The composition of the hospital sector has important implications for
cost effectiveness accessibility and coverage. The classification of a
cute general hospitals is reviewed here with particular reference to I
ndia and Andhra Pradesh. Approaches to arrive at a norm for allocation
of hospital expenditure among secondary and tertiary hospitals are di
scussed. The actual allocation of public sector hospital expenditures
is analyzed with data from Andhra Pradesh. The shift in allocative emp
hasis away from hospitals and in favour of primary health care during
the 1980s was found to have been equally shared by secondary and terti
ary hospitals. The shares of recurrent (non-plan) expenditure to secon
dary and tertiary hospitals were 51% and 49% respectively. This can be
compared to a derived norm of 66% and 33%. The opportunity that new i
nvestment funds (plan schemes) could have provided to rectify the expe
nditure bias against secondary level hospitals was missed as two-third
s of plan expenditure were also spent on tertiary level hospitals. The
share of secondary hospital bed capacity was 45.5% against India's Pl
anning Commission norm of 70%. Public spending strategies should expli
citly consider what mix of hospital services is being financed as well
as the balance between hospital and primary health care expenditures.