INSIGHT

Improving Healthcare Services

at Reduced Prices
Meeta Rajivlochan

The key to improving the quality

of healthcare services in India
and reducing costs at the same
time can be found by enacting
legislation which lays down
minimum standards of patient
care. In the absence of such
standards and the reluctance of
health insurance companies to
standardise either price or quality,
healthcare services continue to be
expensive and of doubtful quality.
Developing standards of patient
care by legislative mandate and a
change in the attitude of health
insurers can change the equation
in favour of the patient who is
now at the mercy of the hospital.

xpecting improved healthcare

services at reduced prices seems
contradictory. Surely any improvement in any service must necessarily
entail a rise in cost? While there is a
need to increase expenditure on health
there is also a dire need to cut down
costs. Cost escalation is needed where
existing pricing systems have little slack.
This is not the case where healthcare
delivery in India is concerned. There is
not only a great deal of slack in the existing healthcare pricing in the private
sector but also, in order to bring it down
without causing loss and benefiting all is
very much possible.
Before doing that, we would like to say
that existing high prices for facilities in
the private healthcare sector are no guarantee of high quality just as the low prices
of facilities in the public sector are no
indicator of poor quality. Actually where
the practice of the healthcare sector is
concerned, pricing is not an indicator of
much. The one factor that makes such a
contradictory state of affairs possible is
the fact that there is no professional consensus on what constitutes good patient
care, and nor is there any legislative mandate on delivering it or on establishing
controls on how this is being done.
Clinical vs Economic Sense

The views expressed are personal.

Meeta Rajivlochan (meeta29@hotmail.com) is
an IAS officer in Maharashtra.

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Self-regulation by the market just does

not work where healthcare is concerned.
The externalities in healthcare are too
many. This is why there are so many reported cases of nursing homes conducting caesarean sections even where normal deliveries were entirely possible;
this is why hysterectomies are conducted on unsuspecting women. That women have lesser control over their bodies
is only one of the issues here. The main
reason for the contradiction is this: clinically it may make better sense to conduct

a normal delivery on a female or to give

drugs to angina patients but economically it makes better sense for the health
facility to conduct a costlier procedure
like a caesarean section or an angioplasty. Simply put, what is good for the
patient may not be so good for the health
facility which is treating him/her. The
only way to resolve this situation is to
have transparent standards of patient
care coupled with effective regulatory
mechanisms to enforce these. Those
who find the word regulation like the
proverbial red rag to the bull, should ask
themselves how many times they have
dared to request their doctor to prescribe a generic medicine instead of a
branded one and got a negative answer
or how many times they have been
cheated by a healthcare facility. For people who have a negative answer to either
question, we can only say that they are
either extraordinarily lucky or extraordinarily nave.
1 Standards of Patient Care
Quite simply regulating healthcare
means two things: first, drafting standards of patient care, and second setting
up implementation machinery for monitoring the same. It sounds simple but as
with all good things, it is rather difficult
to do. These are matters that have been
discussed in great detail in professional
journals but have seldom been translated
into practice on a large scale.
Standards of patient care would mean,
among other things, pricing standards.
Developing such standards means that
the hospitals would need to work out the
costs of carrying out any specific procedure. For instance, what would it cost a
hospital to treat a patient needing a
heart bypass, beginning from his entry
to the hospital up to exit? Most private
healthcare facilities which are doing
good business would already have a
break-up of the costs involved. But making such a package public is akin to inviting flak. After all if we were to add up the
prices of all the items needed for a heart
bypass ranging from consumables like
catheters, oxygenator, cannulae, medicines, etc, to the fees of the surgeons,

