The Delhi government’s plan to cap hospital profits on drugs and devices like stents is a treatment course best avoided.
The Delhi government’s plan to cap hospital profits on drugs and devices like stents is a treatment course best avoided. The state government, against the backdrop of cases where patients were charged extortionate bills by private hospitals in the NCR, had set up an expert committee last December to look into improving access to healthcare and reducing the out-of-pocket (OOP) expenditure of patients. A study by the National Pharmaceutical Pricing Authority (NPPA) in February, for instance, had said that private hospitals’ profit-margins on various medicines and other consumables were between 350-1,740%; the government is likely to put a 50% cap on margins. While asking hospitals to cap such billing will be immensely popular, the government has to keep in mind that other charges—on rooms or surgeries—will have to go up commensurately if hospitals are to maintain their current profit margins that, interestingly, are on the low side compared to other sectors.
While the NPPA numbers hogged headlines, the high capital and operational expenditure private hospitals in India incur is ignored in the discussion on margins. According to a study published in PLOS One, while total overall capital cost for private hospitals, in 2013, was eight times that of district hospitals funded by the government, land costs were 33% of the overall capital costs for private hospitals whereas, for district hospitals, they were just 19%. In the five years since the study, land costs would have gone up even more. Indeed, given net profit margins for an Apollo Hospitals are just around 3%, 4.4% for Narayana Health and 9.1% for Fortis—ebitda margins are 10%, 12% and 8%, respectively—it is obvious the NPPA-kind of numbers don’t reflect anywhere near the situation on the ground.
Indeed, had the margins been anywhere nearly as attractive as is made out by stories in the media, India wouldn’t have had anywhere near the kind of shortages that is has in healthcare. Delhi, one of India’s most affluent markets has just 2.7 hospital beds per 1,000 people as compared to the WHO average of five. While the government is trying to fix the huge shortage in healthcare through the ambitious National Health Protection Scheme (NHPS) that will cover 10 crore families, unless there is a sharp increase in the number of hospitals, the healthcare shortage cannot possibly ease. Populist caps on prices and profit margins will be welcomed by the general public—and the non-pink media—but all they will do is to increase the already constrained supply of healthcare, especially if the Delhi-caps spread across the country.