Five Star Hospitals take advantage of Charity laws, but poor patients ignored


The Uncharitable Trust Hospitals

A huge amount of capital is being invested in multi-specialty hospitals in Maharashtra which take advantage of the Public Charitable Trust Act, 1950 and avail of tax waivers and land concessions. However, the mandatory benefi ts to poor patients in lieu of these waivers are totally ignored. There should be an investigation into this social and economic crime and the loss to the exchequer should be recovered along with penalties imposed on these hospitals.
Ravi Duggal, EPW, June  2012
The Public Charitable Trust Act, 1950 was enacted to enable private entities to set up charities that would serve the deprived sections of society. To encourage and incentivise such investments, the Act provided for waiver of income tax for such charitable insti­tutions. Historically, many seths (merchant capitalists) invested in setting up charitable hospitals. The initial trend was to build and equip the hospital and even provide working capital annually and hand it over to the government or the municipality to run it. Their only expectation was that the particular hospital should be named after a close relation. Thus many of the top public hospitals we have in Mumbai today, including the teaching hospitals, like the J J Hospital, Cama Hospital, KEM Hospital, Nair Hospital, and the two Bhabha Hospitals were established through charities and later became government or municipal hospitals.1 Apart from this, many small hospitals and dispensaries were set up by businessmen and their charities, by missionaries and other motivated individuals to provide healthcare to those in need.
Post-Independence the trend changed. Bourgeois capital entered the fray and began to use the Public Trust Act to set up hospitals, instead of using the Companies Act, so that they could get the advantage of the tax waiver benefits. While a number of them began with being genuinely charitable, over time most of them have become hospitals for the use of the elite or those who can afford health insurance. The classic examples are the Jaslok, Breach Candy, Bombay Hospital, Leelavati, Hinduja, Nanavati, and Ambani Hospitals apart from others that no longer engage in any form of charity or follow the minimal provisions of the law for providing free services in lieu of the tax breaks. Thus their not-for-profit status needs to be challenged and all taxes that were forgone along with appropriate penalties should be collected from them. The Maharashtra assembly has rightly raised the issue of having the Economic Offences Wing (EOW) investigate the ­finances of these hospitals. Further, the issue is not only the tax waivers but also a host of other benefits they may have received like concessional land2 or a cheap lease rent, extra floor space ­index (FSI), concessional utility rates, waivers or concessions for other taxes like octroi, customs duty, etc. All these benefits add substantially to the surpluses of these hospitals. And if there is no charity forthcoming from them, it amounts to a huge economic and social crime that should be investigated.
Loss to Society
What is the economic loss to society due to this state of affairs? I have inquired into the finances of large public and private hospitals3 and found that on an average a multi-specialty hospital has a net expenditure between Rs 15 and Rs 20 lakh per bed per year (turnover between Rs 25 and 35 lakh per bed per year, the difference being their gross profit). We have over 70 trust hospitals in Mumbai that have an estimated total of 10,000 beds. This means roughly a minimum turnover of Rs 2,500 crore per year and a gross profit of nearly Rs 1,000 crore across these hospitals. As for-profit ­entities such hospitals would have contributed Rs 300 crore in income taxes to the state exchequer. We know that these hospitals are exempt from taxes but there is a quid pro quo. They are obliged to ensure that 10% of the beds are free and another 10% are given on concessional rates to poor patients. The free beds in this case would mean 1,000 beds or an expenditure of Rs 150 crore and the 10% concessional beds would be at half the rate or an additional Rs 75 crore. Together this is much less than the taxes forgone by the state and if the land and indirect tax benefits are ­included then the loss to the state exchequer is much more. If we add up all the years of the non-compliance of trust hospitals to the legal provisions then we are looking at lakhs of crores which could have been added to the health budgets of the government.
Civil society groups and health activists have been demanding that such institutions should be made accountable for over two decades now, including filing a public interest litigation to make these hospitals provide all benefits as mandated by the law of the land. The government on its part has been very lax and the concerned authorities like the charity commissioner and the income tax department have failed to monitor, audit and assure the rule of law with ­regard to these hospitals. The efforts of the government in response to the Bombay High Court orders to set up committees to review the situation and suggest action points or draft schemes to utilise these benefits have been piecemeal, and lacking in political commitment and ­seriousness. The committee set up under Ratnakar Gaikwad recently consists entirely of bureaucrats and is doomed to failure. The issue here, apart from the failure of the trust hospitals to comply with legal provisions, is one of the ­accountability of the government agencies and the government goes and ­appoints only bureaucrats on this committee! How can they be expected to be self-critical and take action against their own fraternity?
Finally, the insurance-based Jeevandayi Yojana scheme of the government is in itself a questionable scheme, and the move to link it with the benefits due to the poor under the Public Trust Act provisions is problematic. The Trust Act benefits are in lieu of income tax waivers to these hospitals. If they want to be a part of the Jeevandayi Yojana then they should engage with the scheme independent of the Act. This scheme should not be confused with the 20% free and concessional beds which are due to poor citizens as a right under the Trust Act. The government too seems to be inclined to maintain the confusion. This is illegal and will further complicate matters relating to the uncharitable trust hospitals.
1 Government of Maharashtra (GoM) 1986, Gazetteer of India – Maharashtra: Greater ­Bombay District, Vol III (ed. K K Chaudhari), Gazetteer Department, Government of Maharashtra, Bombay.
2 The recent CAG Report on Maharashtra revealed that a number of hospitals received land in fraudulent ways at a huge loss to the state exchequer, including the Dhirubhai Ambani Hospital – CAG, 2011: Audit Report (Revenue) Maharashtra 2010-2011, Chapter 4: Land Revenues,
3 Ravi Duggal (2011), “Financing the Cost of Universal Access to Healthcare”, mfc bulletin 348-50, August 2011-January 2012, pp 8-12.
Ravi Duggal ( is with the International Budget Partnership.


