Introduction

Over the last few years, the world at large has taken cognizance of India’s ability to deliver quality healthcare at an affordable price. Healthcare is now fast emerging as one of the largest industries in the Indian economy^[1], generating significant employment opportunities as well as contributing substantially to India’s economic growth.

India's healthcare sector is expected to grow further in the coming years. The Indian government’s budgetary allocation for the healthcare sector for the FY 2025-26 is INR 95,957.87 crore (i.e., approximately USD 11.07 billion), reflecting a 9.46% rise from the previous FY 2024-25.^[2] This upward trend is expected to consistently increase, with the National Health Policy 2017, recommending that public health expenditure must at least account for 2.5% of India's GDP for the coming years.^[3]

The ambit of healthcare is vast and includes myriads of operations and functions such as that of hospitals, telemedicine, drugs, diagnostics, clinical trials, pharmacies, medical devices and equipment. Consequently, understanding the nuances of the Indian legal system and variations across States is crucial for entities operating or intending to operate in the healthcare sector. In this article, we set out a brief overview of the regulatory framework governing the establishment and operation of hospitals, maternity homes and other healthcare establishments in India.  

Regulatory Framework

As per the 7th Schedule of the Indian Constitution, ‘public health’ falls within the domain of the State List. This means that the State governments bear the primary responsibility for delivering healthcare services and regulating matters related to public health, sanitation, hospitals, and dispensaries.

Further, the central government, through the exercise of its powers under the union and concurrent lists, is also empowered to formulate legislations on matters concerning ‘population control and family planning’, ‘medical and other professions’. Furthermore, in accordance with Article 252(1) of the Constitution, if two or more States consider it expedient, they may pass resolutions authorising Parliament to enact laws on matters otherwise within the State List. Such laws, once enacted, may subsequently be adopted by other States with such limited modifications as may be necessary. Consequently, certain facets of the healthcare sector in India are governed by a dual compliance framework, wherein entities seeking to establish and operate hospitals, maternity homes, and other healthcare establishments are required to comply with both State-level and central-level regulations. This often necessitates navigating overlapping legal frameworks and engaging with multiple regulatory authorities.

One of the most significant segments within the healthcare sector is the hospital segment, which encompasses a broad range of entities, including multi-speciality and single-speciality hospitals, clinics, nursing homes, and other similar healthcare facilities. The hospital segment in India is currently valued at approximately USD 99 billion and is projected to grow to USD 193 billion by 2032.^[4] This growth is driven by several key factors, including the modernization of healthcare infrastructure, the adoption of advanced medical technologies, and an increasing demand for high-quality healthcare services.

This article presents a regulatory overview, outlining the key compliance considerations for businesses and investors looking to operate or invest in India's hospital segment.

A. Foreign direct investment in the hospital segment

Between 2022 and 2024, India’s healthcare sector attracted approximately USD 30 billion in deal value, of which the hospital segment alone accounted for USD 15.3 billion—representing over 50% of the total deal value in the sector.^[5] This concentration reflects the steady and robust growth of the hospital segment, driven by the consolidation of multispeciality hospitals and increasing adoption of healthcare technologies. In FY 2024–25 alone, the sector received USD 3 billion in foreign direct investment (“FDI”), with hospitals accounting for nearly half of that amount.^[6]

An overseas entity intending to make an FDI in the hospital segment, must comply with the Foreign Exchange Management Act, 1999, the Consolidated Foreign Direct Investment Policy of India, 2020 and the Non-Debt Instruments Rules, 2019 (collectively referred to as the “FDI Framework”).

Under the FDI Framework, up to 100% FDI is permitted under the automatic route for investments in the hospital segment. However, the permissibility of such FDI may be subject to additional conditionalities depending on the business model and the intended end-use of the investment. For instance, hospital construction and development projects are governed by a set of critical regulatory requirements, including but not limited to: (i) such projects must be undertaken only in ‘developed plots’^[7]; and (ii) the project being undertaken must conform with prescribed norms and standards, including land use requirements, provision of community amenities and common facilities, as laid down in the applicable building control regulations of the State government or municipal or local body concerned.

