Should private healthcare pricing be capped?

Experts from the industry talk to Ikyatha Yerasala about the price capping of private healthcare services/products.

A couple of months ago, the National Pharmaceutical Pricing Authority or NPPA issued an order to regulate prices of cardiac stents across India. With a huge number of patients having to shell out massive amounts of money for stents, this rule was brought out. In June, the Karnataka legislative assembly had a discussion about a law to have standardised charges for medical treatments. This led to protests by doctors and medical professionals on the streets due to which the Government agreed to reconsider the bill. There have also been other debates about patients being charged exorbitantly in some private hospitals. PM Narendra Modi, in his 2017 Independence Day speech, mentioned putting a price cap on knee implants. And now, the rates of knee implants have been slashed between 59% and 69%, in a move which is expected to benefit over three crore arthritis patients in India and is said to lead to a saving of about Rs 1,500 crore annually. Hip implants and intraocular lenses could be next to be regulated. With the Government putting a cap on various medical devices and with discussions of having standardized prices for medical services, does implementing a price cap on private healthcare services/products make sense?

Dr. BS Ajaikumar, Chairman & CEO, HCG Enterprises Ltd

There’s some confusion based on different perceptions by different stakeholders since government and government-related agencies have specific notions about private healthcare and government-owned healthcare. Private healthcare too has its own perception about government interference.

India’s healthcare model is shaped mostly by private healthcare and globally, it has been rated as one of the best value-based healthcare providers. Our country has multiple social structures with people belonging to different economic brackets and each bracket demands different kinds of healthcare services.

While the economically stronger section of the population here (250 to 300 million people, which is equal to the entire population of USA/Europe) demands the highest quality of healthcare possible, and so encourage more insurance schemes and lesser cash-based transactions, the truly BPL class comprises 22% to 28% of the population, who use cash for most transactions. In this scenario, Government can take the lead to pay their insurance and ensure they get the best treatment and care. To achieve this, there should be transparency, proper and timely reimbursement, ensuring that the provider adheres to the highest standards of care and periodic monitoring should be done. Talking about price fixation, India is the cheapest provider of healthcare services. Cash transactions should be eliminated through insurance schemes and policies.

The phrase ‘exorbitant price’ comes with many explanations. Hospitals charge differently for various reasons — Infrastructure and support of the hospital, Location: for e.g. a hospital located in the centre of Mumbai, Bangalore or Delhi has higher cost of operations compared to one in Nashik,Vijawada or Ranchi, quality of service — different hospitals may or may not use the same technology for the same procedures. Expertise involved and outcome might vary — considering all these factors, hospital charges vary between 5 and 10% from one another. Also, hospital accreditations play an important role in pricing.

We’d like to emphasize that consumer is king. Today, as more people look to the Internet for information like the best charges, facilities offered, accreditation etc and based on their research, decide on a service provider. So, hospitals/healthcare service providers should be honest and transparent in their dealings and provide the approximate charge for treatments so that patients can decide. Further, hospitals should inform people about treatment proceeds and charges to be incurred probably by displaying them too.

AbhijithSagar, Director of a Medical device company

When it comes to private healthcare, it’slike a service industry — like a hospitality sector where you have different star hotels and prices vary according to the service quality or service levels. So capping prices may not be ideal as it will affect hospitals which are providing top-tier service and those who have invested heavily on infrastructure.The objective of making available medical devices at lower prices is definitely good but the concept of price control is not the ideal path to achieve it. India still imports major part of the medical devices used in its hospitals and price control incentives investment into local manufacturing and investments into R&D for development of several cutting edge technologies. The move definitely favoursMNCs who have several other profitable markets and eventually India has to rely upon them if it needs these devices, without having power to negotiate prices. It’s better to inventivise local manufacturing and encourage local competition which will naturally push the prices down. This also goes well with Modi Government’s Make in India philosophy.

It’s proven that hospitals make the biggest margins in the whole supply chain of medical devices. While competition and free market forces are at play for medical device manufacturers and suppliers, the same is not very effective when it comes to hospitals. Patients are not expected to research alternatives available to them and are forced to trust the hospital on the use of devices, without much power to negotiate. So capping margins that hospitals mark-up on sale of medical devices used is more justified.

The quality of medical devices, investments into R&D, costs of meeting the stringent GMP requirements and the heavy capital expenditure that goes into manufacturing medical devices are not considered under the price control measures and it fixes a blanket maximum selling price. Even in the case of stents, many companies have refused to launch their new high-end variants and are pulling out some products already launched in India.

The concept of price control is regressive and not relevant in a competitive market. The government must rethink on alternatives available before introducing it across more products.

Sandeep Gudibanda, Co-founder and CEO,HealthPlix Technologies

While price regulation looks benevolent at the outset, it probably affects extremely Innovation/R&D in the long run. Anyone against price control will be made to look anti-poor.

Market forces are the best regulator of prices in any industry. Government’s intervention in price regulation will only complicate the entire ecosystem. Costs involved in healthcare are varied: Capital Investment, Real Estate, Utilities, Doctor’s salaries, Para Medical staff, & cost of goods consumed. Price regulation of the healthcare services without regulating the prices of the above costs involved is like fitting a square peg in a round hole. Government wishes, rightfully so, to increase the minimum salaries (imagine a nurse who studies human anatomy, physiology, biochemistry etc for four years earning a meager 10K per month). Real estate growth is cheered upon and so on. Indian doctors earn perhaps a fraction of what doctors earn outside India. Talent drain will continue if service providers are forced to pay less owing to price regulation pressures.

Government’s focus should be to offer good services to government hospitals for the poor. Public-private partnerships through tender process tightly coupled with vigilant outcome based payments will ensure prices are in control and yet no service provider is forced to restrict to any price that their economics don’t allow them to. There will be a cadre of hospitals catering to a different segment of people based on their earning/spending capacity.

Price control will either mean the quality of services will be dropped or players figure creative ways of charging more (bloated bills). Both are foul. This, precisely, has been the long drawn battle between insurance providers and hospitals.The market will always make supply meet the demand. Enforcing quality measures through digital systems to measure outcomes and linking payments to the outcome is perhaps the only way forward.

MTaI — Medical Technology Association of India

Pricing regulations are a regular phenomenon in the drugs industry, but the same rules should not be applied for orthopedic implants, which are different from drugs and other medical devices where prescription and end-point availability are the only critical factors for treatment.

Medical devices make up a relatively small percentage of overall costs. Yet, they can have a large impact outcome. The connotation to knee replacement surgery is quite diverse, starting from a Patello-femoral Joint Replacement to Partial Knee Replacement to Total Knee Replacement to Revision Surgery to Tumor Prosthesis. In addition, costs vary per surgery and the type of implant used.

However, the cost of the implant is only one component and multiple other factors affect a successful surgery. Cost of importing, maintaining and transporting instruments runs into tens of lacs for each set. Also, given the specialized instrumentation systems, costs of manpower and surgery support iscompletely borne by the channel. Medical device companies operate with a strict ‘no train no use’ policy for such implant systems.

In view of the complex nature of delivery structure and role of value chain, it would be prudent to form an industry working group to work with NPPA on building a pricing structure governance model. This will be to ensure long-term patient access and safety. Applying existing drugs trade margin rules to this industry might lead to disruption of entire ecosystem and poorer patient outcomes in long run.

We need to balance affordable healthcare today by incentivizing investment in innovation that can transform healthtomorrow. It builds on a long history of caring for patients and a commitment to developing innovative medical technologies that transform lives of patients with serious diseases.

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