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anaesthetists, and others along with the

costs of stay, it would be difficult to drive
the figure much beyond Rs 1 lakh. How
then would a five-star hospital justify
charging Rs 5 lakh for the procedure?
These are the margins existing in the
business as of now.
The answer to the question of how
such large margins are possible lies in the
scarcity of hospitals and of doctors available for such operations. Limited supply
means that the facilities charge whatever
they think the market can take. If poorer
people are priced out altogether, that
would not affect the hospitals much since
supply is so scarce in the first place and
they have sufficient takers.
Public hospitals could have prevented
this by making independent calculations
and then making them public. They do
not do so perhaps because this would
put pressure on them to offer cashless
transactions for a variety of ailments
which they are unable to. The less said
about procurement in a public hospital,
the better. It is a constant battle against
limited budgets, cost overruns, harried
doctors and uncooperative bureaucrats.
Maintaining Standards
So the private sector will not and the
public sector cannot take on the task of
developing packages for specific ailments.
Here comes the third party in this transaction which is the insurance company.
The insurance companies say clearly that
it is not their task to regulate the healthcare sector. Perhaps this is the single-most
important reason for the inflated healthcare premiums which they charge and
patients unwillingly pay. Pricing standards are only the beginning of the story.
Standards of patient care would also
mean quality of care standards. What do
we mean by quality of care standards?
Patient care processes in any healthcare facility have multiple aspects: the
numbers and quality of human resources,
status of infrastructure and equipment;
maintenance of medical records; keeping
track of hospital-acquired infections;
monitoring medication to ensure safe
drug delivery; the use of standard operating protocols; keeping track of adverse
events like drug reactions, medication
errors, unforeseen complications, etc. A
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high quality patient care standard would

attempt to develop benchmarks for each
of the processes enumerated above.
To make it simpler, a human resource
benchmark would mandate that all intensive care units (ICUs) should have a
nurse: patient ratio of 1:3 and for patients
on ventilator, a nurse: patient ratio of 1:1.
An infrastructure indicator would be
that the operation theatres (OTs) have
uninterrupted water and power supply
and all ambulances have emergency
trays, intravenous fluids and a trained
paramedic. Keeping track of hospitalacquired infections would mean having
registers in each ward for surgical site infections; for ventilator associated pneumonias in ICUs, for catheter related urinary tract infections and so on. Currently almost 95% of the hospitals in the
country only note such incidents on the
individual case papers. No separate registers for different types of infection are
maintained. This automatically means
that it becomes impossible to get data on
the numbers and pattern of any specific
type of infection in any facility. Patient
care processes are about intensive recordkeeping. Failure to keep records makes it
impossible to engage in collecting feedback or in taking corrective action.
The National Accreditation Board for
Hospitals and Healthcare Providers in
India is charged with the task of developing
such standards. By 2013, it had accredited some 275 hospitals in the country out
of at least 50,000 establishments. So long
as there is no legislative mandate for a
hospital to follow patient care standards,
no one really sees a need to seek such
accreditation. It is often argued that these
standards are very costly to maintain and
it is not cost effective for hospitals to
observe these. However, the majority of
the measures described above only involve developing and following protocols
and rigorous record-keeping. There are
50 bed hospitals which have successfully
applied for and obtained such accreditation, so why not the others?
Registering Clinical Establishments
If developing standards is such a desirable process, how does one go about
doing it? A first step has already been
taken by the Government of India (GoI)
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in enacting the Clinical Establishments

(Registration and Regulation) Act in
2010. This provides a basic legislative
framework for registering all clinical
establishments and for developing
standards for different types of facilities,
whether maternity homes, super specialty hospitals, pathology laboratories
or ayurveda centres. As of now, it has
been implemented in all union territories as also the states of Arunachal
Pradesh, Mizoram, Sikkim and Himachal
Pradesh. A few others like Uttar Pradesh,
Rajasthan, Bihar and Jharkhand have
adopted this Act and are in the process
of setting up implementation machinery
for the same. Kerala and Maharashtra
have said that they would enact
their own version of the legislation. So
any state could use this legislation as
a starting point to develop its own
bill, if it does not wish to adopt the
central law.
A word of caution here. The story of
Indian governance is about a series of
well-meaning measures which fail at the
implementation stage. While embarking
on this task, we need to be sensitive to
the reasons for the failure of the present
legislation and to ensure that these
mistakes are not repeated.
One of the basic reasons why the existing Nursing Home Acts extant in some
states do not function is that no machinery has been created for its implementation. The healthcare personnel in the
service of various state governments are
tasked with providing healthcare, not
regulating it. For carrying out this function, separate machinery needs to be
created. To ask the civil surgeon and district health officer who are already implementing a hundred other programmes, to also look after the regulation, is
a futile exercise. Nothing extensive is
needed except minimally one officer
with basic staff in each district or ward
as the case may be, for registering the
thousands of clinical establishments in
the country today.
Second, to make things simpler for all
concerned, web-enabled applications are
needed with a user friendly interface to
facilitate self-registration by the various
clinicians and hospitals. This would
ensure that the hospitals and clinics
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INSIGHT