Accordingly, any proposed FDI into the hospital segment must be preceded by a detailed assessment of the operational scope and business model of the investee entity to ensure compliance with the applicable provisions of the FDI Framework.

B. Certain specific licenses required by an entity operating healthcare establishment

Registration as clinical establishments

The Clinical Establishments (Registration and Regulation) Act, 2010 (the "CE Act") defines a ‘clinical establishment’ to include facilities such as maternity homes, nursing homes, dispensaries, clinics, sanatoriums, or any institution, irrespective of its name, that provides services or facilities for the diagnosis, treatment, or care of illness, injury, deformity, abnormality, or pregnancy in any recognised system of medicine.

Any healthcare establishment which qualifies as a ‘clinical establishment’ under applicable law must be registered with the relevant authorities to ensure compliance with prescribed healthcare standards. Registration accordingly is utilised to serve as a regulatory mechanism to maintain accountability, ensure oversight over patient safety across the healthcare sector.

However, the applicability of CE Act depends on its adoption by individual State governments. Therefore, the definition and scope of what constitutes a clinical establishment as well as the standards for such establishments may vary from State to State based on the manner in which the CE Act has been adopted and modified by such State.

At present all union territories (except the national capital territory of Delhi) and 12 states, including Haryana, Uttar Pradesh, and Uttarakhand, have either adopted the CE Act or enacted their own legislation that broadly aligns with the framework under the CE Act. Additionally, several other States have been requested by the Central government to adopt the CE Act for institutionalisation of quality monitoring of privatised hospitals.^[8]

In States where the CE Act has not been adopted, the categories of establishments that are required to register, and the corresponding regulatory frameworks may vary. The principal differences amongst States that have not adopted lies in the scope of healthcare establishments they intend to regulate, including whether the applicable laws extend to government facilities, diagnostic laboratories, and other entities that are not private hospitals but provide inpatient care.

For instance, in Delhi and Maharashtra, which have not adopted the CE Act, the scope of healthcare establishments requiring registration is limited to those classified as nursing homes. These are governed by the Delhi Nursing Homes Registration Act, 1953, read with the Delhi Nursing Homes Registration Rules, 1953, and the Maharashtra Nursing Homes Registration Act, 1949, read with the Maharashtra Nursing Homes Registration Rules, 1973, respectively. Unlike the broader definition under the CE Act, the term ‘nursing home’ under these regulatory frameworks generally covers only hospitals and maternity homes, thereby excluding certain categories of healthcare establishments such as standalone diagnostic laboratories from the regulatory purview.

Registration of genetic counselling and pre-natal diagnostics

Any healthcare establishment that offers genetic counselling to patients, pre-natal diagnostic procedures or conducts laboratory analysis of samples related to such procedures including ultrasound clinic and imaging centre, are required to be mandatorily registered with the appropriate authority (which shall be as designated by the central government for union territories or by the respective State governments for their States), under the Pre-Conception and Pre-Natal Diagnostic Techniques (Prohibition of Sex Selection) Act, 1994, read with the Pre-Conception and Pre-Natal Diagnostic (Prohibition of Sex Selection) Rules, 1996 (collectively referred to as “PC-PNDT Framework”).

These healthcare establishments under the PCPNDT Framework are required to strictly limit their diagnostic, laboratory, and counselling services to the detection of genetic abnormalities, metabolic disorders, chromosomal anomalies, or other medically relevant conditions in the foetus. However, under no circumstances may these services be used for determining the sex of the foetus given that pre-natal sex determination is prohibited due to long-standing socio-cultural and demographic preferences for male children in India.

The PC-PNDT Framework imposes stringent record-keeping and reporting obligations to prevent the misuse of ultrasound and other diagnostic techniques for sex selection, thereby aiming to curb gender-based discrimination and female foeticide in India.

License in relation to blood testing, banking and release of umbilical cord blood stem cells

Healthcare establishments involved in the processing of whole human blood for components or the manufacture of blood products for sale or distribution including the collection, processing, testing, storage, banking, and release of umbilical cord blood stem cells are regulated under the Drugs Rules, 1945, framed under the Drugs and Cosmetics Act, 1940. These regulations mandate that such establishments obtain the requisite licence from the State Drug Controller/State Food and Drug Administration (as applicable) for activities involving the collection, testing, processing, storage, manufacture, distribution, import, or export of blood, blood components, and umbilical cord blood stem cells.

