Urgent Need For Ground Rules To Reform India’s Costly Corporate Healthcare System
· Free Press Journal
Just visualise this situation. There is a patient who seeks emergency admission in a corporate hospital. Once in, you are asked whether you have insurance or not. Next, you have a choice of rooms, which starts from sharing to a single non-A/C room to an A/C single, deluxe A/C, super deluxe A/C, and a suite.
You may want a single non-A/C room. But you are told that if single, there are only deluxe and super-deluxe rooms available, which cost more. You have no choice but to opt for one of them.
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If there is a medical procedure, the patient is kept in an ICU, which also has different grades where the nurse-to-patient ratio varies. You have to take decisions there and then and will logically opt for the best. Sounds familiar? Welcome to the world of five-star or seven-star corporate hospitals.
A lucrative business model
If one looks at the balance sheets of these entities, the net profit margin would be in the region of 10-15%, which is after taking care of salaries, materials used, depreciation, taxes, etc. The average revenue per patient would be close to Rs 2 lakhs. Sounds like a very lucrative business? Yes, it is, because of the way in which the system works, which calls for a strict review and possibly reform.
Insurance as a cost escalator
Let’s start from the first move. The knowledge of insurance is an assurance to the hospital that cost will not be a limiting factor. Therefore, one is nudged to better facilities, which means a higher cost. The patient is being reimbursed anyway and does not mind it.
You are also asked if the procedure will be cashless. Once you say yes, the cost can go up by between 10 and 30%. The justification given is that the money comes with a hiatus, and hence the premium is justified.
Room category and cascading charges
Next, the room rates vary across hospitals and may not sound daunting, as they can range between Rs 3000 and 20,000, depending on the star of the hospital. Suites cost another 50% over this rate. But the story does not end here. Once nudged or forced into the higher deluxe-category room, all the costs escalate.
If, say, the doctor/surgeon fee is Rs 20,000 for a shared ward, it can go up to five times when it reaches the deluxe room. And all treatment goes along with a plethora of tests or investigations.
X-rays, blood tests, sonography, CT scans, and MRIs are normally always a part of the deal, and here too the cost moves up by 10-40% over the OPD rates. After all, if you can afford the comfort of the deluxe room, these costs should not matter.
An anomaly in pricing logic
Healthcare in such hospitals is probably the only industry where costs move with the accommodation rate. Five-star hotels charge the same rate for the food ordered in a suite or room. Restaurants serving food to residential complexes do not charge based on locality or the value of the dwelling. It is only hospitals that do so because it works on the basis of ability to pay and circumstances.
Those in distress don’t have time to think and will accept any deal offered. The ultimate justification is that this system enables them to subsidise the lower income groups — a kind of Robin Hood syndrome. While this is a fair argument, a return of 12-15% sounds too good in such a business and hence raises the issue of reforms in this sector. Who gains finally? The shareholders!
Proposed reforms for transparency and fairness
This is where there is a need to have reforms which the government should consider. First, all the charges should be the same irrespective of the rental value of the room in which the patient is lodged. If the room charges need to be increased, it can be done, but the cost escalation of treatment based on room is something which has little moral justification.
Second, the costs for all procedures need to be up on the websites of hospitals to ensure that there is transparency. Patients need to know what they are in for once they enter the hospital. At times, the hospitals also charge a premium over the MRP for medicines procured from their own dispensary.
Third, hospitals rarely charge separately for services of nurses, which is what should be made mandatory so that there are fair rewards for their services.
Fourth, the cost of procedures should be fixed for payment made from one’s own resources, insurance, or cashless insurance, and this should be on the website, which can be audited.
Fifth, the availability of accommodation should be displayed on screens in such hospitals where the patient can know what all is available at the time of admission. This will eschew being subjected to a call taken by the counter official, who often has targets to fulfil and will ensure that the higher-priced rooms are fully occupied.
A regular audit needs to be done to ensure that there is no misrepresentation made by the hospital. In fact, on the issue of targets, often patients are transferred to the ICU for observation when the aim is to ensure that the beds have a better occupancy rate.
It is quite ironical that investor presentations put up by some of these hospitals also talk of occupancy rates, just like airlines and hotels!
Impact on insurance premiums
These reforms are needed because of this rather anomalous situation. Insured patients do not really get bothered by these costs because they are covered by the insurance company. The hospitals take advantage of these systems.
The result is that the insurance company ends up increasing the premium regularly, which is necessary to ensure that they remain in business. This has made health insurance a very expensive proposition for individuals.
There is, hence, an urgent need to go back to the table and set ground rules for the healthcare industry.
The author is Chief Economist, Bank of Baroda and author of ‘Corporate Quirks: The Darker Side of the Sun’. Views are personal.