As Big Money Enters, Small Hospitals Exit: Kerala’s Health Model Under Strain

• The number of small-scale hospitals shutting down is rising at an alarming pace.

• Doctors who run small hospitals say that ‘one-size-fits-all’ kind of regulations are pushing them towards closure.

• Changing health-seeking behaviour among people has also worked against doctor-run health facilities.

"In recent years, around five to ten hospitals have shut down in this town in north Kerala. “It is not because morbidity has declined,” says a doctor who has been practising  the region for decades. “A host of factors have pushed small hospitals and clinics to close.” What was once seen as a scattered trend is now spreading across the state." he adds

Though this phenomenon has been visible for some time, it has become more pronounced at a moment when international capital is making significant inroads into Kerala’s health sector. As corporate hospital chains expand and large private players consolidate their presence, smaller neighbourhood institutions are finding it increasingly difficult to survive.

According to the Indian Medical Association, more than a thousand clinics have shut down in recent years across the state. The association also estimates that around 400 small hospitals have ceased operations during the same period.

Kerala — long celebrated for its high health indicators and robust public health system — is now undergoing a structural churn. The closure of neighbourhood hospitals and clinics is not the cause of this transformation, but a visible symptom of deeper shifts within the state’s healthcare landscape.

A recent assessment by the Indian Medical Association (IMA) shows that 1,306 clinics and 444 small hospitals have shut down in Kerala over the past five years. However, this does not signal a retreat of private healthcare from the state. On the contrary, private super-speciality hospitals have been expanding. The total number of hospitals in Kerala has risen from 3,677 in 2021 to 5,402 in 2025.

The growth in large private hospitals has coincided with an influx of foreign capital into Kerala’s health sector, accelerating consolidation and the corporatisation of healthcare services.

The trend marks a sharp shift from the previous five-year period. Between 2016 and 2021, IMA data show that only 148 clinics and 262 small hospitals shut down — far fewer than in the subsequent five years.

“There are several reasons for this situation,” says Dr M. N. Menon, president of the Indian Medical Association. A major concern, he argues, is the stringent stipulations imposed on small hospitals under the Clinical Establishments Registration Act, 2018. “Many of the provisions in the Act are incompatible with the functioning of small hospitals,” he says, pointing to rising compliance costs and infrastructure requirements that smaller institutions struggle to meet.

The 2018 Act was enacted after the Union government introduced a regulatory framework for clinical establishments. Though health is a state subject, stakeholders in Kerala’s healthcare sector contend that the state government adopted the legislation without adequately adapting it to Kerala’s specific conditions.

Dr. Sushama Anil, Secretary of the Kerala Association of Small Hospitals and Clinics, says the requirements tied to clinical registration have severely impacted small institutions. Alongside regulatory pressures, she notes, increasing corporatisation has further squeezed their viability. According to her, the concerns of small hospitals and clinics were not sufficiently considered when the Act was implemented in the state.

“Several state governments, such as Karnataka and Punjab, have exempted hospitals with up to 50 beds from the more stringent provisions of the Act. Kerala, however, adopted the Union law without modifications,” she says. “We have been requesting the government to exempt hospitals with up to 20 beds from the stricter provisions.”

Enter, corporate hospitals

Small hospital owners point to several requirements under the Clinical Establishments Registration Act, 2018 as particularly challenging — including mandated staff patterns, extensive documentation, and specific building structure norms. They argue that while such standards may be manageable for larger institutions with dedicated administrative wings, they impose disproportionate burdens on small facilities.

Dr Khadir Meeran, a pulmonologist based in Thiruvananthapuram, started a hospital in the city in the late 1980s. “The hospital was running smoothly. Although various regulations created roadblocks over the years, the 2018 Act proved decisive. A small hospital without a substantial administrative setup and supporting paraphernalia cannot be sustained under such stringent norms. After COVID, I stopped admitting inpatients. No small hospital can survive a one-size-fits-all stipulation that treats a super-speciality hospital and a clinic on equal footing,” he says.

