It is widely accepted by now that the contributions of service sector as against the traditional manufacturing and agricultural sectors to aggregate output is significant across the countries including our own country. What is equally significant to note is that the quality of the customer service rendered has not perhaps been a top priority with the Indian manufacturing / service sector. Lack of customer / user friendliness and tardy response to customer needs are common features in most of our utility services. Product quality and customer service have perhaps taken in back seat in the mindset of personnel running the organizations. As it is not enough, the customer is hit equally bad with high cost of poor quality.

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According to Global Competitiveness Report 2009 – 2010, India ranked 57 among 133 nations on the parameter “Degree of Customer Orientation”. On the parameter “Market Size”, Domestic market Size index ranked 4th and Foreign market size index ranked 4th among 133 nations. Switzerland tops the overall ranking in The Global Competitiveness Report 2009-2010. The United States falls one place to second position, with weakening in its financial markets and macroeconomic stability. India ranked 49 among 133 nations [1] . Gone are the days where customers, being part of the seller’s market, are prepared to take anything that is supplied. Because of the ever increasing competition prevailing on the supply side consequent to economic liberalization, globalization and increased internationalization, the situation is changing fast on the demand side and customers these days have started to assert themselves in asking for superior quality product / service at more affordable price which is also the case with healthcare industry. The competition is intensifying in this industry also with the opening up of more and more hospitals. There is lot of pressure on hospitals to provide cost effective services and ensure good quality of care. Two areas need special attention. They are: (a) pricing of its services (prices cannot generally be adjusted to frequent changes in the environment, whereas input market sees frequent revision in prices) and (b) the capacity utilization (it gets affected and changes the economics of healthcare and service provision).

Quality has thus gained a focal point in strategy crafting and implementation at the organizational level. It has in fact become part of the vision and mission statement of every economic organization in the society today. What is perceived as being Quality? [2] Quality is (1) Warranted for the specific and general conditions (2) Cost efficient and (3) Payers expectations.

Quality refers to the closeness of an actual outcome to the outcome expected by the observer, as defined or agreed to by that observed. Quality was one of the differentiators among the providers till the other day. But today, with the increased buyer power in the market, customers have reached a stage where they start assuming that quality of service/product is a big given and looking for other attributes that make a big difference among the offerings in the market place. This in turn has put great pressure on the suppliers/managers to improve quality and reduce cost to survive and thrive. Thus, managers need to create organizational culture where quality products and services, processes and people occupy the centre stage to stay competitive and hence Service Quality has great role to play in this regard. Medical sector, being one of the important service sectors in the economy is not an exception to this phenomenon.

Today the healthcare industry has emerged as one of the most challenging sectors as well as one of the largest service sector industries in India with estimated revenue of US$ 30 billion; it constitutes 5.2% of India’s GDP. The Indian health industry is expected to grow at 15% per annum to US$78.6, reaching 6.1% of GDP and employing 9 million people by 2012. [3] The sector has had a growth of over 12% p.a. in the past four years and is estimated to grow by 170% by 2012. Recognizing the significant potential and challenges in the health sector, the government has prioritized it in the Eleventh Five Year Plan. The private sector plays a significant role by contributing 4.3% of GDP and 80% share of healthcare provision. However, deficiencies persist with respect to access, affordability, efficiency, quality and effectiveness, despite the high level of overall private and public expenditure on health.

In order to be comparable with the healthcare parameters of other developing countries, India’s healthcare sector faces many challenges. For example, to reach a ratio of two beds per 1000 population by 2025, an additional 177 billion beds will be required which will need a total investment of US$86 billion. There is an acute shortage of doctors, nurses, technicians and healthcare administrators and an additional 0.7 million doctors are needed to reach a doctor population ratio of 1:1000 by 2025. Although the health insurance sector is projected to grow to US$3.8 billion in collected premiums by 2012 from the annual collected premium of US$711 million in 2006, there is a dismal health insurance penetration rate; at present only 2% of the total population is insured.

Medical sector, being one of the important service sectors in the economy, quality of the medical service rendered has become a challenging task to the hospital administration, as the patient expectation of the health service is increasing exponentially with increased health awareness on his part for one and increased income levels on the other.

The implementation of dimension of Service Quality in the management of health care sector in our country will go a long way in improving its operational efficiency resulting in efficient resource allocation for optimum advantage, minimum wastage of the available resource and significant improvement in the quality rendered, all leading to considerable value addition to the end user of the hospital service i.e. the patient [4] . The hospital has a primary obligation, a moral and legal responsibility to see that the quality of care meets acceptable standards and that the interests of the patients are well protected. This moral commitment to pursue the patient’s interests can only be accomplished by a concerted effort on the part of all concerned.