would not need to actually visit any

office unless there are some deviations
from the standards proposed. Also, the
task of the government machinery
would simply be to sift through the data
and check for any significant deviations
and also to disseminate information
about the standards being adopted to
the maximum extent possible.
Finally, having citizen stakeholders on
board in each of these authorities would
certainly help achieve more transparency
and also provide a much-needed feedback mechanism. Currently a great
problem in existing government functioning is that citizens are rarely entrusted with civic duties which would
give them some idea of the complexity of
problems facing the state. A lack of involvement of the citizenry also means
that government officials rarely receive
feedback about what is happening unless they themselves make serious
efforts to go out and obtain it.
Once precautions on the above lines
are taken, there is every reason to believe that healthcare regulation would
actually succeed in its appointed task.
2 Prices of Health Services
Once healthcare regulation is put in
place, the state machinery can then
make use of the enabling environment
created to bring down prices of health
services. Medicines and medical devices
are one of the most important components of these services. Medicine prices
have just as much to do with the manner
in which pharmaceutical companies and
druggists operate as with the prescribing practices of doctors. Entire legions of
medical representatives are deployed by
the pharma companies with the sole object
of disseminating information about their
drugs to doctors and encouraging them
to prescribe these drugs. This is the first
barrier that needs to be broken.
Some countries like Bangladesh have
for decades implemented a drug policy
emphasising generics and have prohibited the manufacture of branded drugs
deemed to be either hazardous or of no
therapeutic value. As a result almost
80% of drugs sold in Bangladesh are
generic drugs but this is not the case in
India. And prices of branded formulations
34

are far higher than generic ones. Given

the trajectory of development of the private pharma sector in India, it seems difficult to enact legislation as Bangladesh
has done. Still there is much that can be
accomplished even given the adverse incentive structure of the pharma sector.
A way out for government hospitals is
to use the single payer mechanism. To
implement this, the first requirement is
to take away the burden of procuring all
but emergency items from government
hospitals. Staff in these institutions is
over worked, less than required, under
constant pressure and ill equipped to
handle the challenges of procurement.
For that a dedicated staff and team is
needed. The one role for the medical
personnel is to frame the specifications
and to check whether material supplied
is as per those specifications. The rest is
a job for a dedicated management team.
Such procurement teams rarely exist
in the government machinery; the result
is that the same medicine is being procured by a variety of different hospitals
in the same state; the same medicine is
procured under different budget heads
and often one department head has no
idea what the other is doing. Each individual transaction adds its own price
component to the final price.
To break this cycle, first an essential
drug list needs to be drawn up by the
procurement team. This exercise when
conducted in Rajasthan and Maharashtra showed that the actual list of essential medicines needed for all levels of
care was fewer than 500 while routinely
procurement was being done for over
2,000 drugs. This rationalises the entire
procurement exercise a great deal, saves
much time and effort. Once this is done,
software is used for collating the indents
of the hospitals throughout the state and
money from different budget heads is
merged. Once the self-same paracetamol or amoxycillin as the case may be, is
procured in bulk and under a single payer system, prices come down by up to
100%. The margins in the pharma business are considerable and this is the only
way to approximate wholesale prices.
Generating transparent e-receipts for
goods supplied, and payment in 30 days
can bring down prices further. To recap

an old maxim, there are no free lunches.

