In India, public and private healthcare providers function as two entities working towards health for all. While public hospitals are run under national and state budgets, the private sector has to work out its operational viability in a competitive market. Over 70 percent of healthcare services in India are provided by private providers. To achieve the goal of Universal Health Coverage, both healthcare providers have key roles to play, recognised by the government of India that has called for increased public-private partnership models during the Covid-19 response and also in the last two budgets.
Nevertheless, there continues to be a perception that private hospitals are against public interest and operate only for profit, are not transparent about their costs, or that hospital treatment packages are unfairly priced. Therefore, it is important to examine a few aspects of overall hospital operational issues and challenges to decode these misconceptions.
1. Operational viability
Firstly, most private sector hospitals do not have subsidies for expenses and utilities, and even if they do, they repay by providing services as per government regulations. They are based on a fee-for-service basis and don’t have a price advantage in tenders and procurement of machinery and material as it is for public hospitals. They have to work out their operational viability, investing considerably in the quality of care, certifications, and accreditations.
2. Hospital pricing determinants
Secondly, most private hospitals set treatment or service prices by studying the actual cost involved for manpower, material, machinery, expenses, and utilities—right from setting up to sustainability. This may vary depending on location, the level of care provided, investment in technology and research, size or the scale of the hospital, and adherence to international protocols and quality standards.
3. The land is only 10 percent of the total cost of running a hospital
A very common argument that surfaces time and again, is that private hospitals have been given free or subsidised land, and have certain obligations in return. But the fact is, very few hospitals have made this bargain for land vs poor patients—less than 1 percent out of 60,000 in India. Most hospitals have paid for land at commercial rates. As the land forms a small share of the cost structure, just 10 percent, the hospital’s ability to discount is limited, especially when other costs are higher—construction and medical equipment have a dominant share.
With 60-70 percent of hospital costs and overheads fixed, the trade-off of costs between land and the present value of all costs incurred for treating EWS (economically weaker section) patients is actually not viable. Hospitals try to cross-subsidise EWS, CGHS (Central Government Health Scheme), ECHS (Ex-Servicemen Contributory Health Scheme), and other government schemes patients with paying patients.
4. Need to review treatment package costs under AB-PMJAY
Health is an emotive subject, and if it has to have a social mix, there should be clear guidelines and frameworks. Ayushman Bharat-PMJAY scheme is a great step by the government toward universal health coverage, but their treatment packages do not even meet input costs. That is one of the reasons why most hospital chains are not empanelled in it.
5. Barriers in setting up hospital infrastructure in tier 2 and 3 cities
Setting up hospital infrastructure in tier 2 and 3 cities has multiple barriers currently. While the quality of service has to be on par with what is offered in metros, customers and patients have to be given 30-50 percent reduced prices. In terms of infrastructure, there is high capex and high costs of land, building, medical equipment, tech/IT, utilities, and services with fixed overheads and lower, unclear returns. Uncertain patient footfalls and a shortage of qualified healthcare professionals are also challenges in smaller towns. For this reason, a collaborative approach is required to enable a joint working model to develop solutions.
6. Need to regulate quality, not pricing
Out of 50,000-plus hospitals in India, only about 350 are NABH (National Accreditation Board for Hospitals and Healthcare) accredited; out of 100,000 labs in the country, only an estimated 1,000 are certified by NABL (National Accreditation Board for Testing and Calibration Laboratories). Amidst this large pool of unregulated players, we need to recognise and incentivise those who are publishing patient clinical outcomes and are complying with quality standards and protocols. Central and state policies need to be aligned on this with a clear regulatory roadmap.
7. Treatment costs in India are a fraction of what patients pay in other countries
Healthcare costs in India are perhaps the lowest compared to other countries. A large number of international patients come to India every year to get the best quality treatments at a fraction of the prices, generating foreign exchange for the country and earning much goodwill.
Achieving the goal of universal health coverage mandates that communities should have access to quality healthcare and that out-of-pocket payments or unrealistically high health expenditures do not prevent or discourage people from availing of health services.
One of the ways of getting there is health insurance needs to be expanded. Apart from that, several other steps are required in this direction: Addressing the shortage of skilled medical doctors and nurses by upgrading medical education and creating PPP models on skilling of healthcare providers, leveraging digital technology to increase access, raise awareness and foster behaviour change, taking the care continuum outside of hospitals, among others.
While private providers wouldn’t have the answer to all the challenges faced by the healthcare sector in India, they are a strong ally in India’s aspiration to achieve a universal healthcare system.
The writer is an Advocate-on-Record at Supreme Court of India.
The thoughts and opinions shared here are of the author.
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