Doctors and health experts whom Outlook spoke to echo this concern. They argue that the government-imposed conditions, while framed in the name of standardisation and quality, effectively favour larger corporate hospitals that have the financial and administrative wherewithal to meet the mandated criteria. Smaller neighbourhood institutions, they contend, are left struggling to comply, accelerating the consolidation of healthcare into the hands of bigger players.

Some doctors point out that, beyond regulatory pressures, shifting health-seeking behaviour has also contributed to the decline of small hospitals and clinics.

“Even for minor ailments, most patients now prefer to consult specialist doctors in large hospitals,” says Dr N M Arun, who practices in Palakkad. “There is also a growing preference for treatment covered by health insurance. Insurance facilities are often not available in clinics and small hospitals, which pushes patients towards bigger institutions. “There is an increasing irrational fear among the people, which leads them to specialist doctors even for minor diseases” he adds.

As a result, they argue, healthcare is becoming increasingly centralised in large corporate setups. Ironically, while patients seek perceived quality and insurance-backed security, the overall cost of care tends to multiply when treatment shifts from neighbourhood clinics to super-speciality hospitals.

Rising health care expenses

Despite Kerala’s robust public health system, out-of-pocket expenditure (OOPE) — the per capita amount individuals spend directly on healthcare — remains significant. Rising out-of-pocket spending suggests that an increasing number of people are relying on the private sector to meet their health needs, often bearing substantial costs themselves.

The influx of international finance capital into Kerala’s health sector has emerged as a defining trend in recent years. Over the past year, major private equity firms such as KKR (Kohlberg Kravis Roberts) and Blackstone have moved aggressively to invest in or acquire leading hospital chains in the state.

In a significant development, KKR-owned multi-speciality chain Baby Memorial Hospital (BMH) acquired a majority stake in Meitra Hospital, both based in Kozhikode. This marks KKR’s third major deal in Kerala. Meitra Hospital, according to reports, was valued at ₹1,000–1,200 crore. Earlier, KKR had acquired a controlling stake in the Baby Memorial Hospital chain. Meanwhile, US-based private equity firm Blackstone holds controlling stakes in CARE Hospitals and KIMS Hospitals, a leading chain with a strong presence in Kerala.

Critics argue that such consolidation could further drive up medical costs. “These corporates are here to reap profits. They do not have any moral or ethical commitment towards the people,” says Dr. Sushama.

The proliferation of internationally funded corporate hospitals, observers warn, may further marginalise small hospitals and clinics. Dr Babu K V underscores the crucial role played by these smaller institutions in Kerala’s healthcare delivery system. “Small hospitals and single-doctor clinics have an important role in healthcare delivery in Kerala. In most cases, both the owner and the employees are doctors. When healthcare delivery is dictated by market forces, the cost of treatment will skyrocket and become unaffordable for the common man,” he says.

Taking this into account, he suggests that the government should introduce policy changes to preserve small hospitals and clinics in the broader public interest — not merely in the interests of the medical professionals who run them, but in the interests of equitable and affordable healthcare for ordinary citizens.

An existential threat

Kerala, which ranks high on several health indicators compared to other Indian states, is now confronting a complex transition. On the one hand, corporatisation is steadily permeating the healthcare system; on the other, small hospitals and clinics — unable to comply with stringent regulatory stipulations—are shutting down or teetering on the brink of closure.

This shift is unfolding at a time when more people are relying on private healthcare, as reflected in rising out-of-pocket expenditure. The contraction of neighbourhood-level facilities, coupled with the expansion of large corporate hospitals, signals a structural change in the state’s healthcare landscape.

If Kerala is to sustain the high standards it has historically set in public health, many experts argue that this trajectory must be reassessed. They call for proactive government intervention — through calibrated regulation, supportive policies for small and medium hospitals, and measures to ensure affordability — to preserve both access and equity in healthcare delivery.