Master’s Thesis Proposal

Title and Author

Competition among Hospitals in Urban India
Vaishnavi Srivathsan (HS06H028)

Context and Background

Chennai has been nominated as the “healthcare capital” of India. Attracting patients globally, it pays
hosts to a number of private and public hospitals that continue to provide cost-effective care. Yet,
very little attention has been paid to the private sector health facilities in India. Urban India is
fraught with diseases and healthcare issues, and private providers continue to service a vast section
of this population.

According to the NFHS data, about 52% of the people in urban areas of Tamil Nadu access private
providers for care. In Chennai, about 65% of the residents visit private providers, including a high
proportion of 51.9% of the slum-dwellers. Private hospitals form the highest proportion of the
providers visited – about 40% of Chennai residents visit private hospitals. From the figures
presented above, one is able to note that a substantial portion of the residents of Chennai is
serviced by private hospitals, and in that light, it is important to examine the competitiveness and
effectiveness of the care provided by these institutions.

Problem Definition
The absence of any government regulator to monitor standards and prescribe norms for the private
hospital sector in India is an issue that has been previously highlighted.1 In view of that, it is
important for us to understand the workings and the competitive nature of the hospitals in
Chennai. In spite of the public sector hospitals, NGO services and other alternatives, a substantial
section of the population is flocking to the private sector hospitals. Are these hospitals
comparatively effective in providing care? Do they have a sense of competition among themselves?
What is the pricing strategy they use? Do they take the presence of alternatives seriously? Are these
considerations included in their management decisions? These are some of the questions that arise,
and need examination.

Research Objectives and Research Questions

The central theme running through the paper would be to analyze the extent of competition among
hospitals in Chennai, using simple indicators. An additional proposal is to understand how

1 Muraleedharan (1999)
competition affects their policies in terms of their service, price and distribution mixes. Finally,
some policy proposals and practical suggestions will also be attempted.

In essence, the research questions that will be analyzed in the paper are:

1. Is there a sense of competition among hospitals in Chennai?

2. What is the extent of competition in Chennai?

3. How does competition factor in the management decisions of hospitals in Chennai?

a. Do hospitals innovate in the light of increasing competition?

b. Do hospitals decrease prices of services because of the increase in competition?

c. Do hospitals increase the quality of services and improve infrastructure due to

increasing competition?

Methodology
The study will begin with identifying four steps towards measuring competition2:

 Products and Competitors of Interest

Product of interest is generic “out-patient” care. Every hospital in Chennai offering “out-
patient” care will be considered part of the study. However, the study will primarily focus
on private providers. Some data on public providers will be collected for comparative study.
Over a period, if possible, indicators relating to specific medical aspects could be collected
and used for more accurate measures of competitiveness.

 Identifying the Geographic Market Area

Though Chennai can be identified as a broad geographical base for conducting the study,
smaller areas with significant number of private providers need to be treated as isolated
case studies as well. Especially, areas like the Poonamallee High Road with around 40
private providers need to be given some special attention. Hence, along with the overall
study, smaller sections of the city will be given some special consideration. Information
about observed locations of patients and the number of providers, using a ‘variable market
area’ approach, we can determine the statistically significant areas for special study.

 Choosing a Basic Measure of Competition

Typically, simple indicators like number of hospitals and relative size of the hospitals will be
used for study. Though most studies use either of the indicators, this paper would use the
HHI index (Herfindahl-Hirschman index) to capture both indicators. It incorporates market
shares as well as the number of firms in the competitive arena.

2 Adopted from Baker (2001)

  Forces that modify traditional competitive dynamics
Though factors like mergers, acquisitions and vertical integration of hospitals would not
interfere in altering the dynamics of the competitive healthcare markets in India,
government policies and new entrants would definitely alter the market scenario. Such
factors will be embedded in the analysis.

Time Schedule
Work Schedule Timeline

Initial Literature Review and January (4 weeks)

Groundwork

Collection of data from providers February – March (6-7

weeks)

Research and Analysis March – April (4-5

weeks)

Final verification of details and April-May (2-3 weeks)

Preparation of report

Feasibility
 The fifth factor, as quoted in Baker (2001), “The role of managed care” is not feasible in the
Indian healthcare market, considering there are very few managed care providers in India
and a considerably insignificant portion of the population accesses such providers. Hence,
this factor has been left out of the analysis.

 The feasibility of using a HHI-analysis needs to be analyzed. Since the competition indicator
has been used in the context of advanced industrialized markets, the probability of the
indicator finding meaning in a developing market is low. Hence, the indicator needs to be
interpreted with care.

References
1. Baker, Laurence C. (2001). Measuring Competition in HealthCare Markets. Health Services
Research, 2001.

2. Gaynor, Martin and Haas-Wilson (1999). Change, consolidation and competition in health
care markets. Journal of Economic Perspectives, Vol.13, No.1, 1999. pp.141-164.
3. Gaynor, Martin and Vogt, William B. (2000) Anti-trust and competition in healthcare
markets. in “Handbook of Health Economics” (Ed. Culyer, Anthony J. and Newhouse, Joseph
P.), Amsterdam, North-Holland, 2000.

4. Muraleedharan, V.R. (1999) Characteristics and Structure of the Private Hospital Sector in
Urban India : A Study of Madras City. Small Applied Research Paper 5. Bethesda, MD :
Partnerships for Health Reform Project, Abt Associates Inc.

5. White, Stephen L. and Chirikos, Thomas N. (1988).Measuring Hospital Competition. Medical

Care, Vol.26, No.3, 1988. pp. 256-262.

6. Arnould RJ and DeBrock LM. (1986) Competition and Market Failure in the Hospital
Industry A Review of Evidence. Medical Care Review. 1986, Vol. 43, pp.253–92.

7. Porter, Michael E. and Teisberg, Elizabeth Olmsted. (2004) Redefining Competition in

Healthcare. Harvard Business Review, June 2004.

8. Propper, Carol, Burgess, Simon and Green, Katherine (2004). Does competition between
hospitals improve the quality of care? Hospital death rates and the NHS internal market.
Journal of Public Economics, Vol. 88, NO.7-8, July 2004. pp.1247-1272.

9. Gowrisankaran, Gautam and Town, Robert J. (2003) Competition, Payers and Hospital
Quality. Health Services Research, Vol.38, No.6p1, December 2003. pp.1403-1422.