Compliance with the Drugs Rules, 1945 is essential to ensure the safety, quality, and ethical handling of blood and related products. The regulatory framework prescribes stringent standards for donor screening, product testing, documentation, storage, and transportation, with the objective of preventing contamination and safeguarding patient health.

Accreditation of healthcare establishments

In India, many healthcare establishments opt for voluntary accreditation as a means to enhance their quality of care, standardize clinical practices, and build credibility among patients, regulators, and other stakeholders. Two of the most widely recognized accreditation bodies in the country are the National Accreditation Board for Testing and Calibration Laboratories (“NABL”) and the National Accreditation Board for Hospitals and Healthcare Providers (“NABH”).

NABL accreditation is primarily applicable to laboratories involved in diagnostic testing, including clinical, pathological, and radiological services. It ensures that laboratories meet international standards in terms of quality assurance, technical competence, and accuracy of test results.

NABH accreditation, on the other hand, is specific to hospitals and healthcare providers. It lays down comprehensive guidelines covering aspects such as patient rights and education, infection control, clinical outcomes, facility management, and staff qualifications. Accredited institutions are expected to demonstrate adherence to continuous quality improvement and patient safety protocols.

While not mandatory, these accreditations serve as a hallmark of excellence and often provide a competitive edge in the healthcare sector. They are also increasingly becoming a prerequisite for empanelment with insurance providers, public health schemes, and corporate health programs.

C. Procedure-based licenses and compliance requirement

Various medical procedures are subject to compliance requirements under a wide array of laws to ensure ethical practices, patient safety, and regulatory oversight. Clinical establishment and healthcare facilities must adhere to these legal frameworks to conduct certain medical procedures lawfully. Some of the critical procedures requiring compliance under Indian healthcare laws are provided below:

Organ and tissue transplantation

A healthcare establishment may undertake the removal, storage, and transplantation of human organs or tissues for therapeutic purposes (“Transplantation Activities”), subject to strict compliance with the Transplantation of Human Organs and Tissues Act, 1994 (“THOTA”) and the Transplantation of Human Organs and Tissues Rules, 2014. Under THOTA, a healthcare establishment must first qualify as a “Hospital” (as defined under THOTA) and obtain mandatory registration as a Hospital and/or Tissue Bank (as defined under THOTA), as applicable, in order to lawfully conduct the Transplantation Activities proposed to be undertaken.

The legislation is designed to prevent the commercial trade of human organs and tissues while upholding ethical standards in transplantation. It mandates that medical practitioners obtain informed consent from donors and further requires hospitals to maintain comprehensive records.

However, it is important to note that THOTA has not been adopted uniformly across all States. Therefore, healthcare establishments must carefully assess and comply with the applicable State laws governing organ transplantation in such jurisdictions where they operate.

Medical termination of pregnancy

Procedures related to medical termination of pregnancy are regulated under the Medical Termination of Pregnancy Act, 1971 ("MTP Act"). The MTP Act provides a legal framework for the termination of pregnancies under specific conditions, ensuring that abortions are performed safely and within prescribed gestational limits. As per the MTP Act, medical termination of pregnancy is permitted (i) up to 20 weeks of gestation under the opinion of one registered medical practitioner, and (ii) beyond 20 weeks and up to 24 weeks in cases involving special categories of women (such as survivors of sexual assault, minors, or specially abled women) with the approval of two registered medical practitioners. Beyond 24 weeks, termination is only permitted in cases of foetal abnormalities diagnosed by a medical board constituted by each State government.

Reproductive assistance-based technologies

Assisted Reproductive Technology (Regulation) Rules, 2022, framed under the Assisted Reproductive Technology (Regulation) Act, 2021, requires registration of every ART Clinic^[9] or ART Bank^[10] which is utilising assisted reproductive technology (“ART”)^[11] or rendering ART procedures such as In vitro Fertilization - Embryo Transfer and Pre-implantation Genetic Diagnosis, with the appropriate authority of the relevant State government.

