Court’s Nudge on Hospital Charges, a Reform Opportunity

Context:

• Recently, the Supreme Court of India directed the central government to regulate hospital procedure rates in the private sector due to high costs and variations.

Court’s Observation:

• Disparity in  Costs: The court cited the example of cataract surgeries, which cost approximately ₹10,000 in government facilities but range from ₹30,000 to ₹1,40,000 in private hospitals. 
• Emphasis on Healthcare Regulation: Referring to Rule 9 of the Clinical Establishments (Registration and Regulation) Act, 2010, which mandates that clinical establishments adhere to rates determined by the Central Government in consultation with State Governments, the court emphasized the need for regulation.
• Interim Measure: The Court  proposed using the rates set by the Central Government Health Scheme as an interim measure if the government failed to establish a regulatory framework.

Healthcare Services in India:

• Dominance of Private Sector: In India, healthcare services are primarily provided by private entities, with prices determined by market forces.
• Imperfections in Healthcare Markets: Health-care markets are imperfect, leading to inefficiencies and inequities and require regulation. 

Private Healthcare in India:

• Supplier-induced demand: In an unregulated market-driven environment, healthcare providers prioritize profit by charging higher prices and potentially over providing care.
• Yardstick Competition: One potential solution, termed “yardstick competition,” involves regulatory bodies setting benchmark prices based on market observations.
  • However, this approach encounters obstacles in India due to diverse patient demographics, unreliable price data, and inadequate regulatory structures.
• Limitations of Government Hospital: Relying solely on competition from government hospitals proves insufficient due to extended wait times, perceived service quality issues, and gaps in patient information, thus perpetuating the risk of supplier-induced demand.

Standard treatment guidelines (STGs):

• Establishing Pricing Benchmarks: As noted by the Court, discussions regarding pricing must commence with the establishment of a benchmark for price determination.
  • STGs can aid in defining relevant clinical needs, the nature and extent of care required, and the costs associated with all necessary inputs.
• Consistency and Clinical Autonomy: STGs can help mitigate factors that lead to varying levels of care across different hospital procedures while allowing for clinical autonomy to address individual patient needs.
• Resource Valuation: Consequently, they facilitate the valuation of healthcare resources utilized for the precise costing of multiple procedures.

Major Challenges Associated with Healthcare Sector in India:

• STG Implementation: The insurance industry’s initiation of STGs for hospitals in 2010 faced setbacks due to insufficient participation from private hospitals, resulting in a lack of representative and accurate costing data.
• Data Limitations: Data limitations also pose a challenge. Efforts by initiatives like the Pradhan Mantri Jan Arogya Yojana and the Department of Health Research to develop STGs for common conditions and adopt a comprehensive costing framework have made significant progress.
• Enforcement Challenges: Only 11 states and seven union territories have notified the Clinical Establishment Act, and its implementation remains weak, with scant evidence regarding its impact on affordability, care quality, and provider behavior.
• Pricing Challenges: Similar limitations in design and implementation capacity have impeded the successful adoption of the National Pharmaceutical Pricing Authority’s decision to cap prices of stents and implants since 2017, as well as various directives mandating doctors to prescribe generic medicines.

Way Forward: 

• DRG Implementation: Endeavors are underway to establish an Indian version of Diagnostics-Related Groups (DRGs). 
• Regulatory Enforcement: Command-and-control regulations utilizing pecuniary measures like price caps can swiftly influence behavior by compelling compliance.

Conclusion:

Policies for rate standardization must be feasible, easily implemented, and adhere to established price discovery practices. Future efforts should build upon past and ongoing health care financing reforms , anticipate challenges, and ensure broader stakeholder involvement.