1,000 people in India, while the world average is 3.3 per 1,000 people and the U.S. has 7.4 beds per 1,000 people.[13] The number of doctors per 1,000 people in India is estimated to be between 0.5 and 1.2, while the world average is 1.5 per 1,000 and the U.S. has 1.8 doctors per 1,000 people.[14] We were further struck by the staggering disparities in access to health care between the urban and rural populations of India. While 72 percent of the population still lives in rural areas, only 3% of specialty physicians practice there and only 20% of the medical facilities in the country are located in rural areas.[15] Also spurring the demand in health care is the rapid rise in "lifestyle" diseases, such as diabetes and cardiovascular disease. India is currently considered the diabetes capital of the world and, based on the current rate of increase in cardiovascular disease in the country, India is projected to quickly become the cardiovascular disease capital of the world.[16] However, consider that only 42 cardiac surgeries per million people are performed annually in India, whereas 17,000 cardiac surgeries per million people are performed annually in the United States.[17]

The gap between supply and demand in health care is already attracting significant investment in this sector. According to one analysis, private equity funds invested about $450 million in the Indian health care space during the first six months of 2008, compared with $125 million in the same period a year ago, and private equity investment in India is expected to continue to increase despite the global credit crunch and turmoil in the stock markets.[18] It is clear that while the U.S. strives to curb its overall spending on health care, health care spending in India will be on the rise in the coming years.

Hospital Systems and Services

Health care is primarily a state law subject in India but most Indian states currently lack any regulatory framework to guide the establishment of hospitals.[19] In the states that have adopted regulations regarding hospitals and other clinical establishments, these laws either lack effective implementation or have varying minimum standards.[20] However, the central government is encouraging the adoption of uniform regulations and quality standards by introducing the Clinical Establishments Act, which, if approved by the Indian parliament, would be available for adoption by Indian states. [21]

The central government is also encouraging investment in new hospitals by incorporating health care as an approved service under the Special Economic Zone Act of 2005[22] and providing a five year tax holiday for the establishment of hospitals in India's "Tier II"[23] and "Tier III"[24] cities, which are seeing rapid economic growth but have underserved patient populations as compared to "Tier I" cities such as Mumbai and Delhi.[25] Thus far, there has been significant investment in Indian hospital systems by U.S. private equity companies in recent years. For example, Apax Partners purchased a 11.5% equity stake in Apollo Hospitals Enterprise Ltd. for approximately $104 million[26] and the private equity arms of American Insurance Group and JP Morgan purchased a 25% equity stake in Narayana Hrudayalaya Ltd., another Indian hospital operator, for approximately $100 million.[27] Other ways in which U.S. entities are shaping hospital systems in India are through affiliations between U.S. academic medical centers and hospital systems in India. The best-known example of such an affiliation is between Harvard Medical International (HMI), the international subsidiary of Harvard Medical School and Wockhardt Hospitals Group, which is one of India's leading private hospital systems. Through this affiliation, HMI and Wockhardt are collaborating to develop patient centered-quality care through a focus on facility development, leadership development and quality management.[28]

As private equity companies and academic medical centers in the U.S. help expand and shape the Indian hospital system, a select group of Indian hospitals, including Apollo, Wockhardt and Fortis, are going beyond servicing the local market and actively offering their services to medical travelers from the United States and many other countries. The main driver of medical travel between the U.S. and India is the substantial price differential for many surgical procedures.[29] As per industry estimates, the cost of treatment in India, including travel cost of patient and a companion, is around one-eighth the cost of treating the same disease in the U.S.[30] The most commonly performed medical services sought by medical travelers from the U.S. are in the areas of orthopedic, cardiovascular and cosmetic surgeries and major dental procedures, which can be scheduled on an elective rather than emergent basis, and where the greatest cost savings can be achieved.[31] Until recently, the bulk of U.S. medical travelers to India were uninsured patients. However, two major U.S. insurers, WellPoint and Blue Cross Blue Shield of South Carolina recently announced the launch of pilot programs that will provide participants the option of obtaining medical treatment at Apollo Hospitals or Wockhardt Hospital in India.[32]

The growth of medical travel from the U.S. to India is tempered by many factors including logistical challenges, limited availability of pre- and post-operative care coordination between U.S. and Indian physicians and, in the event of a bad outcome, the limited availability of legal remedies in India as compared to the U.S. There is currently no international regulation of medical travel and it would be very challenging for a U.S. patient to bring suit against a hospital or physician in India in a U.S. court.[33] Unlike the multi-million dollar tort damages awarded in the U.S., medical malpractice awards in India are limited to actual damages.[34] In addition, Indian lawyers are not permitted to take cases on a contingency basis.[35] For U.S. patients who have reasonable insurance covered there is much less incentive to travel to a foreign country for surgery. Nevertheless, projections for continued medical travel from the U.S. to India remain optimistic as the uninsured population grows and employers and managed care companies find ways to incentives their insured patients to obtain expensive elective procedures overseas.[36]