Where suppliers know that their payment
will come through six months later, they
would factor in that much interest into
whatever price they charge. Wherever
suppliers know that they would have to
approach 50 different offices for payment, they factor in those transaction
costs as well. It is the act of removing all
these hidden costs which makes the
medicines cheaper.
Here is one example. Drug eluting
stents are very costly items or so all cardiologists say. The Central Government
Health Scheme (CGHS) had been buying
them for approximately Rs 60,000 and
more for many years and the same was
the case with most state health departments in the country. Then someone in
the GoI got to know that these prices
were marked up by 300% and issued a
directive that the prices be slashed. But
the medical device companies were reluctant to oblige. Why should we offer
such a discount, they asked. It is a different matter that they had been offering
precisely such discounts to all private
hospitals. Then the Public Health Department of the Government of Maharashtra floated a tender for drug eluting
stents making it clear that only the lowest bids would be accepted and also that
drug coatings in the same family would
be clubbed together for price evaluation.
They clubbed the demand of a few government hospitals to arrive at a figure of
approximately 300 stents. They stipulated, however, that the stent would
have to be either approved by the United
States Food and Drug Administration or
have the European Unions CE mark. The
lowest bid in that tender was Rs 23,700
which was one-third the original price!
Single payer systems, where properly
implemented, do work. But again it
would be very important to build in
corrective mechanisms in this entire
process by setting up a call centre for
grievance redressal. This way in case
patients are unable to access medicines
at the pharmacy, at least they can call
and make their grievance known.
The Ministry of Health and Family
Welfare in the GOI has estimated that an
average expenditure of under Rs 50 per
capita per annum is sufficient to cover

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outpatient expenses of most patients.

But we need to make every single paisa
of that money count and using the single
payer system to remove the hidden costs
is one way of achieving that target.
3 Problems with Insurance
Once some healthcare regulation is in
place, bringing insurance premiums
down is much more feasible. The logic of
single payer systems remains valid for
this just as much as for medicine prices.
Maharashtra and Tamil Nadu have
shown that for large populations running
into crores, floating tenders for health
insurance for a defined set of families
fetched a per family premium of Rs 333
in Maharashtra and Rs 497 in Tamil
Nadu for an annual coverage of Rs 1.5
lakh and Rs 1 lakh, respectively. These
prices also include administrative charges. The reason for such low premiums is
that while six out of 100 families may fall
ill in any specific year, premium is paid for
all 100. With these premiums and an
average per claim cost of Rs 25,000 to
Rs 30,000, the insurance company just
about breaks even.
Here, there are two kinds of problems
that we face: those connected with the
healthcare sector as discussed above,
and those connected with the structure
of the insurance industry itself. Once
hospitals agree to work out package
rates for specific ailments, the job of
the insurance company becomes much
simpler. But this is not something the
insurance companies are eager to do.
Their argument is that this is not their
job. Their job is simply to offer health
insurance in current market conditions;
not to change those market conditions.
What the insurance industry does not
realise or perhaps it does but does not care
is this: healthcare affects far too many
lives and has too many ethical dimensions for such a view to be tolerable.
Healthcare insurance is not just another
variety of motor vehicle insurance,
whatever the health insurance industry
may wish. By pricing market interventions, like it or not, they offer price
incentives for doing certain procedures
and disincentives for doing other kinds
of procedures. The task of the state is
to see that those prices incentivise the
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right kind of interventions and that

they are not perverse and against the
interests of the patient. Thus to price
a caesarean section as much higher
than a normal delivery would achieve
many more caesareans than normal
deliveries, irrespective of what is good
for the patient.
The one way to deal with this problem
is to develop clinical protocols based on
the guidelines of evidence-based medicine. That way it would be possible to
offer the treating physicians guide maps
of desirable options when treating a
patient. This is what the professional
medical associations in western countries routinely do. For some reason, professional associations in India, whether
of cardiologists, surgeons, gastroenterologists, etc, with a few exceptions, have
not really engaged in this kind of
exercise. A beginning in this regard has
already been made in Maharashtra and
also by the central government with the
assistance of top-line doctors. Once the
protocols are in place, only some kind of
treatments would be allowed and others
would be disallowed. What is significant
about the Maharashtra experiment is
that the insurance company concerned,
the National Insurance Company, has
agreed to use these protocols. This is a
first in the country. Otherwise insurance
companies routinely use the least cost
solution to health insurance claims
irrespective of what may be good for
the patient.
But there is another problem and this
one has to do with the way in which the
insurance industry in India is structured. The insurance industry routinely
subcontracts out most of its job, at least
where healthcare is concerned, to what
they call third party administrators
(TPAs). What is wrong with this, you
would ask. Is it not normal for jobs to be
farmed out on contract basis? Yes it is
routine to farm out jobs on contract basis
but in this specific case what is being done
is that the entire task of admitting a
claim, beginning from a pre-authorisation
to the processing of the bill, is farmed
out to an organisation which has no
stake in the healthcare of the population. This creates a most pernicious
incentive structure. There is a world of
vol l no 1

