Private health care providers fill infrastructure gaps as demand rises in Sri Lanka


Free and universal coverage has been a feature of Sri Lanka’s health care since the country gained independence from the UK in 1948. Given this, Sri Lanka compares well to neighbouring South Asian countries in a number of health indicators, and infectious diseases including malaria and rabies have either been eradicated or severely minimised in recent years. However, a change in lifestyle habits and diets in the fast-developing nation is creating new challenges for the health sector, most notably in the form of increasing prevalence of non-communicable diseases (NCDs), including heart disease, diabetes and cancer. Other factors that are likely to affect Sri Lanka’s health sector include an ageing population and rising demands for better quality health services as incomes increase. Both measures are likely to create opportunities for private health care providers.

Public Provision 

The public health service is overseen by the Ministry of Health, Nutrition and Indigenous Medicine, which manages 593 public hospitals, according to the latest figures from PwC’s “The Health Sector of Sri Lanka 2014” report. Public facilities continue to receive the majority of patients, particularly those seeking inpatient care.

A unique component of public health care in Sri Lanka is its Department of Ayurveda, which draws on indigenous medical techniques that are believed to be 3000 years old. It comprises four components: Ayurveda (the balance between mind, body and spirit for health and well-being), Unani (traditional medicine based on the four humours), Siddha (a traditional medicine mainly practised by the country’s Tamil population) and Paramparika (the name for traditional physicians who have had no formal training).

International Standing 

In the 2016 Human Development Index study conducted by the UN, Sri Lanka ranked 73rd out of 188 countries, putting it in the high human development category. In comparison, India ranked 131st and Pakistan 147th. Between 1990 and 2015 Sri Lanka’s life expectancy at birth increased by 5.2 years to 74.9, significantly above the South Asia average of 68.7. This high performance can, in part, be attributed to its health spending, which is significantly higher than neighbouring countries. The latest World Bank figures show that in 2014 Sri Lanka spent $127 on health care per capita, compared to $75 in India, $40 in Nepal and $36 in Pakistan. That figure is expected to increase to $211 by 2019, according to World Bank estimates.

At the Ninth World Health Summit hosted in Berlin, Germany in October 2017, Sri Lanka’s efforts to improve health care received significant praise, according to local reports. At the summit, panellists said that the country should be considered a positive example for its efforts to eradicate NCDs and minimise persistent threats to public health.

Dr Rajitha Senaratne, the minister for health, nutrition and indigenous medicine has taken a number of measures since assuming the role in 2015. These include a 90% tobacco tax, among the highest in the world, and enforcing 80% pictorial advisories on cigarette packs. Speaking at an event in Colombo in September 2017, Senaratne claimed the moves had contributed to a 46% decrease in smokers. The World Health Organisation (WHO) estimated that the newly increased tobacco tax rate would generate LKR120bn ($783.5m) in revenues for the state each year, an increase of LKR40bn-50bn ($261.2m-326.5m) per year. He also promised to ban tobacco cultivation in Sri Lanka by 2020 and to achieve a 25% reduction in the contraction of disease by 2025.

Private Participation 

Private health care services in Sri Lanka saw rapid growth between 1981 and 2000, with the expansion of services in hospitals, laboratories and clinics. However, there has been a slowdown in growth since the start of the 21st century, particularly for new clinics and laboratories. The distribution of private health care services is heavily weighted towards the country’s wealthier west coast, mainly around the capital Colombo and its outskirts, as well as the secondary cities of Kandy and Galle. Only a handful of private facilities can be found in the island’s less prosperous areas in the north and east.

In line with steadily increasing incomes, Sri Lanka is expected to reach upper-middle-income status in the near future, according to the World Bank, and growing demand may lead to a countrywide resurgence in private services. “It is quite natural that as incomes increase, people will be willing to pay for better quality private health care. In Sri Lanka, that is especially true for people seeking specialist surgery,” Mahanil Perera, head of Laboratory Services for Durdans Hospitals, a private facility, told OBG. “I think we will continue to see a rise in this.”

Foreign ownership remains minimal in the local health care sector. A 2014 study by the World Bank’s Human Development Network found that almost 98% of private health sector facilities were owned and operated by domestic individuals, companies or organisations. Additionally, no smaller clinics were supported by private foreign investors and only 3.5% of medium-sized facilities (those with 20-99 staff members) had an element of foreign ownership. The major private health care providers in Sri Lanka are mainly locally owned. They include Lanka Hospitals, previously known as Apollo Hospitals, Durdans Hospital, Nawaloka Hospitals and Asiri Hospital Holdings.

Key Investments & Foreign Aid 

Large parts of the country are still emerging from the 37-year civil war, which ended in 2009 and had a devastating impact on the island. Since coming to power in January 2015, President Maithripala Sirisena has made attracting foreign investment a priority, as part of efforts to boost the economy. Foreign investment in the health sector remains relatively low, but there have been some injections of capital in the past year.