In addition to U.S. patients, hospitals and physicians themselves often look to India to achieve cost savings. In an era of increasing regulatory costs and falling health care reimbursements from the government and private insurers, U.S. medical providers face tremendous pressure to manage their administrative costs. As a result, services that were historically performed by local vendors, such as medical transcription, have been shipped overseas to India for a number of years in order to benefit from the cost advantage based on the wage differential between the two countries. In addition, recent years have seen U.S. hospitals outsource more sophisticated functions to Indian companies, such as billing and coding and information technology services. U.S. physicians are increasingly outsourcing diagnostic imaging reviews, such as x-rays and mammograms, to India.[37] Forces driving the growth of teleradiology include a significant shortage of radiologists in the U.S. and increased use of imaging in trauma situations, which, in turn, has fueled the need for 24 hour availability of radiological services in emergency rooms. In connection with the outsourced services, U.S. providers must comply, and require their service providers, whether located in the U.S. or India, to comply, with HIPAA or the Health Insurance Portability and Accountability Act of 1996. In connection with teleradiology, the U.S. state in which the patient is located will often require that the physician providing the diagnostic services be licensed in that state.

In sum, the hospital system in India is benefiting from private equity investment from the U.S. as well as affiliation with U.S. academic medical centers as it rapidly expands to meet the needs of the burgeoning middle and upper classes of the Indian economy. At the same time, U.S. patients and their insurance providers can look to India as a place to obtain world-class medical services at a substantially lower cost and hospitals and physicians in the United States often manage costs and increase service levels by outsourcing significant administrative functions and diagnostic imaging services to seasoned service providers in India.

Health Care Insurance Services

Since the de-tarrification of health insurance in late 2007 by the Insurance Regulatory and Development Authority, the Indian regulatory body that oversees the country's insurance industry, health insurance coverage in India has been on the rise.[38] Yet, barely 5% of the Indian population thus far is covered by some form of health insurance.[39] As the quality of available care improves and the latest technologies are introduced in the Indian markets, it is likely that Indian health care consumers will want to manage their rising health care out-of-pocket costs through health insurance.

In recent years, two private health insurers have been launched in India: Star Health and Allied Insurance Company Limited and Apollo DKV Insurance Company Limited, an affiliate of the Apollo Hospitals Group.[40] There are no governmental programs akin to Medicare or Medicaid and the Indian government has not proposed establishing such programs. Currently, both of the private insurers offer only the indemnity model of insurance, which was the predominant model in the U.S. prior to the spread of managed care.[41] The focus is on coverage for catastrophic events and major surgeries rather than prevention or wellness[42], which is also reminiscent of the early years of the U.S. health insurance industry. As is self-evident, the U.S. insurance industry today is by no means without problems; however, as Apollo DKV indicated to our delegation, there is tremendous scope to introduce new insurance models like managed care and long-term care, to manage quality and costs. Such models can be introduced by seasoned U.S. managed care companies through the existing Indian health insurance companies and through the establishment of new joint ventures. At this time, foreign direct investment in the insurance sector in India is limited to 26% but is expected to increase to 51% in the foreseeable future.[43] With the lessons learnt from the development of the U.S. managed care system, perhaps we can build a successful model of managed care in a developing country in an environment that is unfettered by complex regulation or dysfunctional legacy systems.

Looking to the U.S., the off-shoring of functions has been prevalent among health insurers for some time now, including major players such as Aetna, Cigna, United Healthcare and WellPoint.[44] This outsourcing has largely occurred in administrative areas such as claims processing, accounting and revenue cycle management.[45] Recently, certain companies have begun offering services to support the more central functions of health insurance companies such as case management, utilization management and prior authorization.[46] U.S. state regulations generally require licensure for final decision-making in medical management. However, the processes leading to final decision-making are estimated to represent 80% of the cost of these functions.[47] Outsourcing these processes to a HIPAA compliant Indian outsourcing company can potentially result in significant cost savings.[48]


Health care, historically a local service, is following the successful precedent of many other sectors to globalization. The U.S. and India are turning out to be active participants in this emerging trend and are each poised to be of value to the other's health care system. The U.S. health care system continues to respond to the increasing pressure to manage costs by sourcing low-cost, technologically advanced services from providers in India. But perhaps there is even greater potential for U.S. companies to invest funds in and share expertise and experience with participants in the Indian health care system, which will need to grow rapidly to keep up with rising demand.

[1] We did examine the developments in the life sciences sector in India during the mission, and there is a considerable level of activity between U.S. and Indian pharmaceutical and other life science companies. However, I have not focused on life science companies in this article because the product-oriented nature of these businesses (rather than the service-oriented nature of hospitals and health insurance companies) and the legal issues involved, including patent laws and FDA regulations, merit analysis in a separate article unto itself.

