INSIGHT

january 3, 2015 vol l no 1 EPW Economic & Political Weekly32

The views expressed are personal.

Meeta Rajivlochan (meeta29@hotmail.com) is an IAS offi cer in Maharashtra.

Improving Healthcare Services at Reduced Prices

Meeta Rajivlochan

The key to improving the quality of healthcare services in India and reducing costs at the same time can be found by enacting legislation which lays down minimum standards of patient care. In the absence of such standards and the reluctance of health insurance companies to standardise either price or quality, healthcare services continue to be expensive and of doubtful quality. Developing standards of patient care by legislative mandate and a change in the attitude of health insurers can change the equation in favour of the patient who is now at the mercy of the hospital.

Expecting improved healthcare services at reduced prices seems contradictory. Surely any improve-ment in any service must necessarily entail a rise in cost? While there is a need to increase expenditure on health there is also a dire need to cut down costs. Cost escalation is needed where existing pricing systems have little slack. This is not the case where healthcare delivery in India is concerned. There is not only a great deal of slack in the exist-ing healthcare pricing in the private sector but also, in order to bring it down without causing loss and benefi ting all is very much possible.

Before doing that, we would like to say that existing high prices for facilities in the private healthcare sector are no guar-antee of high quality just as the low prices of facilities in the public sector are no i ndicator of poor quality. Actually where the practice of the healthcare sector is concerned, pricing is not an indicator of much. The one factor that makes such a contradictory state of affairs possible is the fact that there is no professional con-sensus on what constitutes good patient care, and nor is there any legislative man-date on delivering it or on establishing controls on how this is being done.

Clinical vs Economic Sense

Self-regulation by the market just does not work where healthcare is concerned. The externalities in healthcare are too many. This is why there are so many re-ported cases of nursing homes conduct-ing caesarean sections even where nor-mal deliveries were entirely possible; this is why hysterectomies are conduct-ed on unsuspecting women. That wom-en have lesser control over their bodies is only one of the issues here. The main reason for the contradiction is this: clini-cally it may make better sense to conduct

a normal delivery on a female or to give drugs to angina patients but economi-cally it makes better sense for the health facility to conduct a costlier procedure like a caesarean section or an angi-oplasty. Simply put, what is good for the patient may not be so good for the health facility which is treating him/her. The only way to resolve this situation is to have transparent standards of patient care coupled with effective regulatory mechanisms to enforce these. Those who fi nd the word regulation like the proverbial red rag to the bull, should ask themselves how many times they have dared to request their doctor to pre-scribe a generic medicine instead of a branded one and got a negative answer or how many times they have been cheated by a healthcare facility. For peo-ple who have a negative answer to either question, we can only say that they are either extraordinarily lucky or extra-ordinarily nave.

1 Standards of Patient Care

Quite simply regulating healthcare means two things: fi rst, drafting stand-ards of patient care, and second setting up implementation machinery for moni-toring the same. It sounds simple but as with all good things, it is rather diffi cult to do. These are matters that have been discussed in great detail in professional journals but have seldom been translated into practice on a large scale.

Standards of patient care would mean, among other things, pricing standards. Developing such standards means that the hospitals would need to work out the costs of carrying out any specifi c proce-dure. For instance, what would it cost a hospital to treat a patient needing a heart bypass, beginning from his entry to the hospital up to exit? Most private healthcare facilities which are doing good business would already have a break-up of the costs involved. But mak-ing such a package public is akin to invit-ing fl ak. After all if we were to add up the prices of all the items needed for a heart bypass ranging from consumables like catheters, oxygenator, cannulae, medi-cines, etc, to the fees of the surgeons,

INSIGHT

Economic & Political Weekly EPW january 3, 2015 vol l no 1 33

anaesthetists, and others along with the costs of stay, it would be diffi cult to drive the fi gure much beyond Rs 1 lakh. How then would a fi ve-star hospital justify charging Rs 5 lakh for the procedure? These are the margins existing in the business as of now.

The answer to the question of how such large margins are possible lies in the scarcity of hospitals and of doctors avail-able for such operations. Limited supply means that the facilities charge whatever they think the market can take. If poorer people are priced out altogether, that would not affect the hospitals much since supply is so scarce in the fi rst place and they have suffi cient takers.

Public hospitals could have prevented this by making independent calculations and then making them public. They do not do so perhaps because this would put pressure on them to offer cashless transactions for a variety of ailments which they are unable to. The less said about procurement in a public hospital, the better. It is a constant battle against limited budgets, cost overruns, harried doctors and uncooperative bureaucrats.