In October 2017 the health ministry signed an agreement with Austrian medical-equipment supplier, Odelga MED, for an investment of €9.6m to fund the development of intensive care units and operating theatres in 33 state hospitals. Senaratne called it the largest ever foreign investments in the country’s health sector. There has also been a significant amount of foreign aid injected into the health sector. In November 2017 the Austrian government agreed to provide Sri Lanka with €19.4m in interest-free soft loans to obtain 100 ambulances for government hospitals and to upgrade learning facilities at the Institute of Engineering Technology, Katunayake.

The World Bank has also been involved in offering substantial support to Sri Lanka’s health sector. In October 2017 it announced the provision of an additional LKR200m ($1.3m) towards continued development of an action plan that would improve primary health care in the country as part of its commitment to assist the government’s National Health Development Plan. Running from 2013 to 2018, the programme aims to enhance the performance of Sri Lanka’s health system, allowing it to better respond to challenges related to malnutrition, specifically with regards to maternal and child nutritional health, and the prevention and control of NCDs.

However, additional investment is needed. In a note published in May 2017 the World Bank warned that while Sri Lanka’s government has been supporting the growth of industries ranging from infrastructure to health care, it would struggle to keep pace with demand in the future as it deals with budget constraints. The World Bank noted that more private sector investment is required to fill the resulting gaps and boost key industries inside the country.

Private Sector Potential 

Rising incomes and Sri Lanka’s anticipated transition into an upper-middle-income country are expected to trigger increased expenditure in private health care, creating opportunities for players in the market. Typically, as incomes rise, so does prevalence of NCDs, mainly due to changes in lifestyles and diets. According to the latest figures from the WHO’s “Sri Lanka NCD Country Profile” from 2014, NCDs contributed to an estimated 75% of deaths. The WHO data shows that 40% of NCD deaths were related to cardiovascular diseases, 10% to cancers, 8% to chronic respiratory diseases and 7% to diabetes.

According to Perera, a rise in NCDs will create opportunities for private health care providers, as treatment typically takes longer and patients spend more time at hospitals or clinics. “The public sector tends to lead the way when it comes to inpatient care, but we are seeing an increased demand for private health care, especially for outpatient care and specialist treatment,” he told OBG.

The low rate of medical insurance penetration in Sri Lanka presents another opportunity for health care providers. According to figures from the country’s Institute for Health Policy, private insurance contributes only 5% of total private financing for health care, compared to 87% paid by households. The figures also show that 7% is paid by employees, with the rest contributed by non-profit institutions.

Rising incomes and ageing demographics should lead to an increase in the take up of health and life insurance policies, which are often sold together. Both are growing from a low base, with research from global reinsurer Swiss Re showing that in 2015, 0.5% of Sri Lanka’s population had life insurance plans, compared with 2.6% in India, 3.4% in Malaysia and 3.6% in Thailand (see Insurance chapter).

With current levels of private sector health care investment, there will be significantly more room for investor participation. “Only a small number of foreign companies have invested in Sri Lanka’s health care industry,” Ravindra Rannan-Eliya, executive director for the Institute of Health, told OBG. “The foreign companies which have invested in health care in Sri Lanka generally enter into agreements with existing facilities; almost none enter on their own,” he added.

One of the largest foreign investments in health care in Sri Lanka in recent years was that of Indian company Apollo Holdings, which held a 33.2% stake in what was then Apollo Hospitals (now Lanka Hospitals), before selling its shares to Sri Lanka Insurance Corporation in 2006. Rannan-Eliya said the Apollo Holdings example demonstrated the importance of consulting with local representatives while doing business in Sri Lanka, in order to ensure business is conducted in ways that suit the market.

“Sri Lanka’s health market is not like other countries, including India,” Rannan-Eliya told OBG. “Foreign companies wanting to invest in Sri Lanka’s health care should listen to, and work closely with, the Sri Lankan partners. It is a very unique market, and local partners are the ones who know the market well,” he said.

Medical Tourism 

The government has taken strides to support the growing medical tourism industry, seeking more public-private partnerships and allowing 100% foreign direct investment in the sector. The majority of foreign patients seeking care in Sri Lanka come from the Maldives and Seychelles, but increased investment in facilities and services, such as transport infrastructure, could draw in patients from other countries where medical costs are higher.

Sri Lanka’s government identified medical tourism as a potential source of economic growth when it launched the 2015-20 National Masterplan Initiative on Medical Tourism. Announcing the plan in 2014, Sujatha Weerakoon, then-director general of the Export Development Board, told local media that, “Due to the support of well trained, high-quality health care professionals, availability of treatment centres as well as pharmaceuticals, we are witnessing the emergence of a new sector that is medical tourism contributing to our service exports.” Currently, three hospitals – Asiri Central Hospitals, Durdans Hospital and Lanka Hospitals – have Joint Commission International accreditation, which recognises the highest standards in global health care, with more Sri Lankan health centres likely to join the list in the future.

