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Public-Private Partnership and User Fees in Healthcare: Evidence from West Bengal

Increasing cost of medical care has emerged as the second biggest cause of rural indebtedness in India. A user fee at the point of service delivery is now common even at the basic primary healthcare level. Focusing on rural hospitals in West Bengal, this article examines the structure of user fees and compares it across a set of basic diagnostic services delivered by public sector healthcare institutions, public-private partnerships and the private sector. Revised user charges, and a restrictive exemption and waiver policy under the PPP framework has produced exclusionary effects in the primary healthcare system in the state.


Public-Private Partnership and User Fees in Healthcare: Evidence from West Bengal

Bijoya Roy, Siddharta Gupta

delivery have been implemented in order to ensure efficient utilisation of services, check undue demand, and generate revenue. During this period, healthcare costs emerged as one of the major obstacles for the poorer households.2

User charges from different services in healthcare institutions acts as a deterrent for the chronically poor households to

Increasing cost of medical care has emerged as the second biggest cause of rural indebtedness in India. A user fee at the point of service delivery is now common even at the basic primary healthcare level. Focusing on rural hospitals in West Bengal, this article examines the structure of user fees and compares it across a set of basic diagnostic services delivered by public sector healthcare institutions, publicprivate partnerships and the private sector. Revised user charges, and a restrictive exemption and waiver policy under the PPP framework has produced exclusionary effects in the primary healthcare system in the state.

We are grateful to Imrana Qadeer for her valuable comments on our draft paper.

Bijoya Roy ( is with the Centre for Women’s Development Studies, New Delhi and Siddharta Gupta ( is at the Centenary Hospital, Kolkata.

Inequality is very much the sign of our times... Inequalities of access and outcome increasingly dominate the healthcare arena, too

– Farmer 2004.

n 1999-2000, around 32.5 million persons in India fell below the poverty line (BPL) due to out-of-pocket (OOP) expenditure with greater and deeper impact in poorer states and rural areas (Garg and Karan 2008).

In 1987, the World Bank, in its report “Financing Health Services in Developing Countries: An Agenda for Reform”, recommended the introduction of user fees in government healthcare services, steering the debate towards the financial efficiency of these institutions rather than addressing the financial crisis of the poor households and critically analysing the financial schemes of the government healthcare system (Arhin-Tenkorang 2000). During the 1990s, there were a series of policy documents1 which promoted the implementation of user fees in government healthcare in India.

In the following decade, the World Bank shifted its stance to a “no blanket policy on user fees” (World Bank 2004). Studies from the healthcare system in Africa had begun to show discouraging impacts of user fees. International donor communities also engaged with a number of multilateral and bilateral organisations, academicians, and civil society organisations on the issue of direct payment, i e, user fees in healthcare facilities, its impact on poor households and on the removal or gradually abolishment of user fees (Save the Children 2005; Meessen et al 2009; Yates 2010).

Impact of User Fees: Some Evidence

For almost a decade and a half, health sector reforms have swept across all the states in India. In government healthcare institutions, user fees at the point of service

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access care, to comply with the treatment protocol, and makes already poor people poorer (Leive and Xu 2008). Evidence from Africa shows that user fees have implications for lower utilisation of healthcare services by women, children, and other vulnerable or marginalised sections of the population (Nanda 2002).

In Andhra Pradesh, between 2001 and 2004, the proportion of the poor utilising hospital services showed a marked decline, particularly for hospitalisation, followed by outpatient department (OPD), surgeries, deliveries, and laboratory and diagnostic services. Apart from this declining trend, another worrying aspect was low utilisation by the scheduled caste and tribe (SC/ST) population over the same period. In 2000-01, a similar trend was noted in the utilisation pattern of outpatient and inpatient services of the public health facilities in Maharashtra (Mahal and Veerabhadraiah 2005).

In the context of making the public sector hospitals autonomous, proponents of user fees see it as a revenue mobilising avenue. However, revenue generated from a user fee has not been very encouraging (Pearson 2004; Gilson, Russell and Buse 1995). In a district hospital of West Bengal, from 2002-03 to 2005-06, the share of user charges to the total expenditure showed a decline from 2.1% to 1.8% and the major share of revenue was generated from diagnostic services (Roy 2007).

