What’s inflating your hospital bill?

Why in the News

The Clinical Establishments (Registration and Regulation) Act, 2010 lets the Centre fix the range of rates hospitals charge, but no rates have been notified and the Act applies in only 19 States and Union Territories. The Centre’s cap on trade margins at 30% for select costly cancer drugs has widened the debate to whole hospital bills.

How do markups inflate what patients pay?

1. Trade margin: A trade margin is the gap between the first sale price, say to a distributor, and the maximum retail price (MRP). It is like a shopkeeper’s profit, but the patient cannot shop elsewhere.
2. Everyday items: MRP can run several times a hospital’s purchase price, with markups above 1,100% for paracetamol and 1,200% for intravenous (IV) kits.
3. State regulator probes:
   • Karnataka’s drug regulator found medicines priced up to 52.6 times their landing or manufacturing price;
   • Maharashtra’s Food and Drug Administration (FDA) found an IV infusion set bought for Rs 11.05 sold at Rs 325.
4. Cancer drugs: The government found 170% to 700% markups on some cancer drugs, now under Supreme Court scrutiny.
5. The takeaway: Patients pay the MRP, not the hospital’s purchase price, so inflated MRPs turn hospital pharmacies into profit centres.

Why are hospital stays, not just medicines, under scrutiny?

1. Private sector share: The private sector delivers nearly 60% of inpatient and 70% of outpatient care.
2. Corporate surplus: Jan Swasthya Abhiyan, a public health network, found listed hospital chains earn yearly surpluses of Rs 20.8 lakh to Rs 31.4 lakh per bed after costs and taxes.
3. Not for profit benchmark: A comparable not for profit tertiary hospital’s surplus was just Rs 1,871 per bed.
4. Vertical consolidation: Activists object to one company owning hospitals, pharmacies, diagnostics or insurance and steering patients to its own services.
5. FDI and medical tourism: Activists say 100% foreign direct investment (FDI) buys existing hospitals instead of building new ones. A parliamentary committee on healthcare affordability found such investment serving medical tourists over domestic patients.

How wide is the gap between public and private care?

1. Public versus private: The committee found an average hospitalisation costs Rs 6,631 in a government hospital against Rs 50,508 in a private one.
2. Widest gaps: Childbirth, cancer, heart disease and kidney failure show the widest gaps, often causing catastrophic out of pocket expenditure (spending that pushes households into hardship).
3. Regional spread: Spending ranged from about Rs 55,000 in Telangana to Rs 8,000 in Ladakh. Low spending can signal poor access, not cheap care.
4. No real choice: Patients often must use private hospitals, facing a “double trauma” of illness and cost.

Why has regulating hospital charges not worked so far?

1. Cost shifting after stent caps: When cardiac stents came under price control, hospitals charged more for guidewires, balloons and their own services.
2. Section 9 rate power: The Act requires charges within “the range of rates determined and issued by the Central Government”, and the rules require procedure charges to be displayed.
3. Power left unused: The Centre has never notified those rates, and bodies of doctors and healthcare operators have challenged the provision.

Challenges

1. Supply chain complexity: The Department of Pharmaceuticals says one cap must leave every seller a viable margin. Eg. a pharmacy outside AIIMS, Delhi versus a village one.
2. Supply risk: A blanket cap can make some medicines unviable to stock.
3. Information gap: Patients cannot judge which tests or consumables they need, so cannot bargain.

Way Forward

1. Notify rate ranges: Notify Section 9 rates and press remaining States to adopt the Act.
2. Upfront cost estimate: Mandate the committee’s “comprehensive, legally binding upfront cost estimate” before complex treatment.
3. Procurement price on bills: Make hospitals print their purchase price beside the patient charge, so competition lowers costs.
4. Standard package rates: Adopt the committee’s standardised, subsidised pricing and cap hospital package rates.

Conclusion

Price control in Indian healthcare works item by item, so hospitals recover margins on whatever stays uncapped. Whether the Centre uses its existing rate power will decide if whole bills fall.

Key numbers

1. Corporate hospital bill: Rs 60,588 to Rs 73,000 per bed per day (Jan Swasthya Abhiyan).
2. Average hospitalisation cost, all hospitals: Rs 37,858 (parliamentary committee).

Back2Basics: Clinical Establishments (Registration and Regulation) Act, 2010

1. Coverage: It registers and regulates all clinical establishments, public and private, in recognised systems of medicine.
2. Minimum standards: Registration depends on meeting prescribed minimum standards of facilities and services.
3. Adoption by States: Health is a State subject, so the Act runs in Union Territories and States that adopt it.

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.”