Maintaining Standards

So the private sector will not and the public sector cannot take on the task of developing packages for specifi c ailments. Here comes the third party in this trans-action which is the insurance company. The insurance companies say clearly that it is not their task to regulate the health-care sector. Perhaps this is the single-most important reason for the infl ated health-care premiums which they charge and patients unwillingly pay. Pricing stand-ards are only the beginning of the story. Standards of patient care would also mean quality of care standards. What do we mean by quality of care standards?

Patient care processes in any health-care facility have multiple aspects: the numbers and quality of human resources, status of infrastructure and equipment; maintenance of medical records; keeping track of hospital-acquired infections; monitoring medication to ensure safe drug delivery; the use of standard operat-ing protocols; keeping track of adverse events like drug reactions, medication e rrors, unforeseen complications, etc. A

high quality patient care standard would attempt to develop benchmarks for each of the processes enumerated above.

To make it simpler, a human resource benchmark would mandate that all in-tensive care units (ICUs) should have a nurse: patient ratio of 1:3 and for patients on ventilator, a nurse: patient ratio of 1:1. An infrastructure indicator would be that the operation theatres (OTs) have uninterrupted water and power supply and all ambulances have emergency trays, intravenous fl uids and a trained paramedic. Keeping track of hospital- acquired infections would mean having registers in each ward for surgical site in-fections; for ventilator associated pneu-monias in ICUs, for catheter related uri-nary tract infections and so on. Current-ly almost 95% of the hospitals in the country only note such incidents on the individual case papers. No separate reg-isters for different types of infection are maintained. This automatically means that it becomes impossible to get data on the numbers and pattern of any specifi c type of infection in any facility. Patient care processes are about intensive record-keeping. Failure to keep records makes it impossible to engage in collecting feed-back or in taking corrective action.

The National Accreditation Board for Hospitals and Healthcare Providers in India is charged with the task of developing such standards. By 2013, it had accredit-ed some 275 hospitals in the country out of at least 50,000 establishments. So long as there is no legislative mandate for a hospital to follow patient care standards, no one really sees a need to seek such accreditation. It is often argued that these standards are very costly to maintain and it is not cost effective for hospitals to observe these. However, the majority of the measures described above only in-volve developing and following protocols and rigorous record-keeping. There are 50 bed hospitals which have successfully applied for and obtained such accredita-tion, so why not the others?

Registering Clinical Establishments

If developing standards is such a desira-ble process, how does one go about d oing it? A fi rst step has already been taken by the Government of India (GoI)

in enacting the Clinical Establishments (Registration and Regulation) Act in 2010. This provides a basic legislative framework for registering all clinical e stablishments and for developing standards for different types of facilities, whether maternity homes, super spe-cialty hospitals, pathology laboratories or ayurveda centres. As of now, it has been implemented in all union territo-ries as also the states of Arunachal Pradesh, Mizoram, Sikkim and Himachal Pradesh. A few others like Uttar Pradesh, Rajasthan, Bihar and Jharkhand have adopted this Act and are in the process of setting up implementation machinery for the same . Kerala and Maharashtra have said that they would enact their own version of the legislation. So any state could use this legislation as a starting point to develop its own bill, if it does not wish to adopt the central law.

A word of caution here. The story of Indian governance is about a series of well-meaning measures which fail at the implementation stage. While embarking on this task, we need to be sensitive to the reasons for the failure of the present legislation and to ensure that these mistakes are not repeated.

One of the basic reasons why the ex-isting Nursing Home Acts extant in some states do not function is that no machin-ery has been created for its implementa-tion. The healthcare personnel in the service of various state governments are tasked with providing healthcare, not regulating it. For carrying out this func-tion, separate machinery needs to be created. To ask the civil surgeon and dis-trict health offi cer who are already im-plementing a hundred other program-mes, to also look after the regulation, is a futile exercise. Nothing extensive is needed except minimally one offi cer with basic staff in each district or ward as the case may be, for registering the thousands of clinical establishments in the country today.

Second, to make things simpler for all concerned, web-enabled applications are needed with a user friendly interface to facilitate self-registration by the various clinicians and hospitals. This would e nsure that the hospitals and clinics

INSIGHT

january 3, 2015 vol l no 1 EPW Economic & Political Weekly34

would not need to actually visit any offi ce unless there are some deviations from the standards proposed. Also, the task of the government machinery would simply be to sift through the data and check for any signifi cant deviations and also to disseminate information about the standards being adopted to the maximum extent possible.