Other ongoing compliance requirements for ART Clinics and ART Banks include maintaining proper medical records, ensuring patient confidentiality, and adhering to prescribed medical and ethical guidelines such as that of obtaining an informed consent. ART Clinics and ART Banks must also undergo inspections and audits by regulatory authorities.

Surrogacy clinics

Surrogacy Clinics^[12] intending to undertake surrogacy procedures in India are required to obtain registration under the Surrogacy (Regulation) Act, 2021 prior to commencing any operations. The primary objective of the Act is to prohibit the commercialisation of surrogacy and to permit only altruistic surrogacy, wherein no monetary remuneration or incentive is provided to the surrogate mother, except for medical expenses and insurance coverage.

The Surrogacy (Regulation) Rules, 2022 supplement the Surrogacy (Regulation) Act, 2021 by prescribing additional compliance requirements relating to infrastructure and personnel. A registered surrogacy clinic must, at a minimum, engage qualified professionals including a gynaecologist, anaesthetist, embryologist, and counsellor, as per the prescribed norms. The clinic is also required to maintain essential equipment such as incubators, laminar airflow systems, ovum aspiration pumps, and ultrasonography machines, among others.

D. Laws applicable to medical professionals

On May 12, 2023, the National Medical Commission (“NMC”) issued the Registration of Medical Practitioners and Licence to Practice Medicine Regulations, 2023 (“RMP Regulations”), which establish the guidelines for registering of medical practitioners in the National Medical Register (“NMR”) and obtaining a licence to practise in India. To be eligible for NMR registration, individuals are required to hold a recognised primary medical qualification under the National Medical Commission Act, 2019 (“NMC Act”) and clear the National Exit Test (“NEXT”) – which is yet to be operationalized. ^[13] Foreign medical graduates who clear the NEXT^[14], subject to the conditions specified in the Foreign Medical Graduates Regulation, 2021, are also eligible for NMR registration. Furthermore, the RMP Regulations provide that any person who was already registered in the Indian Medical Register under the Indian Medical Council Act, 1956, before the enactment of the NMC Act and before NEXT became operational, shall be eligible to obtain registration under the NMC Act by updating their details in a designated web portal as a one-time measure, post which their names will be enrolled in the NMR. This ensures efficient continuity for previously registered medical practitioners without requiring them to undergo additional qualifications or examinations.

Additionally, medical practitioners must also register with the respective State medical councils where they intend to practise. Further, speciality practitioners, such as dentists, psychologists, therapists, and nurses must obtain a registration and licence to practice under separate authorities established under specific laws such as the State Dental Council, Rehabilitation Council of India, and State Nursing Council. However, qualifications required for such speciality practitioners vary in each case and may be modified from time to time. For example, the recently notified National Nursing and Midwifery Commission Rules, 2024, prescribes qualifications required for nursing and midwifery leaders which includes (i) a postgraduate degree in any discipline of nursing and midwifery education, (ii) registration with the national register or State register, and (iii) at least 15 years of experience and holding administrative position for 4 years in the field of nursing and midwifery from a recognised institution or university or healthcare facility.^[15]

In India, professional bodies such as the Indian Association of Cardiothoracic Surgeons, Urological Society of India, Indian Orthopaedic Association, and Indian Association of Pediatric Surgeons play an important role in advancing the medical research and clinical practice. These organisations collaborate with specialists to promote cutting-edge research, organise training programs and set a standard to improve patient care.

Furthermore, the Indian Medical Council (Professional Conduct, Etiquette, and Ethics) Regulations, 2002 set out the ethical and professional standards governing medical practitioners in India. These regulations include key compliance obligations including obtaining informed consent for medical procedures, maintaining strict confidentiality of patient data (except where disclosure is mandated by law), and upholding ethical standards in all aspects of medical practice.

