By- Ritesh Kumar Singh
After capping the price of coronary stents in February, the National Pharmaceutical Pricing Authority (NPPA) imposed price control on orthopaedic implants on August 16 to “check overcharging and unethical profiteering and make healthcare affordable.” This follows a government notification on June 29 that declared 15 widely-used medical devices including balloon catheters, heart valves, disposable syringes, oxygen masks, urinary bags, and intraocular lenses as “drugs” under the Drugs and Cosmetics Act, 1940. That is the first step towards controlling their prices. However, it would be interesting to analyse if imposing price caps would end price-rigging and profiteering by unscrupulous private hospitals.
Private hospitals are found to be charging up to 500% of the actual cost for life-saving medical and surgical devices. That jacks up the overall cost of healthcare services and makes it unaffordable to many in a country where out-of-pocket medical expenses are as high as 70% of the total. Thus, it makes sense to impose price control.
However, the imposition of price caps may choke the supply of life-saving medical devices and discourage their production locally. Subjecting major bulk drugs to price control vide the Drugs Price Control Order, 1995, led many pharmaceutical companies to gradually move out of production that had a cascading effect on the supply of formulations made from price-capped bulk drugs. It’s no secret that India is now heavily dependent on the import of bulk drugs and active pharmaceutical ingredients (APIs) from China.
Post the imposition of price cap on stents, many suppliers threatened to stop manufacturing and importing coronary stents, though the government momentarily forced them not to do so. However, it’s safe to conclude that India may have to rely even more on imports of price-capped medical devices. As the latest innovations are expected to be expensive, price caps will induce the import of low-quality devices that will ultimately hurt patients. Moreover, it can also dampen the prospects of India’s fast-growing medical tourism industry. Worse, it may induce nationals who can afford to go abroad for medical treatment.
India’s healthcare services sector is an under-supplied industry. Private healthcare providers account for over two-thirds of all patients, as overcrowded and underfunded government hospitals are always short of beds, doctors, devices or essential medicines, as evident from the death of over 70 children in BRD Medical College Hospital Gorakhpur.
There’s always a long waiting list for critical surgeries and a patient needs influence (or a little help from touts) to jump the queue. As a result, patients either go to private hospitals if they can afford or suffer from deteriorating health. Thus, it’s the appalling state of government hospitals that forces even the poor to go to private hospitals.
There is no serious competition to private healthcare providers from government hospitals. Besides, the market for healthcare services is characterised by imperfect competition where the seller knows more than the buyer who can’t shop around and bargain for the best deals, especially during medical emergencies. That puts patients (poor or rich) at the mercy of private hospitals.
This encourages rampant unethical business practices by unscrupulous hospitals, starting with overcharging to performing unnecessary operations or prescribing expensive medicines or diagnostic tests. Such practices are common even in developed countries. However, the extent of medical malpractice and price-rigging is unreasonably high in poorly-regulated India’s healthcare sector. Thus, some form of government intervention is needed to rein in private hospitals. However, imposing price controls is too simplistic a solution to work.
The major reasons for overcharging or unethical profiteering by private healthcare providers are lack of competition and information asymmetry, i.e. the seller knows more than the buyer. That can’t be tackled by imposing price control, which may bring many unintended consequences such as reduced investment and eventually the shortage of life-saving medical devices.
Roughly 60% of medical and surgical devices used in India are imported. Unlike medicines, India’s underdeveloped indigenous medical device industry can’t really supply the country’s ever-growing requirements. Moreover, imposing price caps on medical devices will induce private hospitals to raise the charges of procedures/fees/bed rentals (to compensate for lower margins on devices), unless the government wants to impose price caps on every medical item.
A long-term and non-market-distorting solution to overcharging or unethical business practices by private hospitals is to improve facilities in government hospitals. If relatively cheaper and quality options are available, patients will automatically opt out of unscrupulous hospitals. That would require an increase in public spending on healthcare—a meagre 1.4% of the GDP goes towards healthcare (compared to 3% in China or 4.3% in Brazil)—and India needs to raise it to at least 2.5%. That would also require cutting red tape, reining in corruption and fixing accountability in government hospitals, and agencies and departments controlling them.
The government should instruct all healthcare providers—private public—to display all charges and fees for all kinds of treatment, including prices of medical devices and instruments, on their websites, so that the buyers of healthcare services can decide where to go and which facilities to use. This will reduce information asymmetry and improve transparency.
Though overcharging and profiteering is a serious problem, imposing price controls is a bad medicine that will have many side-effects, including reduced investment and shortage of life-saving medical and surgical devices in the country. The long-term solution lies in improving the quality of government hospitals.
The author is a corporate economist based in Mumbai.