Finally, having citizen stakeholders on board in each of these authorities would certainly help achieve more transparency and also provide a much-needed feed-back mechanism. Currently a great problem in existing government func-tioning is that citizens are rarely en-trusted with civic duties which would give them some idea of the complexity of problems facing the state. A lack of in-volvement of the citizenry also means that government offi cials rarely receive feedback about what is happening un-less they themselves make serious efforts to go out and obtain it.

Once precautions on the above lines are taken, there is every reason to be-lieve that healthcare regulation would actually succeed in its appointed task.

2 Prices of Health Services

Once healthcare regulation is put in place, the state machinery can then make use of the enabling environment created to bring down prices of health services. Medicines and medical devices are one of the most important compo-nents of these services. Medicine prices have just as much to do with the manner in which pharmaceutical companies and druggists operate as with the prescrib-ing practices of doctors. Entire legions of medical representatives are deployed by the pharma companies with the sole object of disseminating information about their drugs to doctors and encouraging them to prescribe these drugs. This is the fi rst barrier that needs to be broken.

Some countries like Bangladesh have for decades implemented a drug policy emphasising generics and have prohibit-ed the manufacture of branded drugs deemed to be either hazardous or of no therapeutic value. As a result almost 80% of drugs sold in Bangladesh are g eneric drugs but this is not the case in India. And prices of branded formulations

are far higher than generic ones. Given the trajectory of development of the pri-vate pharma sector in India, it seems dif-fi cult to enact legislation as Bangladesh has done. Still there is much that can be accomplished even given the adverse in-centive structure of the pharma sector.

A way out for government hospitals is to use the single payer mechanism. To implement this, the fi rst requirement is to take away the burden of procuring all but emergency items from government hospitals. Staff in these institutions is over worked, less than required, under constant pressure and ill equipped to handle the challenges of procurement. For that a dedicated staff and team is needed. The one role for the medical personnel is to frame the specifi cations and to check whether material supplied is as per those specifi cations. The rest is a job for a dedicated management team.

Such procurement teams rarely exist in the government machinery; the result is that the same medicine is being pro-cured by a variety of different hospitals in the same state; the same medicine is procured under different budget heads and often one department head has no idea what the other is doing. Each indi-vidual transaction adds its own price component to the fi nal price.

To break this cycle, fi rst an essential drug list needs to be drawn up by the procurement team. This exercise when conducted in Rajasthan and Maharash-tra showed that the actual list of essen-tial medicines needed for all levels of care was fewer than 500 while routinely procurement was being done for over 2,000 drugs. This rationalises the entire procurement exercise a great deal, saves much time and effort. Once this is done, software is used for collating the indents of the hospitals throughout the state and money from different budget heads is merged. Once the self-same paraceta-mol or amoxycillin as the case may be, is procured in bulk and under a single pay-er system, prices come down by up to 100%. The margins in the pharma busi-ness are considerable and this is the only way to approximate wholesale prices. Generating transparent e-receipts for goods supplied, and payment in 30 days can bring down prices further. To recap

an old maxim, there are no free lunches. Where suppliers know that their payment will come through six months l ater, they would factor in that much interest into whatever price they charge. Wherever suppliers know that they would have to approach 50 different offi ces for pay-ment, they factor in those transaction costs as well. It is the act of removing all these hidden costs which makes the medicines cheaper.

Here is one example. Drug eluting stents are very costly items or so all car-diologists say. The Central Government Health Scheme (CGHS) had been buying them for approximately Rs 60,000 and more for many years and the same was the case with most state health depart-ments in the country. Then someone in the GoI got to know that these prices were marked up by 300% and issued a directive that the prices be slashed. But the medical device companies were re-luctant to oblige. Why should we offer such a discount, they asked. It is a differ-ent matter that they had been offering precisely such discounts to all private hospitals. Then the Public Health De-partment of the Government of Mahar-ashtra fl oated a tender for drug eluting stents making it clear that only the low-est bids would be accepted and also that drug coatings in the same family would be clubbed together for price evaluation. They clubbed the demand of a few gov-ernment hospitals to arrive at a fi gure of approximately 300 stents. They stipu-lated, however, that the stent would have to be either approved by the United States Food and Drug Administration or have the European U nions CE mark. The lowest bid in that tender was Rs 23,700 which was one-third the original price!