Another issue is the proportion of a user fee utilisation in government hospitals. In Andhra Pradesh, between 2001 and 2004, even though the proportion of user fees utilisation increased, it was still less than 100%, and acted as a support to meet the gap “in the face of declining contribution from the state governments” (Mahal and Veerabhadraiah 2005). However, the impact of a user fee needs to be evaluated in the

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context of changes in accessibility to healthcare services that take place with every revision of the user fees/charges (Roy 2007).

PPP and Paid Diagnostic Services

In recent years, little has been done to arrest the increasing cost of medical care. In government medical colleges and hospitals (at the state, district and sub-divisional levels), a user fee has become universal with the removal of public subsidy. A number of studies on user fees focus on its effect in terms of service utilisation by different age groups (children under-five, women), impact on quality of care, as revenue generating source and efficiency (Khun and Manderson 2008; Praveenlal et al 2005; Nanda 2002; Gilson, Russell and Buse 1995). Studies have reflected little on the structure of user fees in different states for outpatients’ department, indoor and diagnostic services across the different levels of public sector healthcare, on the waiver and exemption policy and thus how it affects the access to clinical, diagnostic and other non-clinical services.

West Bengal has one of the highest shares of OOP expenditure in outpatient care in the country. In rural areas, OOP accounts for more than 80% of the increase in poverty (Garg and Karan 2008). Around 72% of the state population resides in rural areas. Post mid-1990s, user fees have been revised thrice (1995, 1998 and 2002). Since 2002, graded user fees were introduced in the secondary and tertiary level care, and over time, existing exemptions on services for different patient categories were eroded (Roy 2007).3 In 2004, under the publicprivate partnership (PPP) framework, the government hospitals in the rural areas introduced paid diagnostic services. In early 2010, a differential user fees was introduced for the same services directly provided by the public sector hospitals and those provided by the PPP model within the premises of the government rural hospitals.

This article attempts to study the content of PPP with respect to provisioning of diagnostic services in the rural hospitals of West Bengal, their user fees structure and how PPP and user fees work together. It delineates the differences in user fees for the same set of services delivered by public sector healthcare institutions, PPP, and the private sector respectively. Second, the article assesses

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the potential impact of the differential user fees on accessibility to diagnostic and pathological services with the emergence of a diverse set of providers, the degree and scope for universalisation of these services. This is primarily based on the review of PPP policy documents for diagnostic services in rural hospitals and block primary health centres (BPHCs) in West Bengal. Primary data was collected from two private providers (based in Kolkata and Murshidabad districts respectively) to whom PPP diagnostic services were contracted out.

Healthcare Policy in West Bengal

Years of poor public financing of the primary healthcare facilities have resulted in poor functioning and provisioning of services, which the National Rural Health Mission (NRHM) envisages to address. In West Bengal, financing priorities are still skewed towards the tertiary care which the government intends to reverse, following the National Health Policy (2002) guidelines. The State Health Systems Development Project II introduced wide-ranging reforms in the state’s public health sector, bringing about significant changes in the provisioning pattern of services (clinical and non-clinical) and their financing mechanism. The healthcare reform policy proposed to provide “affordable health and preventive services” by actively engaging “in partnership with PRI, CSO, NGO, donor group agencies, private sector and other development partners”.4 This mooted the notion of minimal provisioning by the state and restructuring of provisioning through multiple providers.

Rural hospitals – which also act as the first referral unit – lack adequate and well functioning diagnostic centres (both pathologic and imaging services). This has hindered the delivery of effective preventive and curative care, and consistently forced patients to access private diagnostic providers of questionable quality or discontinue care, resort to self-medication, or adopt other ways to save cost, as found among the poor patients in Ghana (Asenso-Okyere et al 1998). Responding to the dearth of basic diagnostic services, the state government in 2004 initiated the provision of diagnostic services in rural hospitals by outsourcing it to the private sector under the PPP model. This was done in two phases. In the first phase, out of the proposed 19 diagnostic

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centres, it was started in 17 rural hospitals. In the second phase, i e, after 2006, it was extended to another 77 rural hospitals in 17 districts. This new system has bifurcated the clinical care and diagnostic service provisioning system in rural hospitals (Government of West Bengal 2006).