difference between contracting in individuals and contracting in organisations

with financial interests distinct and
different from the original organisation.
The insurance industry, at least arguably,
does have some interest in seeing that
people fall ill less often and in
encouraging wellness. The government
shares that interest. The TPA has no such
interest. It is doing a job for a fixed remuneration. Most insurance companies
have hidden clauses whereby the TPAs
are incentivised for artificial claims control, meaning to allow claims only up to
a certain limit and not beyond. Soon the
TPAs discover a more lucrative way of
making money: of tying up with the
hospitals they service for creating fake
patients and fake illnesses and thereby
earning a steady income. The insurance
industry spends a lot of money on controlling such fraudulent practices. But
administrative controls cannot set right
the pernicious incentive structure the
mere act of using a TPA creates.
There are strong reasons why a government needs to use an insurance company for buying hospital services for its
citizens. This way there is an impartial
mediator to service those needs, to negotiate with the hospitals and to process
pre-authorisation requests for treatment
and the resulting claims. At the same
time there is a financial incentive for the
company to keep some check on costs.
Governments are not equipped for such
tasks especially where negotiating discounts with hospitals, or indeed with
any entity, are concerned. But to further
allow the insurance company to subcontract this job to a stakeholder with
zero interest in positive health outcomes
is counterproductive.
The insurance industry regulator, the
Insurance Regulatory and Development
Authority (IRDA) is well aware of the
problem and the recent measures announced place severe limits on the tasks
that a TPA can do for a health insurance
company. But as we said earlier, the pernicious incentive structure remains;
what the IRDA does about it remains to
be seen. As a government body the IRDA
is expected to take a stance which is in
in the interest of the public rather than
the industry.
35

INSIGHT

The way to deal with this problem is

to disallow the TPA and persuade health
insurance companies to develop domain
expertise. After all if they wish to make
money on this sector, they need to develop some skills for doing it which do
not go against the public interest.
Eliminating the TPA would also bring
down the costs of health insurance a
great deal. Currently health insurance
companies are free to charge up to 20%
for administrative charges. This is ridiculously high and can easily be halved,
provided that the government also
agrees to regulate the healthcare sector
and provided that the TPA phenomenon
is eliminated.
Commitment Required
All three solutions that have been spelt
out above: regulating the healthcare
sector, bringing down medicine and

device prices and bringing down insurance premiums, are very much possible.
What it takes is vision and a certain
commitment to healthcare.
Several challenges would emerge but
all we need is a constructive mindset.
First all these systems require the use
of and certain degree of comfort with
computer-enabled systems. They also
need good internet connectivity and
high bandwidths. Urban areas do not
present a problem in these respects but
rural areas would need to upgrade infrastructure. Tamil Nadu, Maharashtra and
Andhra Pradesh have been implementing web-enabled solutions for the population including rural areas for some
years now, so this is very much within
the realm of the possible.
Second, such measures would only
work where strong mechanisms are set
up to receive continuous feedback from

consumers which in turn serves as a

self-corrective. Call centres are one
such mechanism. Third party evaluations are others.
Surely where the results would be
so beneficial to the public at large and
no one is harmed, it should be possible
to achieve all this and still to bring
down prices.
Most important of all in a democracy,
we need to arrive at some kind of consensus: not only in recognising that
there is much that is wrong with our
healthcare systems but in terms of the
willingness to correct what is wrong.
The Clinical Establishments (Registration and Regulation) Act is a step in the
right direction. Whether the state governments will take it up seriously or
whether it will be seen as just one more
intrusive and costly policy suggestion of
the GOI, remains to be seen.

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