E. Usage of medical equipment

Given that healthcare establishments rely on a plethora of medical equipment for diagnostics, treatment, and patient care, they must adhere to several key regulatory and compliance requirements governing the use, maintenance, and safety of such equipment. Few key compliance requirements for procurement, usage decommissioning and disposal of materials/ medical equipment are provided below:

Radiation based equipment and therapy

The use of radiation-based equipment for diagnostic purposes (such as X-rays, CT scans, and Gamma Irradiation Chambers) and for therapeutic procedures (such as radiotherapy) is governed by the Atomic Energy (Radiation Protection) Rules, 2004 issued under the Atomic Energy Act, 1962. These regulations, enforced by the Atomic Energy Regulatory Board (“AERB”), are aimed at minimizing radiation-related risks and ensuring a safe and controlled environment for both healthcare professionals and patients.

Any person procuring such equipment must source them either from importers holding a valid no objection certificate (NOC) from the AERB or from indigenous manufacturers licensed by AERB for commercial production. In addition to equipment-related approvals, myriad requirements in relation to procurement and handling of equipments such as (i) condition to obtain requisite authorisations and maintain comprehensive documentation, (ii) compliance with stringent safety standards, including installation of adequate radiation shielding, use of prescribed protective gear, and adherence to established radiation safety protocols, are prescribed under the rules. Further, an employer related to radiation equipment’s and installations, is required to appoint a designated Radiation Safety Officer (RSO) responsible for overseeing radiation protection measures, conducting periodic safety audits, and ensuring compliance with exposure limits. Importantly, no radiation installation may be decommissioned without prior approval from the AERB. The process of decommissioning, along with the management and disposal of radioactive waste generated must be carried out in accordance with the AERB safety guidelines and the Atomic Energy (Safe Disposal of Radioactive Wastes) Rules, 1987, to ensure that any discharge of radioactive effluents remains within prescribed safety limits.

Equipment capable of detecting sex of foetus

Healthcare establishments are required to procure ultrasound machines only from a manufacturer, importer, dealer or supplier registered under the PCPNDT Framework if the equipment is capable of detecting the sex of a foetus.

For example, the sale of such machines, including those used in ultrasonography applications such as A Scan and B Scan devices for corneal imaging, has previously come under regulatory scrutiny in cases where entities failed to procure them from duly registered suppliers, particularly when the equipment was found to be capable of sex determination.^[16]

Accordingly, it is essential to assess whether a device employs any technology capable of determining foetal sex, and if so, to ensure that it is procured exclusively from suppliers registered under the PCPNDT Framework.

Additional compliances

Healthcare establishments must adhere to specialized compliance requirements governing medical gas cylinders, boiler safety, and the administration of narcotic drugs, among other regulatory obligations. Given the dynamic nature of the healthcare sector, regulatory frameworks are frequently updated, requiring continuous monitoring and proactive compliance to ensure seamless operations. 

F. General business compliances

As is applicable to any commercial establishment, healthcare establishments, must also comply with laws that are applicable to any establishment conducting business operations. These include adherence to labour laws, municipal laws for trade, obtaining necessary building permits and approvals governing commercial premises, such as the relevant State’s shops and establishments legislations, trade licenses, and fire no-objection certificates (NOCs). Compliance with these regulations by the healthcare establishments is essential for the seamless operation of healthcare facilities, as non-compliance could lead to enforcement actions or operational disruptions by local authorities.

G. Environmental laws

A healthcare establishment will be required to obtain relevant environmental clearances and ensure ongoing compliances with respect to the disposal of ‘hazardous waste’ (such as chemicals, solvents and heavy metals). For instance, under the Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016, an occupier of a facility engaged inter alia in the handling, generation, collection or storage of hazardous wastes must obtain an authorization from the relevant State’s pollution control board. A healthcare establishment may also be required to obtain a consent to establish and a consent to operate from the relevant State’s pollution control boards under the Air (Prevention and Control of Pollution) Act, 1981 and the Water (Prevention and Control of Pollution) Act, 1974 for discharging sewage or trade effluents into water bodies and/or for operating in an air pollution control area.