When the PPP project was started, the state health department allowed the private providers to conduct 29 diagnostic tests, which were charged and were at par with the rates fixed for the district and subdivisional hospitals. Initially, the list of mandatory tests were categorised into three sections. The first comprised a set of 24 tests; the second had a set of five advanced tests; and the third allowed the private party to expand provision by including “additional tests”, in consultation with the Block Health and Family Welfare Section and the District Health and Family Welfare Section.

In 2010, the list of mandatory tests was increased from 29 to 44, and the prices were revised upwards. At the same time, in the district and subdivisional hospitals, user charges for the same set of diagnostic tests remained unrevised and were less than the revised rates of diagnostic tests delivered through the PPP in rural hospitals. Private patients were “entitled to levy and collect prices as per the prevailing market rates”. The state government supported the latest revision and increase of user fees in rural hospitals:5

...the increasing costs of reagents, chemicals and other materials, required for diagnostic tests as well as steep rise in overhead costs... [has made it necessary] to review and revise the rates/prices of diagnostic tests undertaken in such diagnostic facilities established under PPP in rural hospitals/Block Primary Health Centres.

This withdrawal of state financing and privatisation of diagnostic services has rather strengthened the position of the private sector within the public sector, thus gaining greater credence to operate. Increase in the user fees of PPP services reflects the sustainability concerns of private service providers operating in rural areas, where the market is apparently thin. A discussion with the private providers revealed that they wanted to be assured of a minimum number of tests and patients referred by the rural hospital to make it viable in the face of the enormous commercial pressures of the market.


The terms of agreement with the private operator is granted for a period of five years which suggests a mutual long-term contractual understanding between the private operator and the State. In this new relationship, the service user in the peripheral healthcare units has a limited role and choice to operate within. In most of the cases, in-house diagnostic facilities in rural hospitals have been closed down or are not there at all, except for those diagnostic tests mandatory under the national health programme, like malaria, leprosy and tuberculosis. The technicians were also transferred elsewhere. Therefore, by privatising diagnostic services, stipulating user charges and rationing access, the state has pushed the responsibility of financing basic diagnostic services on the shoulders of the users themselves.

Differential Pricing

Table 1 (p 77) shows three set of price structures for the approved diagnostic services offered in three healthcare settings (1) rates as fixed by the state government for diagnostic services in district and subdivisional hospitals, (2) rates as fixed by the state government under PPP in the rural hospitals (rates in 2010 are the revised user charges), and (3) diagnostic rates in the private sector. Post-2010, there is a marked difference in the prices of diagnostic services, with the increased PPP rates higher than those prevailing in the district and subdivisional hospitals, and less than the market rates. Some of the diagnostic tests have been clubbed together to lower the costs. In the course of fieldwork, it was gathered from the private providers that the rates quoted are not necessarily the subsidised rates. The rates in the open market for the same set of diagnostic services are more as they cover marketing cost and other charges which become gratuitous when the private providers’ outlet is established within the government healthcare premises. Experience in one of the outsourced PPP diagnostic centres in a rural hospital (Islampur, Murshidabad) showed that often people coming for diagnostic tests cannot pay the user charge at once. They pay in instalments and this practise has been accepted by the private provider in order to sustain the service.

In the user fees policy, exemptions and waivers are built in to enhance the equity in service access, availability and financing. The present user fees policy under the PPP scheme in the rural hospitals does not exempt any service of the user fees. In terms of providing a waiver to individuals incurring no cost, the PPP agreement only specifies that patients from the BPL category will not be charged, but this too has conditions attached. Though the agreement introduces free services, it rations them for BPL patients:

Free services in each month will not exceed more than 20% of the patients under BPL category out of the total number of patients in the diagnostic centre in the previous month. The provision will be for each month and unutilised provision (if any) will not be carried forward to the next month (Government of West Bengal 2009).

According to this waiver policy, the private provider will screen BPL patients with high risks at the peripheral level, exclude and minimise the highly vulnerable group. Apart from this, the PPP agreement remains vague about the other categories of patients who are entitled to the waiver policy in the public healthcare system. For example, children with orthopaedic problems in Kolkata receive a 50% exemption from the user charges; and treatment cost for children below one year is exempted since 2007. This group remains excluded from the waiver category of this PPP programme. Over and above, studies have shown that targeted exemptions and waivers do little to address the financial consequences of health services (Masiye et al 2010). User fees and lack of exemption can together increase the cost of care. For those financially at risk, it can defer the diagnosis and treatment process till it becomes serious.