The country’s bid to become a centre for health and wellness is supported by improved connectivity and infrastructure, as well as its growing popularity as a tourism destination (see Tourism chapter). Foreign arrivals were up 3.2% in 2017 compared to the previous year, reaching a total of 2.1m. However, Rannan-Eliya cautioned that the impact medical tourism would have on economic growth is likely be limited by the strong competition from the region’s more developed markets such as Thailand and Malaysia.


In 2016 the Ministry of Health made a major decision to cap the price of certain pharmaceuticals to make them more affordable, following a WHO analysis on price controls, requested by the country’s National Medicine Regulatory Authority. In October 2016 a government notice was issued setting a ceiling price for 48 essential medicines used to treat NCDs, including diabetes, heart disease, high blood pressure and high cholesterol. In a brief published one year after the price cap was set, the WHO called it “a major achievement in safeguarding patients’ rights to access affordable medicine in Sri Lanka.” According to WHO estimates, Sri Lanka’s pharmaceuticals industry is worth $400m a year.

Pharmaceuticals price controls had been abolished in 2003, but the WHO called for the cap to be re-introduced on the back of rising prices and increased rates of NCDs. “Sri Lanka’s successful regulation of pharmaceuticals prices shows how evidence-based policies can protect patients’ rights, reduce out-of-pocket expenditure, ensure affordable access to quality assured medicines and advance the principles of universal health coverage,” the WHO said in its brief.

While many people being treated in the public sector receive free health care and medicine, patients frequently pay privately for prescribed medicine and laboratory tests when they are not readily available in the public sector. According to WHO figures, outof-pocket expenditure has comprised more than 40% of total health expenditure each year from 2007-17.

The 2016 price cap was not welcomed by all stakeholders, specifically those within the business community. Pharmaceuticals manufactured in Sri Lanka account for only 10% of supply, with the remaining 90% supplied by domestic firms acting as designated local agents for foreign pharmaceuticals companies that export their products to Sri Lanka. The Ceylon Chamber of Commerce (CCC), the oldest business chamber in the country, argued that the new pricing system was one derived from the Indian model, which is designed for the large domestic market in India, but that it was not suited to Sri Lanka’s smaller pharmaceuticals market. The CCC expressed concern that the price cap would undermine consumer choice as well as the operations of the private sector.

The Ministry of Health announced in September 2017 that it had signed 36 agreements for pharmaceuticals to be manufactured in local factories in an attempt to boost domestic production. According to local reports, two factories have been completed in Kandy and Horana, and it is estimated that the move to increase local manufacturing will save the country $800m in import costs by 2020 (see Industry chapter).

Private Medical Education 

In 2017 large-scale protests were held in an effort to convince the government to shut-down the South Asian Institute of Technology and Medicine (SAITM), the country’s only private medical university, which was established in Malabe in 2008. The centre was closely associated with former president Mahinda Rajapaksa, who ruled the country from 2005 to 2015, and after his defeat in the 2015 general election, health care professionals began protesting against SAITM, accusing it of poor teaching standards and of undermining the medical profession. Analysts said the protests could dent investor confidence, especially as it is still struggling to attract significant foreign investment. The protests came at a time when the government was engaged in discussions with several foreign universities for establishing branch campuses in Sri Lanka, in an effort to raise standards in tertiary education. “How long this issue will prolong and the government’s inability to resolve [it] will certainly impact investors’ confidence and the investment climate,” Anushka Wijesinghe, advisor at the Ministry of Development Strategies and International Trade, told Reuters at the time.

In October 2017 the government agreed to the protesters’ demands and agreed to abolish SAITM, and in December 2017 the presidential committee tasked with reviewing the issue reportedly voted to hand over administration of SAITM to the Sri Lanka Institute of Information Technology (SLIIT). In January 2018 it was reported that the government had established two separate not-for-profit entities, allowing for SLIIT to manage SAITM’s assets.

Dr Veranja Karunaratne, vice-chancellor at the Academy of the Sri Lanka Institute of Nanotechnology, told OBG that those protesting for the closure of SAITM had “misunderstood” the issue and expressed concern over the impact it could have on private investment in education. “Private education needs to thrive. The government does not have the capacity to educate all of the population, so we have to rely on private universities to allow this to happen,” he said.


The government has signalled its determination to reform Sri Lanka’s health sector with region-leading stances on tobacco, while also showing a willingness to engage with private health care providers looking to tap into the country’s potential. Private health care in Sri Lanka is starting from a low base, but a number of factors will provide distinct opportunities for those looking to invest in the market. Given the government’s financial constraints, private investment will be needed to help shoulder the health care burden compounded by the rise in NCDs, an ageing population and hospital distribution gaps. With demand for care set to increase against a backdrop of increasingly foreign investor-friendly policy formulation, the sector is poised to remain on an upward growth trajectory over the coming years.

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The Report: Sri Lanka 2018

Health & Education chapter from The Report: Sri Lanka 2018

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This article is from the Health & Education chapter of The Report: Sri Lanka 2018. Explore other chapters from this report.

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