In the context of biomedical waste management, healthcare establishments need to undertake pre-treatment (e.g., autoclaving, microwaving, or chemical disinfection) and categorization of biomedical waste. It is essential for healthcare establishments to enter into formal agreements with authorised waste treatment facilities, such as Common Bio-Medical Waste Treatment Facilities. These agreements are mandated under the Guidelines for Management of Healthcare Waste as per Biomedical Waste Management Rules, 2016 and are critical for ensuring the safe collection, treatment, and disposal of biomedical waste. Further, healthcare establishments are obligated to maintain comprehensive records including daily waste logs, annual reports, staff training registers, and incident records for a minimum of 5 years, and display key compliance information on their websites.

Emerging Technologies in Healthcare

A. Telemedicine

Telemedicine refers to the delivery of healthcare services using information and communication technologies to facilitate diagnosis, treatment, prevention of diseases, and patient education, particularly where ‘distance’ is a critical factor. It enables medical practitioners to provide consultations remotely, improving access to healthcare while ensuring continuity of care. Telemedicine encompasses various modes of communication, including audio, video, and text-based interactions, allowing healthcare professionals to assess patients, prescribe medications, and offer medical advice without requiring physical presence.

To regulate the practice of telemedicine in India, the Telemedicine Practice Guidelines (“TPG”) were introduced on 25th March 2020, providing a structured framework for medical practitioners to offer remote consultations. The TPG: (i) outlines the appropriate modes of communication for different types of consultations, such as emergency, non-emergency, and peer-to-peer consultations between medical professionals; (ii) classifies medicines into List O, List A, List B, and the Prohibited List, prescribing the specific conditions in which such medications can be provided to ensure patient safety and responsible telemedicine practice; and (iii) specifies that telemedicine consultation must not be anonymous - both the patient and the registered medical practitioner must know and establish each other’s identities.

In August 2023, the NMC introduced the National Medical Commission Registered Medical Practitioner (Professional Conduct) Regulations, 2023, which aims to govern the professional conduct of registered medical practitioners, including their involvement in telemedicine and social media interactions. However, these regulations are not yet in effect. Until they come into force, the practice of telemedicine continues to be governed by the Indian Medical Council (Professional Conduct, Etiquette, and Ethics) Regulations, 2002, read alongside the TPG.

B. Robotic Surgery

The growing adoption of robotic technologies in surgical procedures raises complex legal questions concerning liability in cases of medical errors or adverse outcomes, particularly with respect to the attribution of liability. A key issue is whether such liability should rest with the healthcare establishment administering the procedure or with the manufacturer of the robotic technology involved.

Under Indian law, medical negligence is typically assessed based on the Bolam Test^[17], as adopted by Indian courts. This test evaluates whether a medical professional acted in accordance with a practice accepted as proper by a responsible medical professional. In the context of robotic surgery, where the procedure is conducted with the aid of robotic technology but operated by a medical professional, it may be argued that primary responsibility continues to vest with the medical professional overseeing and executing such medical procedure.

In scenarios where the error is attributable to a malfunction or defect in the robotic system, product liability principles under the Consumer Protection Act, 2019 may attribute liability to the manufacturer. This could render the manufacturer or distributor of the robotic system liable for compensation if the product is found to be defective or unfit for its intended use. However, proving causation between the defect and the adverse outcome remains a significant evidentiary hurdle.

This reinforces the importance of executing well defined medical equipment contracts, clearly identifying the indemnification events to ensure back-to-back indemnification as well as the need for healthcare establishments to obtain an appropriate malpractice insurance to mitigate any risks.

Conclusion

While this article focused on key legal frameworks pertaining to the hospital segment, it is important to note that other ancillary healthcare services such as the sale and distribution of drugs and medical devices, and the operation of pharmacies are governed by separate regulatory regimes. These include the Drugs and Cosmetics Act, 1940, read with the Drugs Rules, 1945 and the Medical Devices Rules, 2017, as well as the Pharmacy Act, 1948, read with the Pharmacy Practice Regulations, 2015.

Accordingly, entities operating in the hospital segment must undertake a comprehensive assessment of all applicable central and State-level laws, along with evolving regulatory and quality standards. Such diligence is critical not only for legal compliance, but also for ensuring the delivery of safe, ethical, and accessible healthcare services to patients across the country.