Single payer systems, where properly implemented, do work. But again it would be very important to build in corrective mechanisms in this entire process by setting up a call centre for grievance redressal. This way in case patients are unable to access medicines at the pharmacy, at least they can call and make their grievance known.

The Ministry of Health and Family Welfare in the GOI has estimated that an average expenditure of under Rs 50 per capita per annum is suffi cient to cover

INSIGHT

Economic & Political Weekly EPW january 3, 2015 vol l no 1 35

outpatient expenses of most patients. But we need to make every single paisa of that money count and using the single payer system to remove the hidden costs is one way of achieving that target.

3 Problems with Insurance

Once some healthcare regulation is in place, bringing insurance premiums down is much more feasible. The logic of single payer systems remains valid for this just as much as for medicine prices. Maharashtra and Tamil Nadu have shown that for large populations running into crores, fl oating tenders for health insurance for a defi ned set of families fetched a per family premium of Rs 333 in Maharashtra and Rs 497 in Tamil Nadu for an annual coverage of Rs 1.5 lakh and Rs 1 lakh, respectively. These prices also include administrative charg-es. The reason for such low premiums is that while six out of 100 families may fall ill in any specifi c year, premium is paid for all 100. With these premiums and an average per claim cost of Rs 25,000 to Rs 30,000, the insurance company just about breaks even.

Here, there are two kinds of problems that we face: those connected with the healthcare sector as discussed above, and those connected with the structure of the insurance industry itself. Once hospitals agree to work out package rates for specifi c ailments, the job of the insurance company becomes much simpler. But this is not something the insurance companies are eager to do. Their argument is that this is not their job. Their job is simply to offer health insurance in current market conditions; not to change those market conditions.

What the insurance industry does not realise or perhaps it does but does not care is this: healthcare affects far too many lives and has too many ethical dimen-sions for such a view to be tolerable. Healthcare insurance is not just another variety of motor vehicle insurance, whatever the health insurance industry may wish. By pricing market interven-tions, like it or not, they offer price incentives for doing certain procedures and disincentives for doing other kinds of procedures. The task of the state is to see that those prices incentivise the

right kind of interventions and that they are not perverse and against the interests of the patient. Thus to price a caesarean section as much higher than a normal delivery would achieve many more caesareans than normal deliveries, irrespective of what is good for the patient.

The one way to deal with this problem is to develop clinical protocols based on the guidelines of evidence-based medi-cine. That way it would be possible to o ffer the treating physicians guide maps of desirable options when treating a p atient. This is what the professional medical associations in western coun-tries routinely do. For some reason, pro-fessional associations in India, whether of cardiologists, surgeons, gastroentero-logists, etc, with a few exceptions, have not really engaged in this kind of exercise. A beginning in this regard has already been made in Maharashtra and also by the central government with the assistance of top-line doctors. Once the protocols are in place, only some kind of treatments would be allowed and others would be disallowed. What is signifi cant about the Maharashtra experiment is that the insurance company concerned, the National Insurance Company, has agreed to use these protocols. This is a fi rst in the country. Otherwise insurance companies routinely use the least cost solution to health insurance claims irrespective of what may be good for the patient.

But there is another problem and this one has to do with the way in which the insurance industry in India is struc-tured. The insurance industry routinely subcontracts out most of its job, at least where healthcare is concerned, to what they call third party administrators (TPAs). What is wrong with this, you would ask. Is it not normal for jobs to be farmed out on contract basis? Yes it is routine to farm out jobs on contract basis but in this specifi c case what is being done is that the entire task of admitting a claim, beginning from a pre-authorisation to the processing of the bill, is farmed out to an organisation which has no stake in the healthcare of the popula-tion. This creates a most pernicious i ncentive structure. There is a world of

difference between contracting in indi-viduals and contracting in organisations with fi nancial interests distinct and different from the original organisation. The insurance industry, at least arguably, does have some interest in seeing that people fall ill less often and in encouraging wellness. The government shares that interest. The TPA has no such interest. It is doing a job for a fi xed re-muneration. Most insurance companies have hidden clauses whereby the TPAs are incentivised for artifi cial claims con-trol, meaning to allow claims only up to a certain limit and not beyond. Soon the TPAs discover a more lucrative way of making money: of tying up with the hospitals they service for creating fake patients and fake illnesses and thereby earning a steady income. The insurance industry spends a lot of money on con-trolling such fraudulent practices. But administrative controls cannot set right the pernicious incentive structure the mere act of using a TPA creates.

