Medical Service Pricing in India – The Current Status

The Indian healthcare system is in a conundrum on many accords, be it in terms of the deliverables or achieving desired patient outcomes. Achieving access, affordability, and cost containment are the major battles to be waged, just like in many other countries, striking a balance in the triple aim of medical services.

The Healthcare industry in India amalgamates various disparate services like hospitals, pharmaceuticals, medical devices, and the health insurance sector. A significant chunk of it constitutes hospitals, both public and private. While public hospitals are stifled by a paucity of funds to boost infrastructure and human resources, private hospitals remain defiant to rising costs, price-setting, new and advanced technologies, and rising physician and nursing remuneration.

Medical Services and Hospitals

Pricing for medical services has remained contentious and the most neglected phenomenon in India. To digress, it seems policymakers and leaders dodge the topic of pricing policies for medical care because of the complexities involved. Reckless pricing has had its own repercussion, from causing appalling poverty levels to disrupting the normal functioning of middle-class families. With all this, equity and quality in healthcare service are not guaranteed. Much has been talked about the urgency of hospital pricing in the country to reignite the whimsical pricing by hospitals, but still remains unattainable.

Pricing practices for medical services in hospitals do not hold common ground with pricing for non-healthcare products and other service types. This is because hospital services are ill-defined, variable, uncertain, and involve third-party payments like insurers. This distinctive facet of hospital services should have drawn greater attention from policymakers, academicians, and activists toward hospital pricing policies. But has failed to do so.

medical services Covid 19 India

In the Indian context, healthcare services are predominantly provided by private for-profit and non-profit hospitals. While the two categories of hospitals have significant contributions to healthcare in India, of primary concern is the private hospital, primarily the corporate. That is, regarding the prices charged and if the prices speak quality. Because private hospitals are dominant players in India, pricing for services at private hospitals has warranted scrutiny in their price-setting practices.

Patients and caregivers have borne the brunt of unacceptable and exorbitant prices from private for-profit hospitals convoying headlines across India. Multiple reasons have been floated for such unreasonable medical service prices – poor pricing practices, poor governmental interventions, the advent of new and modern medical technologies, rising fuel prices, physicians graduating with foreign degrees, and a lack
of healthy competition among hospitals.

Soaring prices are exclusionary, causing poor accessibility to quality healthcare services for middle and low-income families, creating an inequitable healthcare system. Indian hospitals lack robust pricing policies, unlike their western counterparts. Economic literature attests that many pricing policies are suitable for products and services other than hospitals. The limited focus has been accorded to pricing policies for private hospitals in India.

Medical Services Pricing Strategies

Pricing strategies such as cost-plus pricing, competition-focused pricing, and demand-based/consumer-based pricing may also be relevant in the hospital sector. Within the Indian context, health economic researchers have developed costing databases to inform pricing decisions and help develop policies. To what extent consumer inputs have been taken for determining to price in private hospitals is unclear.

Competition among hospitals plays a vital role in lowering the prices of medical services. Even if hospitals are engaging in market research activities to determine the actions of their competitors, very little or nothing has been done to study market concentration or jot in the form of peer-review evidence. Pricing studies in the U.S have utilized the Herfindahl – Hirschman index to assess the market concentration for hospitals and their implications for service pricing.

Medical Services in India
Behind The Curtain

Evidence from the scholarly literature on pricing for hospitals subscribes to using a combination of pricing policies in hospitals. However, developed countries have abandoned traditional cost-plus pricing and adopted prospective payments like Diagnosis Related Groups. It is unclear whether high hospital service prices are due to an implicit formation of cartels. There needs to be a greater understanding of how these policies can be implemented in our health systems.

Private tertiary care hospitals in India had a dubious distinction of charging exorbitant prices for critical and non-critical care during the covid-19 pandemic. Hospital pricing was disregarded during ordinary times. Therefore, hospitals found it convenient to raise their prices incessantly during the pandemic. This escalated patient and caregiver dissatisfaction, causing rising anger among the masses and leading to government intervention.

The lack of trust among patients, private hospitals, and governments continues to persist. Enhancing price transparency can reduce mistrust among patients. Maintaining a charge master of prices, like it is done in the U.S, can also raise price transparency levels reducing distress for patients and helping them prepare for their out-of-pocket expenses.

An astute understanding of negotiating practices of hospitals with insurers will bring greater clarity to medical service pricing in India. The pricing research of private hospital pricing is beset with owing to institutional complexities and regulatory repugnance.

About the Author: Dr. Andria J N Sirur, Assistant professor – Health economics, Department of
Commerce, Manipal Academy of Higher education

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