Thus, by revising the rate charts, increasing the price, and introducing targeted waiver categories, the government worked at the behest of the private players, lest they runaway from the PPP units.


This current practice of diagnostic service provisioning through PPP in the rural hospitals of West Bengal paves the way for market-oriented reforms in the first healthcare referral units that also form part of the expanded primary healthcare set-up.

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In the process of restructuring healthcare provisioning, these units are emerging as subsequent points of engagement with the private sector after secondary and tertiary level healthcare institutions. Diagnostic services across the three levels of public healthcare in West Bengal have been selectively privatised under the PPP framework. At the secondary and tertiary level, high technology-based diagnostic services have been outsourced (Roy 2007) and at the primary healthcare level, basic pathological and diagnostic services. This leads to the emergence of the mixed public-private system, making it more fragmented.

First, the state government has redefined its engagement with the health sector by shifting its responsibility of direct provisioning and financing of diagnostic services in the rural hospitals. Private provisioning of diagnostics in these hospitals at a cheaper rate compared to the market, and rationed access to BPL population may change the profile of the users by bringing in those who would otherwise go to district hospitals. But more importantly, it increases the likelihood of pushing the very poor and the marginalised further into the periphery. This will not only act as a barrier for women and children who have little power to decide with regard to spending resources but also can deter from getting milder cases to the rural hospitals due to increase in the OOP expenses.

For example, pyogenic meningitis, a common killer disease in rural West Bengal, requires early diagnosis and prompt initiation of treatment. Due to lack of infrastructure at the PHC level, many patients are to be referred to the block and district hospitals, and even medical colleges. Analysis of the cerebrospinal fluid for cytological, bacteriological and biochemical examinations is essential for the treatment, failing which the patient may die in short time. These tests have been included in the PPP list and the patient is to pay for it.

The OOP expenditure at the PPP centres acts as a stumbling block for the poor as they will be forced to spend in public healthcare settings when early and proper laboratory diagnosis is most vital for treatment and/or referral of fatal cases. The practice may actually lead to loss of such patients. A recent study from West Bengal shows that the poorer the households, the more limited is

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Table 1: Comparative Rates of Diagnostic Services: Public Sector Hospitals, PPP and Private Sector

Name of the Tests as Classified in the PPP Agreement Approved Rates (in Rs)

District and Diagnostic Centres Private Sector (2010) Subdivisional Hospitals Established under PPP in RH/BPHCS A B1 B2 C Since 2002 * 2004 2010 At Beharampore At Kolkata

Biochemistry Blood sugar (fasting/PP/Random) 10 10 15 30 40

Urea 10 1015 60 50

Uric acid 10 10 15 60

Creatinine 10 10 17 70 50

Serum Triglycerides 45 65 150 150

Serum Cholesterol 10 10 25 70 70

Liver function test 80 80 100 400 350

Urine albumin/sugar 8 8 10 10/10

Sugar, urea and creatinine (combined) No such combined Not 45 NA NA test under this memo included

Lipid profile 120 Not included 150 450 400

CSF: Sugar, Micro protein, Chloride (each) 25 Not included 40 NA 40/50/70

Haematology Hb%, TC, DC, ESR 10 10 25 60 70

Platelet count 8 8 20 40 30

Reticulocyte count 8 8 20 50 60

Foetal Hb% 25 25 30 NA 150

Blood grouping and RH factor 15 15 20 80 70

Pathology PAP Stain 40 70 85 NA 200

Peritoneal/Pleural/Ascitic Fluid/ Other Body Fluids for Cytology (each) 50 30 50 NA 100