There are strong reasons why a gov-ernment needs to use an insurance com-pany for buying hospital services for its citizens. This way there is an impartial mediator to service those needs, to nego-tiate with the hospitals and to process pre-authorisation requests for treatment and the resulting claims. At the same time there is a fi nancial incentive for the company to keep some check on costs. Governments are not equipped for such tasks especially where negotiating dis-counts with hospitals, or indeed with any entity, are concerned. But to further allow the insurance company to sub-contract this job to a stakeholder with zero interest in positive health outcomes is counterproductive.

The insurance industry regulator, the Insurance Regulatory and Development Authority (IRDA) is well aware of the problem and the recent measures an-nounced place severe limits on the tasks that a TPA can do for a health insurance company. But as we said earlier, the per-nicious incentive structure remains; what the IRDA does about it remains to be seen. As a government body the IRDA is expected to take a stance which is in in the interest of the public rather than the industry.

INSIGHT

january 3, 2015 vol l no 1 EPW Economic & Political Weekly36

The way to deal with this problem is to disallow the TPA and persuade health insurance companies to develop domain expertise. After all if they wish to make money on this sector, they need to de-velop some skills for doing it which do not go against the public interest.

Eliminating the TPA would also bring down the costs of health insurance a great deal. Currently health insurance companies are free to charge up to 20% for administrative charges. This is ridi-culously high and can easily be halved, provided that the government also agrees to regulate the healthcare sector and provided that the TPA phenomenon is eliminated.

Commitment Required

All three solutions that have been spelt out above: regulating the healthcare sector, bringing down medicine and

d evice prices and bringing down insur-ance premiums, are very much possible. What it takes is vision and a certain commitment to healthcare.

Several challenges would emerge but all we need is a constructive mindset. First all these systems require the use of and certain degree of comfort with c omputer-enabled systems. They also need good internet connectivity and high bandwidths. Urban areas do not present a problem in these respects but rural areas would need to upgrade infra-structure. Tamil Nadu, Maharashtra and Andhra Pradesh have been implement-ing web-enabled solutions for the popu-lation including rural areas for some years now, so this is very much within the realm of the possible.

Second, such measures would only work where strong mechanisms are set up to receive continuous feedback from

consumers which in turn serves as a self-corrective. Call centres are one such mechanism. Third party evalua-tions are others.

Surely where the results would be so benefi cial to the public at large and no one is harmed, it should be possible to achieve all this and still to bring down prices.

Most important of all in a democracy, we need to arrive at some kind of con-sensus: not only in recognising that there is much that is wrong with our healthcare systems but in terms of the willingness to correct what is wrong. The Clinical Establishments (Registra-tion and Regulation) Act is a step in the right direction. Whether the state gov-ernments will take it up seriously or whether it will be seen as just one more intrusive and costly policy suggestion of the GOI, remains to be seen.

ICSSR Data Access Scheme for PhD ScholarsEPW Research Foundation

Applications are invited from PhD students in universities and colleges for one year access to EPWRF India Time Series (EPWRFITS) for use in their doctoral research. This is to promote Social Science Research through Online Time Series Data Services.

This scheme would enable wider access of PhD students to the EPWRFITS.

(i) Up to 50 PhD scholars will be given access to the EPWRF India Time Series for one year.(ii) Only students outside the ICSSR institutes can apply.

(iii) PhD scholars can request access to any fi ve of the following modules of their choice.

(i) Financial Markets (viii) Finances of State Governments

(ii) Banking Statistics (ix) Combined Government Finances

(iii) Domestic Product of States of India (x) National Accounts Statistics

(iv) Price Indices (xi) Annual Survey of Industries

(v) Agricultural Statistics (xii) External Sector

(vi) Power Sector (xiii) Finances of the Government of India

(vii) Industrial Production (xiv) Insurance

In order to assist in the processing of applications the scholar should state his/her research area. The application form can be downloaded from our website and may be processed through the research guide/department. For further details about the modules the prospective applicant can access a demo version after a students free registration. Please visit website www.epwrfi ts.in.

Address for sending applications and any query:

The Director,EPW Research Foundation, C-212, Akurli Industrial Estate, Akurli Road, Kandivili (East), Mumbai-400 101, INDIA.Phone : 022 - 2885 4995 / 96 FAX : 022 - 2887 3038 Email : admin@epwrf.res.inWebsite: www.epwrf.in and www.epwrfi ts.in