How to ensure hospitals don’t cheat patients

Why in the News

Maharashtra’s Food and Drug Administration (FDA) has released purchase and billing comparisons for medical items sold by hospitals, showing that a drip set costing a hospital Rs 11 carries a printed price of Rs 325. The figures follow an audit of the bills of critical patients at private hospitals across Maharashtra, facilitated by Jan Arogya Abhiyan. A Department of Pharmaceuticals committee chaired by Sudhansh Pant had recorded in 2016 that high maximum retail prices were “a tool to cheat the helpless consumer”, and had recommended capping trade margins on all medicines and implants. Statutory price regulation still reaches only 18 per cent of medicines, so the gap between what a hospital pays for an item and what it bills the patient is set by the manufacturer’s printed price rather than by a regulator.

What is the trade margin on a medicine?

1. Trade margin: The difference between the price at which a hospital or a chemist buys a medicine or a consumable and the maximum retail price (MRP) printed on the pack, which is what the patient pays.
2. Who sets the ceiling: For a product outside statutory price control the manufacturer prints the MRP itself, so the margin available to the seller is decided at the point of manufacture and not by a regulator.
3. What price control actually covers: The Drug (Prices Control) Order lets the National Pharmaceutical Pricing Authority (NPPA) fix a ceiling price for formulations in the National List of Essential Medicines. Formulations outside that list carry only a cap on the annual price increase a manufacturer may take.
4. Why an in-patient bill is different: A hospital both dispenses the item and bills for it, so the margin a chemist would earn is captured inside the hospital bill and the patient has no comparison to make.

How large is the gap between what a hospital pays and what a patient is billed?

1. Consumables at the regulator’s own count: A syringe bought for under Rs 7 is marked for sale at Rs 57.
2. Compliance with the pandemic markup limit: Not one of the 46 medicine brands examined in the audit was charged within the limit of 10 per cent markup on purchase price that was fixed during the pandemic.
3. Spread of the overcharging: For nearly half the medicines examined, patients paid more than 150 per cent above what the hospital had paid.
4. Named medicines: A paracetamol drip bought for about Rs 33 was billed at Rs 408. An antibiotic injection bought for about Rs 180 was billed at Rs 950.
5. The common range: Margins most commonly ran between 200 and 400 per cent.
6. Consumables run higher than medicines: A drip set bought for about Rs 12 is typically billed at Rs 160 and sometimes at Rs 270. An oxygen mask costing about Rs 55 can be charged up to Rs 570.

Why has the 2016 recommendation to cap trade margins not changed billing?

1. The committee’s finding on MRP: Fixing the MRP was recorded as “free for all and largely arbitrary in which the consumer is the net loser”, which locates the defect in the printed price itself rather than in any individual seller.
2. The recommended cap: Trade margins on all medicines and implants, price-controlled or not, were to be capped between 35 per cent and 50 per cent depending on the product’s price.
3. Coverage the cap would have had: The recommendation applied to items outside price control as well, which is where the largest margins sit.
4. Ten years without action: The recommendations were not implemented and patients continue to pay unjustified margins on many medicines and consumables, which contributes to medical impoverishment.

What three steps does the proposal put forward?

1. Purchase price on the bill: State FDAs can direct every private hospital to print, for medicines and consumables above a set value, both the price the hospital paid and the price it is charging, which gives the patient the ground to seek a discount or to buy from another source.
2. Statutory price regulation extended: The Centre should extend price regulation to all essential medicines and medical consumables, since the present 18 per cent coverage is applied in a manner that is often over-permissive. This requires amendments to the Drug (Prices Control) Order, with the Department of Pharmaceuticals and the NPPA carrying it.
3. A patient right already in force: Maharashtra’s FDA ordered in 2016, and again in 2022, that hospitals cannot force admitted patients to buy medicines only from the hospital pharmacy. The National Consumer Commission has called such compulsion an unfair trade practice, the right appears in the National Patients’ Rights Charter, and every hospital must display it.