FNAC with Slide 120 80 150 200 350

Microbiology Blood culture 25 25 50 450 200

Urine culture 25 25 50 120 100

Stool culture 25 25 50 120 130

Serology Australian Antigen 40 40 50 150 225

VDRL 10 1020 60 60

Mantoux test 15 15 20 50 50

ASO Titre 50 50 70 Latex: 180 150 Quantitative: 350

WiIdal test 20 20 30 60 70

Pregnancy test Free 20 25 50 60

Clinical pathology Stool/urine for routine examination 8 8 10 20 25

Stool for Occult blood 8 8 10 15 20

CSF Cell type and Cell count gram stain, AFB Cell type 50 50 60 NA 150

Semen analysis 35 35 50 120 125

Radiological USG upper abdomen 180 180 225 NA 300

USG lower abdomen 160 160 225 NA 300

USG whole abdomen 260 260 350 NA 500

USG pregnancy 160 160 200 NA 550

USG liver, GB Pancreas, Spleen 180 180 225 NA 550

USG-KUB 180 180 225 NA 500

Plain X-ray (per plate) 30 Not included 40 NA 80

* These rates have remained unchanged since 2002. Source: A: Annexure II to MemoNo.:HF/O/MS/121/W-10/2001 Dt 18 March 2002, Government of West Bengal. B1: Schedule C Price Notification Standard Diagnostic Services, Dated 27 April 2009. B2: Annexure to Memo No: HF/PPP/13/2009/ 15 Dated 28 January 2010, PPP Branch, Health and Family Welfare Department, West Bengal.

C: From the rate charts of the respective private providers. NA: Not available.

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the choice about the provider, and the more prone to medical care expenditure shocks even when the cost of care at public sources is less than at the private source (Mazumdar and Guruswamy 2009). Thus, user charges at the point of service delivery acts as an additional burden in their access to medical care.

Second, rather than committing to comprehensive care, PPP initiatives for basic diagnostic services at the level of rural hospitals bifurcate provisioning and create a parallel structure within the government set up. This is critical from the point of monitoring, administration and governance since that is often overlooked.

Third, experiences of waiver in public sector hospitals have raised the issue of actual beneficiary identification, information dissemination and monitoring of this process. As early as 1995, Gilson and Buse cautioned against the limited success of targeting mechanisms in user fees. Evidences show that exemption scheme at the secondary level care in Punjab (GOI 2005), West Bengal (Roy 2007) and Uttar Pradesh (Shariff and Mondal 2006) did not work as envisaged. In Tanzania, despite the exemption policy, only 20% of children below five years of age could avail of the waiver (Save the Children 2005). Many patients did not know the process of obtaining exemption certificates and found it cumbersome. The political interference and corruption in issuing those waiver certificates by the rural administrative authorities are also counterproductive. There is no system to appraise the stakeholders about the provisions of exemptions and waivers.

Drawing from these experiences, it is really a matter of concern how the exemption and waiver policy would work in case of private diagnostic service at the first referral unit. This PPP agreement has no penalty clause for ignoring the exemption policy by the private provider, a problem further compounded by the widespread lack of supervision.

Fourth, experiences of removing user fees in Africa show that benefits surpass the costs (Nabyonga et al 2005). In West Bengal, 45% of the BPL families could not access OPD services due to economic barriers.6 Lack of public sector investment in the diagnostic services at the PHC level will further increase the household expenditure, however nominal the charges might be in the private outsourced outlet.

Exclusionary Effects

The quiet privatisation of diagnostic services in government healthcare institutions is becoming a common phenomenon. This article brings to focus how PPP and user fees work together to produce exclusionary effects. Restricting the number of BPL patients reflects the implicit concern regarding sustainability of the private providers within the government set up in rural areas, and it is here that revised user fees play a vital role. The state requires to reappraise polices on direct provisioning and investment of basic diagnostic services at the primary level. Given the limited study on the structure of user charges in government healthcare institutions, exemption policy and its impact on utilisation across socially and economically marginalised groups, there is need for more research in this area.


1 See World Bank (1985, 1993, 1995, 1997). 2 On an average, hospitalised Indians spend 58% of their total annual expenditure. Over 40% people are heavily indebted to pay hospital bills, and hospital expenses push over 25% of hospitalised Indians below poverty line (see NRHM/Documents/Mission_Document.pdf). 3 Post-2002, new waiver categories were introduced. Previous waiver and exemption categories were

abolished. 4 See 5 Government of West Bengal (2010), GO No. HF/

PPP/13/ 2009/15 dated 28 January 2010. 6 See


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