For crores of Indian families, the financial shock of hospitalisation — especially in a private hospital — begins even before treatment is complete. The Parliamentary Standing Committee on Health and Family Welfare, in its 176th Report tabled in Parliament on August 7, 2026, noted that the average cost of hospitalisation is ₹50,508 in a private facility, compared with ₹6,631 in a government facility. For childbirth, the average out-of-pocket medical expenditure in private facilities is ₹37,630, against ₹2,299 in public facilities.
Some of the contradictions
The committee has made 368 recommendations, including standardised package rates and mandatory pre-treatment cost estimates. Among the widely reported proposals is that basic room tariffs in metropolitan private hospitals should not exceed the average tariff of three-star hotels that are nearby. It has also suggested that large corporate hospitals earning from medical tourism, foreign patients and high-net-worth individuals should cross-subsidise poorer Indians and reserve beds for Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) beneficiaries at regulated rates. Yet, there is a contradiction. India wants more private and foreign capital in health care, particularly in Tier-2, Tier-3 and rural areas, while simultaneously asking the government to review foreign direct investment rules related to the acquisition and management of existing hospitals.
There is a strong case for continued investment in Indian health care. Hospitals require substantial capital. Land, equipment, intensive care units, digital systems, laboratories and trained personnel are expensive. Public hospitals cannot currently meet all demand for secondary and tertiary care. Private hospitals therefore fill an important gap. Foreign investors and private-equity funds can bring capital, managerial capacity, technology and the capacity to expand hospital networks. India also needs investment in pharmaceutical and medical-device manufacturing. If regulation becomes excessively restrictive or unpredictable, some investment may move elsewhere. This could slow capacity expansion and delay the development of better health-care infrastructure in cities and districts where need is genuine.
However, in all sectors, capital comes with expectations of returns. In health care, it creates a special concern because patients are not ordinary consumers. A patient rarely decides independently whether an MRI is required, whether hospital admission should continue for two more days, or whether a procedure is necessary. Health care is shaped by what economists call information asymmetry: the provider knows more than the patient. Therefore, when financial incentives become too strong, they can influence not just the price of care but also how much care is delivered.
A closer look at private care
This is where the role of private equity and venture capital in health care deserves closer attention. Corporate hospital groups increasingly compete for well-known specialists, sophisticated technology and premium infrastructure. These can improve quality, but also create a high-cost ecosystem. Hospitals that pay very high salaries to senior specialists and super-specialists, acquire expensive equipment and operate under pressure to increase revenue must eventually recover these costs. Revenue targets, procedure-linked incentives, higher occupancy expectations and higher revenue per bed can gradually influence institutional behaviour. Most doctors act in patients’ interests. Yet, systems shape behaviour. If hospitals and doctors are rewarded for doing more, the direction becomes predictable.
The result is not only higher cost but also a worrying medicalisation. Lab investigations may detect abnormalities that would never have caused harm. More screening can lead to unnecessary follow-up tests. A patient who could be managed as an outpatient may be admitted. Caesarean sections, angioplasties, intensive-care admissions, diagnostic packages and long lists of medicines must therefore be seen not only as individual clinical decisions but also within the incentive structure of the health system. This does not mean these interventions are usually unnecessary. It means that a system rewarding interventions and procedures needs strong safeguards against unnecessary prescriptions, surgeries, investigations and medications.
That is why a review of FDI in the acquisition of existing hospitals is justified. Domestic investors can be equally profit-oriented, while foreign investment can create valuable capacity. The more useful question is about what an investment does to the health system. Does it create new beds or simply acquire existing ones? Does it improve competition or lead to market concentration? Does it enter an underserved district or add another high-end facility in a metro? If an investor receives concessional land, tax benefits or other public support, are there enforceable obligations related to affordable beds or participation in public insurance schemes? India should encourage greenfield investment and manufacturing, while scrutinising acquisitions that reduce competition or raise the risk of excessive pricing.
Price regulation also needs to be approached carefully. The proposal to link hospital room charges to nearby three-star hotels is easy to understand, but cannot by itself solve the affordability problem. A hospital room includes nursing, infection-control and emergency support that a hotel room does not. More importantly, if one component of the bill is capped, hospitals may increase charges elsewhere. India’s experience with coronary stent price regulation showed that government intervention can reduce excessive mark-ups. But hospital care is more complex; what matters is the total cost of an episode. Package rates, transparent estimates, billing standards and audit mechanisms are therefore more useful than isolated caps on individual components. There is also an established approach to such payments: Diagnosis-Related Groups (DRG). A DRG is a patient-classification system that standardised hospital reimbursement by paying a fixed, predetermined amount for an inpatient stay based on the diagnosis and procedures, rather than reimbursing each service separately.
Focus on public health
There is a larger policy question. India cannot regulate its way out of weak public health care. If government hospitals remain overcrowded, understaffed or difficult to access, citizens will continue to depend heavily on private providers. Experience from OECD countries has shown that one effective form of regulation is a strong public health system that provides a credible alternative.
Public hospitals must therefore become a genuine option, not merely the last resort for those who cannot afford private care. Primary health care needs strengthening so that disease is prevented, detected and treated early. Insurance systems, including AB-PMJAY, should reward appropriate care rather than simply higher volumes of procedures. Clinical audits, evidence-based treatment protocols and transparent billing can protect both patients and doctors from commercial pressures.
The Parliamentary Committee is right to focus attention on affordability and to question whether the current pattern of investment in private health care aligns with public interest. Price caps and an FDI review are reasonable starting points, but India needs a wider conversation about the kind of health-care system it is building. Private investment will remain essential, and profit by itself is not the problem.
The problem begins when the pursuit of returns starts a key influence. A health-care system should attract capital, but its clinical priorities must still be set by medical need. The true measure of India’s health-care progress will not be how much money flows into hospitals or what is the annual compounded growth rate in medical tourism, but whether Indian citizens can enter them with confidence that they will receive what they need. No more, no less.
Chandrakant Lahariya is a practising physician specialising in preventive and cardio-metabolic medicine, whose upcoming book, Pill-Free: You Don’t Need Everything You Have Been Prescribed, will be released in September 2026
Published – August 27, 2026 12:16 am IST