Service Quality looks critically at the services a hospital provides in relation to the process it takes to create them, and the people who do the work to make certain that output fully satisfies agreed patients requirements. The model claims that the patients evaluate service quality experience as the outcome of the gap between expected and perceived quality. The model emphasizes on the key requirements for a healthcare provider delivering the expected service quality.

Defining and measuring the quality of service has been a major challenge for health care marketers. A comprehensive service quality measurement scale (SERVQUAL) is empirically evaluated for its potential usefulness in a hospital service environment [5] .


Health as one of the fundamental human right has been accepted in the Indian Constitution. Although Article 21 of the Constitution requires the State to ensure the health and nutritional well being of all people [6] , the federal Government has a substantial technical and financial role in the sector.

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Hospitals are the backbone of the healthcare delivery system. Until the early 1980s, Government run hospitals and those operated by charitable organizations were the main providers of hospital care. However, post liberalization in the 1980s and thereafter, the sector attracted private capital and fresh investment took place in setting-up hospitals and smaller nursing homes. Large corporate groups and charitable organizations brought private finance and these resources were invested in modern equipments and technologies and in developing health infrastructure. This helped in augmenting the availability of super-speciality services across the country. Corporate groups such as Apollo Hospitals group, Care Health Foundation, Wockhardt group of hospitals, Fortis Healthcare, Max India paved the way for corporate organization structure for hospitals and have successfully developed a chain of multi-speciality private hospitals. The entry of private sector has opened a gamut of opportunities for India in terms of medical and paramedical manpower, medical equipment, information technology in health services, BPO, telemedicine and medical and health tourism. An estimated 1,00,000 medical tourists visited India last year, representing a 20 per cent jump over the previous year [7] .

Health is a gigantic sector in India, estimated to be around 80,000 crores. But unfortunately the sector remained fragmented and non-competitive till very recently. The new facilities provided particularly in super speciality hospitals with the state-of-the-art equipment should be able to provide not only quality services to the patients but also meet the expectations of all the stakeholders. Corporate sector has come up in many states of India, who are adopting different business models like ‘hub and spoke model’ and ‘networking model’ to achieve their strategic objectives and goals. Regretfully, money is generally at the top of the agenda. To meet the rising demands, India will need 80,000 beds every year for the next 5 years [8] .

Over the years the government has taken a number of policy steps to develop the hospital sector in India. For example, the Union Budget of 2002-03 conferred infrastructure status to the healthcare industry under Section 10(23 G) of the Income Tax Act. This allowed the private hospitals to raise cheaper long-term capital. Similarly the Union Budget of 2003-04 laying special emphasis on investment in private hospitals; gave hospitals a true status of industry, some specific policy changes were: (a) benefit of Section 10(23 G) of IT Act extended to financial institutions providing long-term capital to private hospitals with 100 beds or more, (b) rate of depreciation in respect of life saving medical equipment increased from 25 per cent to 40 per cent [9] , (c) reduction in basic customs and excise duties, (d) customs duty on specified life saving equipment reduced from 25 per cent to 5 per cent, with exemption from additional duty of customs. The Government also implemented a community based universal health insurance scheme covering hospitalization expenses. This was expected to provide alternative source of financing and boost the hospital sector. All these initiatives were expected to strengthen the hospital sector.

Union budget 2010-2011, countervailing duty of 4% on all medical equipments, with full exemption from special additional duty and Uniform / concessional basic duty of 5% for all medical appliances. Convergence of National Rural Employment Guarantee Act (NREGA) with wider Health Insurance

Coverage through Rashtriya Swasthya Bima Yojana (Health insurance for BPL families).

Union budget 2010-2011 focus on rural healthcare, with the fund allocations rising to a whopping 22,300 crores (Rs 223 billion/$4.82 billion) from 19,534 crores during the previous fiscal year. This escalation is in keeping with the evolving needs of the growing healthcare industry of the country.

Commenting on the union budget 2010-2011 Rajen Padukone, CEO of Manipal Hospital, says “Relaxation of FDI norms may see more international players coming in to India in the healthcare sector. Added to it, rationalization of duties on medical equipment can make imports cheaper and can significantly lower healthcare costs in the country.”

Satish Reddy, MD of Dr. Reddy’s Laboratories, said the recent budget allocation was “a positive and encouraging move,” given the fact that India figured low on various health care indices.

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