One-sided deal: Hospitals get but don’t give back

Hospital, Bandra

Hospital, Bandra (Photo credit: Wikipedia)

Grants, concessions and exemptions given to the hospitals far exceed the cost of free treatment they are asked to carry out

Jyoti Shelar and Lata Mishra, in Mumbaimirror

Posted On Thursday, April 26, 2012

The death of accident victim Reena Kutekar, whose husband Ram desperately hunted for a hospital that would save her life, has brought into focus how badly poor patients are treated in private medical facilities across the city.

Reena was first taken to Vile Parle’s Nanavati Hospital, where the authorities refused to take her into the ICU because Ram could not furnish the Rs 25,000 required for admission.

The story in most other hospitals in the city is alarmingly similar: though they are required by law to treat a certain number of economically backward patients, most people come away empty handed in their time of need.

The contention of the hospitals – from Jaslok to Breach Candy, from Lilavati to Hinduja – is that taking care of poor patients is a huge burden on them, and that they are asked to provide free treatment for nothing in return.

What these hospitals fail to reveal, however, is that the grants and concessions they are given by the government far exceed the cost of free treatment they are being asked to carry out. Running as charitable public trusts, their list of unaccounted-for exemptions is staggering:

1. Cheap land

If any charitable trust wants government land to build a hospital, it is charged only one-tenth of the market value in the island city, and one-twentieth of the market value in the suburbs. If the land is on lease, the price can be as low as Re 1 per square foot per year.

“Several facilities, such as Jaslok, Hinduja and Bombay Hospital, are on government land given to them on a Re 1 lease. Now they’re earning crores annually but still make excuses when it comes to treating poor patients,” said advocate Sanjeev Punalekar, who had filed a PIL on the issue in 2004.

2. Extra FSI

While the rest of the city’s commercial establishments have to make do with an Floor Space Index of 1.33 to 2, public trust hospitals get an additional FSI of up to 5.32 in the island city and up to 5 in the suburbs.

The FSI determines the height of the structure, which in turn translates into more room for patients, and more business. But the taller hospitals have hardly been of help to poor patients.

“The additional FSI and all other rebates come from the government. The rest of the money comes from patients. Ultimately, it is the government and public money that adds up to the surplus funds of hospitals,” said health activist Leni Chaudhary. “Then why not ensure that poor patients get treated?”

When contacted, Dr Pramod Lele, the CEO of the Mahim’s Hinduja Hospital, admitted that additional FSI proved beneficial in increasing the hospital’s “bed- strength”, but contented that they were asked to pay a premium for it. Not the best argument considering the demand-supply ratio of hospital rooms guarantees that this money is easily recovered.

3. Income Tax rebate

The exact rate of exemption varies from hospital to hospital, depending on how much money it makes. On average, however, 85 per cent of a public trust hospital’s income is exempt from tax. Even the remaining 15 per cent can be set aside as a corpus fund, ensuring that most hospitals have to pay no tax at all. The only catch is that anything accumulated above this 15 per cent in their account is taxable. Hospitals registered as research institutes are given similar concessions.

4. No Octroi

While Octroi rates in Maharashtra are inordinately high, hospitals are exempted from any additional tax for transporting equipment and machinery. In 2003, the BMC withdrew Octroi exemption from a few hospitals for not doing enough charity work. When contacted, a senior doctor from Lilavati hospital agreed that there had been several complaints made to the Charity Commissioner about norms being flouted, which had resulted in some rebates being pulled back for certain hospitals.

5. Duty free

All public trust hospitals are exempted from customs duty on imported machinery and medical equipment, as opposed to 10 per cent for all non-public-trust hospitals. When contacted, Customs officials said machinery and medicines from abroad were one of the most common items brought into the country. “As per the law, we clear them immediately,” an officer said.

6. Cheap Medicines

Hospitals procure generic drugs at nominal costs, and several medicines which are made available by the government under various programmes such as Tuberculosis and Malaria eradication are given to them at a fraction of the cost. However, health experts point out, that these drugs are then sold to patients at the market rate.

7. Low water and electricity rates

Despite being commercial establishments, hospitals are charged residential tariffs for water and electricity, which in itself is a huge benefit. The Residential rate for water per 1,000 litres, for example, is Rs 2.25 as opposed to Rs 38 for commercial use.

 What hospitals are supposed to do 

According to a Supreme Court judgment, charitable hospitals must admit a patient brought in an emergency and provide “essential medical facilities” until stabilisation. Transportation to a public hospital should be arranged, if necessary, and no deposit should be asked for.

Each hospital has to transfer 2 per cent of its income to an Indigent Patients Fund (IPF). The hospital has to reserve 10% of its beds for indigent patients (annual income less than Rs 25,000) who should be given free treatment.

A further 10% of its should be reserved for economically weak patients (annual income less than Rs 50,000) who should be treated at concessional rates. At the time of admission, all a patient has to provide is a certificate from the Tehsildar or a ration card or BPL card.


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