REAL TALK

Why India’s private hospitals can get away with overcharging patients

Quartz india
Quartz india

One area where parliament has failed the people is the continued neglect in instituting and enforcing laws—particularly in the area of health—that affect all, rich and poor alike. A recent experience at a hospital in Hyderabad’s upmarket Banjara Hills reiterated the problem of arbitrary overbilling that thousands of patients in India routinely face.

My sister was diagnosed with sleep apnea and suspected pulmonary hypertension. As her saturation levels plummeted to less than 60%, she was admitted into the intensive care unit for two days and then kept in a private room for observation for another two days before being discharged. The major interventions required were intubation for about six hours till she stabilised and five arterial blood gas tests to check her carbon dioxide levels.

I was curious to see how the prices charged by the hospital compared with those of Aarogyashri—the health scheme of the Telangana and Andhra Pradesh governments that aims to provide quality healthcare to the poor. A comparison showed a price difference of 30% to 40% for most items, leading to the question: were the Aarogyashri prices too low or the hospital billing too high? Some of the hospital’s prices were over the top: it charged Rs19,080 ($294) for a CT scan of the lungs and Rs880 for four tablets of thyroxin against Aarogyashri rates of Rs2,500 and Rs3.4. And though only the pulmonologist and the internist in the intensive care unit had examined my sister, eight other doctors were remunerated. In fact, the doctors’ fee alone accounted for 15.4% of the bill.

Policy response

This last year, there were two sets of policy responses to what one can call the misdemeanour of private hospitals. In November, the Haryana government issued notices to Fortis Hospital in Gurugram after it billed a dengue patient around Rs17 lakh for 15 days of treatment in its intensive care unit. At around the same time, the Delhi government cancelled the licence of Max Hospital in Shalimar Bagh for declaring a baby dead when he was in fact alive. Also last year, West Bengal and Karnataka instituted laws to deal with medical negligence and overpricing. But a strike by 60,000 private doctors in Karnataka against certain provisions of the Bill resulted in the law being restricted to only those covered by government-sponsored health insurance schemes. It meant leaving people not covered by such schemes at the mercy of the hospitals.

United Andhra Pradesh was one of India’s first states to institute a Clinical Establishments Act in 2000 for the registration and regulation of such healthcare establishments. Rules were framed in 2005. Yet, the Act has never been enforced, because of the view of our pro-industry politicians that implementing such a law would be tantamount to promoting “inspector raj.” Therefore, in the current legal environment, apart from filing a case in the consumer court or approaching a civil court, there is no immediate relief for overcharging.

More importantly, there is a procedural problem. There is no reference point that defines a fair price. Comparison with government hospitals is problematic as several cost components are subsidised, such as land or buildings. In the absence of a price range based on acceptable methodology, the cost of, say, a CT scan can vary from hospital to hospital and be dependent on factors like utilisation levels, the source of financing, such as an interest-bearing loan as opposed to a donation, and so on. Likewise, how does one price a specialist’s consultation in an imperfect market? My sister’s decision to go to that hospital in Hyderabad was determined by her trust in the specialist. In such a sector, trust becomes a greater determinant on decision-making than economic rationale.

Pricing the key

Despite implementing health insurance programmes for over a decade now, no government has addressed the issue of pricing of services in a serious manner. Most states fix prices that are either an average of market rates or based on the prices of the central government health scheme for central government employees and pensioners. But the central government health scheme itself has an imperfect pricing system as it is based on open tenders.

Another popular way of fixing prices is in the form of a package of services with similar processes, such as an appendectomy and a C-section. These again trigger distortionary behaviour as most doctors tend to opt for packages with a better economic returns. So, instead of a C-section, do a hysterectomy.

The issue of pricing becomes critical when private agents provide the services and that too in a multi-payer environment. So, for example, in the United Kingdom and Thailand, 80% of service provisioning is by government hospitals where doctors and employees are salaried and budgets fixed. In Japan, though, the providers are private doctors, it is a monopoly market, and reimbursements for services provided are based on pricing fixed by the ministry of health in consultation with stakeholders but subject to financial ceilings laid down by the ministry of finance. As the sole buyer of services, the government is able to enforce quality standards and prices while also ensuring there is no overbilling by imposing stringent penalties.

India is in a messy situation where the health sector operates in highly competitive to oligopolistic market conditions. In the same hospital, earnings range from fees for services to reimbursements from multiple insurers —private commercial, employment state insurance scheme, central government health scheme, state government-sponsored insurance schemes, and so on. In such a situation, prices for the same service may vary. Variance also depends on mode of payment. Pricing is, thus, non-transparent and often arbitrary and irrational. It can also be driven by the nature of the hospital’s financing—its own funds, bank loans, donations, venture capital, or stock markets.

It has been reported that the Telangana government owes private hospitals close to Rs400 crore in insurance reimbursements. Such delays trigger two responses: one, hospitals factor in such uncertainties while quoting their prices, and two, beneficiaries are compelled to pay for some services, defeating the very purpose of the schemes.

Thus, without addressing the issue of pricing, the national health protection scheme—announced in the union budget in February with a promise to provide Rs5 lakh a year to each of 100 million targeted families for secondary and tertiary care hospitalisation—seems premature and will become unsustainable over the years.

Governments need to urgently pay attention to these critical components of the policy of “strategic purchasing” of services. Without bringing in reforms and building protocols and systems for price fixation, the mere announcement of insurance coverage will not help achieve its goal of reducing impoverishment and out-of-pocket expenditures. Likewise, providers (hospitals and doctors) need to be regulated and grievance redressal mechanisms put in place for patients. It is time people’s health is placed above political expediency and empty rhetoric.

This piece was first published on Scroll.in. We welcome your comments at ideas.india@qz.com.

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