[2] Healthcare in the United States Wikipedia, Wikipedia, http://en.wikipedia.org/wiki/Health_care_in_the_United_States_Wikipedia (Last visited on Jan. 20, 2009).

[3] Centers for Medicare and Medicaid Services, National Health Expenditures 2007 Highlights (2008), http://www.cms.hhs.gov/NationalHealthExpendData/downloads/highlights.pdf (Last visited on Jan. 20, 2009).

[4] Healthcare in the United States Wikipedia, supra note 2.

[5] Id.

[6] Id.

[7] Id.

[8] Healthcare, http://www.barackobama.com/issues/healthcare/ (last visited on Jan. 21, 2009)

[9] Fundamentals are Strong, Says PM, The Economic Times, Jan. 9, 2009, http://www.ibef.org/artdisplay.aspx?tdy=1&art_id=21360&cat_id=60 (Last visited on Jan. 20, 2009).

[10] Diana Farrell and Eric Beinhocker, The Next Big Spenders: India's Middle Class, Business Week, May 19, 2007, http://www.mckinsey.com/mgi/mginews/bigspenders.asp (Last visited on Jan. 20, 2009).

[11] Alam Singh, Assistant Managing Director, Milliman India Pvt. Limited, presentation to the delegation lead by the Academy of International Health Studies in New Delhi, India (hereinafter "AIHS Delegation") (Oct. 27, 2008).

[12] Farrell and Beinhocker, supra note 6.

[13] O.P. Yadava, C.E.O and Chief Cardiac Surgeon, National Health Institute of India, presentation to AIHS Delegation (Oct. 28, 2009).

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Healthcare gets $450 mn from PE funds this year, Business Standard, Nov. 28, 2008, http://www.ibef.org/artdisplay.aspx?tdy=1&art_id=20947&cat_id=60 (last visited on Jan. 20, 2009).

[19] Singh, supra note 11.

[20] Id.

[21] Id.

[22] India's Special Economic Zones Act of 2005 provides for streamlined regulatory requirements and tax incentives to encourage economic activity, create employment opportunities and develop infrastructure facilities in Special Economic Zones approved by the Indian state and central government. See Ministry of Commerce and Industry, Department of Commerce, Special Economic Zones in India, http://www.sezindia.nic.in/HTMLS/about.htm (last visited on Jan. 20, 2009).

[23] E.g. Pune, Kolkata, Hyderabad.

[24] E.g. Jaipur, Noida, Kochi.

[25] Singh, supra note 7.

[26] Apax picks up 11.5% in Apollo Hospitals, The Financial Express, Sep. 1, 2007, http://www.financialexpress.com/news/apax-picks-up-11.5-in-apollo-hospitals/213843/ (last visited on Jan. 20, 2009).

[27] Seema Singh, AIG, JPMorgan buy 25% stake in Narayana Hrudayalaya, LiveMint.com of The Wall Street Journal (Feb. 7, 2008), http://www.livemint.com/2008/02/06232413/AIG-JPMorgan-buy-25-stake-in.html (last visited on Jan. 20, 2009).

[28] http://www.wockhardthospitals.net (last visited on Jan. 20, 2009).

[29] Tilman Ehrbeck, Ceani Guevara, Paul Mango, Mapping the Market for Medical Travel, The McKinsey Quarterly — Health Care, May 2008, at 5

[30] US insurers eye India to cut costs, The Economic Times, Dec. 4, 2008.

[31] Tilman et al., supra note 29; Deloitte Center for Health Solutions, Medical Tourism — Consumers in Search of Value 2008, at 7.

[32] US insurers eye India to cut costs, supra, note 30.

[33] Philip Mirrer-Singer, Medical Malpractice Overseas: The Legal Uncertainty Surrounding Medical Tourism, 70 Law & Contemp. Probs. 211, 212 (Spring 2007).

[34] Bashir Mamdani, Medical Mapractice, 12 Indian J. Med. Ethics 2, http://www.issuesinmedicalethics.org/122ss057.html (last visited on Jan. 20, 2009).

[35] Id.

[36] Tilman et al., supra note 29 at 15; Medical Tourism — Consumers in Search of Value, supra note 27 at 2.

[37] Sanjiv N. Singh, J.D. and Robert M. Wachter, M.D., Perspectives on Medical Outsourcing and Telemedicine: Rough Edges in a Flat World? 385 New Eng. J. Med. 15, 1622 (April 10, 2008).

[38] Apollo DKV, Presentation to AIHS Delegation (October 28, 2008).

[39] H. Srinivasan, Assistant Vice President, Star Health and Allied Insurance Co Ltd. presentation to AIHS Delegation (October 28, 2008).

[40] Apollo DKV, supra note 38; H. Srinivasan, supra note 39.

[41] Id.

[42] Id.

[43] Apollo DKV, supra note 38.

[44] Minal Patel, CEO, Care Management International, presentation to AIHS Delegation (Oct. 28, 2008).

[45] Id.

[46] Id.

[47] Id.

[48] Id.