Challenges to statutory price control of medicines

1. Scope tied to a list: A ceiling price binds only a formulation carried on the National List of Essential Medicines, so a product that moves outside the list escapes it. Eg. The list was revised in 2015 and again in 2022, leaving a long interval in which newer formulations stayed uncontrolled.
   The Fix: Fix a statutory revision cycle for the list, so a new formulation is assessed for inclusion on a schedule rather than at discretion.
2. Devices and consumables outside formulation control: A syringe, a drip set or a mask is not a formulation, so it falls outside a price control system built around medicines. Eg. The NPPA had to notify cardiac stents and knee implants separately in 2017 to bring each under a ceiling price.
   The Fix: Bring consumables and implants under a single trade margin ceiling that applies by value rather than by product notification.
3. Trade margin rationalisation used selectively: The regulator has capped trade margins on small sets of products rather than across the board, so the instrument exists without reach. Eg. In 2019 the NPPA capped trade margins at 30 per cent on 42 non-scheduled anti-cancer medicines.
   The Fix: Publish the purchase-to-billing margin for each notified product from hospital procurement records, so a cap is auditable rather than self-declared.
4. Enforcement sits with understaffed state machinery: A ceiling price is notified centrally but detected at the point of sale by state drug inspectors, whose sanctioned strength is low. Eg. The Mashelkar Committee of 2003 recorded that state drug control departments were understaffed and recommended a centralised national drug authority.
   The Fix: Publish state-wise inspector strength and the amount of overcharging recovered against notified ceiling prices every year, so weak enforcement is visible before it is litigated.

Conclusion

Price regulation in India has been built around what a medicine may cost, not around what a seller may add to it. The patient’s money goes into the margin, so the margin is the variable that has to be capped, and a cap on it works whether or not the product is on any list. The test now is whether the Department of Pharmaceuticals acts on a margin cap that has been before it for a decade, or leaves billing disclosure to whichever state regulator chooses to order it.

Health financing in India

1. Public health expenditure: Government spending on health stands at 1.9 per cent of GDP, against the National Health Policy, 2017 target of 2.5 per cent, with the Centre’s own share at 0.29 per cent of GDP.
2. Public and private together: Combined health expenditure is 3.8 per cent of GDP, so most health spending in India is private spending.
3. Out-of-pocket expenditure: Payments households make directly at the point of care, without insurance or public cover absorbing them, fell from 55 per cent of health spending in 2017-18 to 39.4 per cent in 2021-22.
4. The missing middle: About 30 per cent of the population carries no health insurance of any kind, being above the eligibility line for public cover and below the reach of private cover.

Government Initiatives for affordable medicines and care

1. Pradhan Mantri Bhartiya Janaushadhi Pariyojana: Run by the Department of Pharmaceuticals, it sells quality generic medicines at low prices through Jan Aushadhi Kendras, aimed at patients paying for medicines themselves.
2. AMRIT outlets: Affordable Medicines and Reliable Implants for Treatment stores inside government hospitals sell cancer and cardiovascular medicines, implants and devices at discounted prices.
3. Ayushman Bharat Pradhan Mantri Jan Arogya Yojana: Provides hospitalisation cover to eligible households at empanelled public and private hospitals, with over 43.52 crore Ayushman cards created.
4. Ayushman Vay Vandana: Extends a Rs 5 lakh health cover to citizens aged 70 and above irrespective of income, with over 93 lakh cards issued.

Back2Basics: National Pharmaceutical Pricing Authority

1. What it is: An attached office of the Department of Pharmaceuticals under the Ministry of Chemicals and Fertilizers, set up in 1997 as the price regulator for medicines.
2. Core function: It fixes and revises the ceiling prices of scheduled formulations and monitors the prices of medicines that are not under ceiling control.
3. Recovery power: It can demand the amount overcharged, along with interest, from a company that sells above a notified ceiling price.
4. Policy role: It advises the Centre on pricing policy for drugs and on changes to the Drug (Prices Control) Order.

Matching Previous Year Question

“[2024, GS2, 15 marks] In a crucial domain like the public healthcare system, the Indian State should play a vital role to contain the adverse impact of marketisation of the system. Suggest some measures through which the State can enhance the reach of public healthcare at the grassroots level.”