Private hospitals operate on large margins; ceiling on prices needed

With a population of over a billion, providing basic services to everyone is a necessary and mammoth task. Healthcare is one such service that governments can’t compromise on. The Indian healthcare system is dominated by a quite fragmented and diverse private healthcare sector. There’s everything from large multi-speciality and corporate hospitals to charitable trusts and nursing homes.

Successive governments have tried to ensure the bare minimum – provide access to affordable and quality healthcare for every citizen. The ‘affordable’ part is what we’re focusing on. India isn’t the richest country in the world, so the government tries to ensure that private healthcare doesn’t dominate. Apart from its own schemes, should the government regulate private healthcare costs for greater accessibility?

Context
Let’s get a lay of the land first on India’s healthcare sector. Providing quality and affordable healthcare to over a billion people takes a lot of resources, particularly money. However, there’s an issue here. Healthcare has been traditionally low on the totem pole. Governments have invested just a little over 1% of the GDP in public health since 2009. That’s much below the average of 2.4% for lower-middle-income countries.

The burgeoning private healthcare sector had to fill the gaps since the liberalisation and privatisation push from the early 1990s. India has one of the most highly privatised and commercialised healthcare sectors. Needless to say, private healthcare is more expensive. The shortcomings of the public healthcare system force people to opt for private healthcare. The result is high out-of-pocket (OOP) expenditure on health.

This isn’t to say governments sat on the sidelines. The 2017 National Health Policy focussed on strengthening primary healthcare infrastructure in India, particularly in rural areas. The Pradhan Mantri Jan Arogya Yojana (PM-JAY), launched in 2018, is widely regarded as the world’s largest publicly funded health insurance scheme. It includes a bigger role for the private sector.

Last week, the Supreme Court criticised the government for not specifying the rates within which private hospitals and clinical establishments can charge for their services. The court heard a petition filed by the NGO, ‘Veterans Forum for Transparency in Public Life’. It wanted Rule 9 of the Clinical Establishment (Central Government) Rules, 2012, to be enforced. It mandates hospitals and clinical establishments display rates for their services and charge fees determined by the Centre after consulting state governments.

The Centre blamed the state governments and claimed despite written statements on the matter, there has been no response. The court stated if the government can’t find a solution, it’ll have no choice but to implement the Central Government Health Scheme (CGHS)-prescribed standardised rates.

The issue of regulating prices is easy when there’s a central purchaser, like in the UK, France, or Australia. Here, the prices are set in accordance with the costs. It’s trickier in a fragmented healthcare system with different providers and purchasers (insurers and the government). The result is price variations for the same services across and between states.

The private healthcare sector isn’t too thrilled with the court’s insistence on the government coming up with standardised rates. Should the government get involved in how the private sector decides its prices?

View: Regulation is necessary
63 million. That’s the number of people who are pushed into poverty every year in India due to healthcare payments, per some estimates. Without a robust social security safety net, people have no choice but to set aside a big chunk of their savings for unforeseen healthcare needs. While the government certainly need to invest more in public healthcare, that will take time. Until then, there needs to be a system in place so people aren’t exploited by private healthcare providers.

Private hospitals operate on large margins, and there needs to be a ceiling on prices. During the pandemic, several private hospitals overcharged for safety equipment. While private healthcare costs were always high, the pandemic further distorted prices. The Supreme Court had to step in and cap the price for RT-PCR testing at ₹4,500. In some instances, private hospitals refused to play ball. The National Pharmaceutical Pricing Authority (NPPA) imposed a ceiling on the MRP for some devices, but hospitals imposed procedure charges instead.

The government isn’t helpless. The 2010 Clinical Establishment (Registration and Regulation) Act empowers them to register and regulate hospitals to set minimum standards for facilities. The rules formed in 2012 allow the government to mandate a price range for hospital charges. One of the things that irked the Supreme Court in hearing the latest petition was the disparity in surgery charges. There are also instances where patients are charged for medicines at MRP rates even though they’re available for a discount outside the hospital.

Counterview: Regulation could backfire
Private hospitals aren’t happy with the apex court’s assertions on standardised rates. They say the move will be catastrophic and affect the quality of healthcare. The Association of Healthcare Providers (AHPI), representing small and medium-sized hospitals, has decided to approach the Supreme Court. They argue that standardisation is difficult since the cost structures vary at different hospitals due to factors like the experience of doctors and facilities.

One of the things that should be considered is input costs. According to one executive, the input costs in Delhi are higher than in Uttar Pradesh. Since the minimum wages are lower in Uttar Pradesh, a hospital may pass that benefit on to the patients. The same can’t be said for Delhi, so it wouldn’t make financial sense for standardised rates. The quality of services will be affected.

If standardised rates will be the mandate, on what basis will they be standardised? Comparing rates with government hospitals doesn’t make sense since the government foots the bill, and the actual cost of treatment is almost certainly higher than the subsidised rate. Japan, for example, has a range of prices but has universal health insurance. There hasn’t been any substantial cost study done to determine the rates in India. Even if CGHS rates will be applied, they’ve not been properly revised in almost a decade. EitherView