Usher in transparency, not price controls

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My friend Kabir recently narrated his ordeal when his father suffered a stroke. The Magnetic Resonance Imaging (MRI) revealed bleeding in the brain. Kabir’s father needed constant monitoring and medical support available only in an Intensive Care Unit (ICU). After initially admitting his father in the ICU of a small hospital, Kabir tirelessly worked his connections to transfer him to a larger, more renowned hospital. He succeeded in doing so only after two or three days of pulling all the strings he could.

This episode occurred in 2018, well before the Covid-19 pandemic. Kabir’s affluent family had no problem paying for the treatment. And they were based in Mumbai, a city one would presume possessed adequate medical infrastructure. The scarcity of high-quality hospital beds, even for those able to pay, highlighted the inadequacy of India’s medical infrastructure, a fact that later got magnified during the pandemic.

This reflection was prompted by a recent Supreme Court ruling, directing the Union health secretary to coordinate with state counterparts to decide and notify a standardised fee structure for hospital services nationwide. This step is intended to harmonise treatment costs. In my view, this decision, if implemented, could worsen the situation rather than improve it.

India’s health care infrastructure is strained. A World Bank report states that the country has a mere 0.50 hospital beds per 1,000 people and trails behind countries like Pakistan and Bangladesh in this respect. And we are not even taking into account the quality of health care facilities.

Availability of quality health care services is a complex issue globally. Few countries can claim to have resolved it satisfactorily. I will not speculate on the reasons, nor dwell on the solutions, due to my limited knowledge of this sector. My reflections are those of an outsider and a consumer of these services.

Imposing a standard rate chart for all hospitals across the country is impractical. It overlooks a key variable real estate cost which varies significantly across locations. The quality of equipment and personnel also differs widely and hence cannot be made available at the same cost, or even within a defined cost range. Those who have lived through the Licence Raj that held sway until the 1990s have seen the malpractices that creep into any industry subjected to such price controls.

A more viable approach, in my view, would be to get hospitals to turn more transparent with their pricing. The current regulations, conceived in pre-internet times, mandate the public display of service rates in both the local language and English.

Considering that a hospital’s pricing list could have 7,000-8,000 items, fulfilling this requirement in the physical format would be unfeasible (adequate wall space wouldn’t be available). But hospitals can easily offer price lists online in multiple languages. Displaying the price list, including the history of price revisions, on their websites should be made mandatory. This information should also be filed with their registration authorities.

Such transparency will force hospitals to abandon their current practice of a dual price system, where different rates are charged from patients who have health insurance versus those who don’t.

The digital infrastructure being created in the health care sector will aggregate such information, facilitating comparisons and highlighting anomalies, that will aid both policymakers and consumers in decision-making. This transparency will also foster price rationalisation among similarly placed “competing” hospitals. Health insurance companies will be forced to specify the amount they will approve under the “reasonable and customary charges” clause in their health insurance policies. In short, there are many upsides to transparency in hospital pricing structure enforced by regulation. Moreover, it is easy to enforce.

Truth be told, transparency is more likely to bring about a semblance of pricing standardisation than a common rate chart enforced through regulatory or judicial orders. In this election season, even political parties should promote this option, since accessibility and affordability of health care services is an emotive issue among people.

The writer heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor;

X (formerly Twitter): @harshroongta

Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of or the Business Standard newspaper

Mandatory disclosure by SEBI

(A slightly different version of this column first appeared in the Business Standard on March 25, 2024)

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