Health Insurance Reforms Need To Start With Hospital Reforms

When one looks at the room rates in a hotel, there are different prices depending on the kind of accommodation. The starting price point would be, say, Rs 8000 a day which can go up to Rs 30,000 or more depending on the size of the accommodation and the amenities and comforts that go with the same. However, all the extra charges for laundry or room services remains the same across all the customers. This is logical as the customer is already charged a certain rate for the accommodation chosen.

However, when one moves from the hospitality to hospital sector, the charges change dramatically to the point of being absurd. Let us look at the rate list of one of Mumbai’s leading hospitals in the suburbs which is rated as a five-star facility. The rooms have different grades which includes common, economy, twin, special, deluxe, super deluxe and suite. The room charges as of 2023 varied between Rs 2,250 and Rs 35,000 per day with the special room having a tag of Rs 6,750. The last will be used as the mid-point reference for the purpose of illustration as this is normally the accommodation approved by health insurance policies when there are no sub-limit clauses in the policy.

Now the surgeries that are conducted come as packages much like the hospitality sector provides exciting ones for a certain period of stay. The surgeries are listed under different grades which the surgeon decides. Again, for illustration one can look at Grade 5 which is what most of them would put the patient through in the name of being the least invasive procedure. There are never details provided by the hospital on which procedures are included under these grades, and the prerogative is with the specialist.

Now let us look at how this Grade 5 rates look. The packages vary from Rs 2.1 lakh to Rs 5.7 lakh to Rs 9 lakh. These are indicated as deposits and would normally cover the entire stay with a refund of may be up to 5% as is normally the case. The surgeon fees which the hospital calls ‘recommended’ varies from Rs 30,900 to Rs 1.88 lakh to Rs 2.88 lakh and the same for anaesthetist, operation theatre charges etc vary accordingly. The absurd part is that the same operation theatre with the same staff and medicines sees exponential increase as the accommodation becomes pricier.

Should the government be looking at these rates given that there is monitoring of fares charged by airlines as well as on charges for telecom service providers? Interestingly these charges hold only when the patient pays on own account. If there is a known insurance cover which involves a cashless facility, the charges go up even further, which is not disclosed by anyone.

The problem with such pricing is that it distorts the entire business of health insurance. Health insurance is one area where there is maximum asymmetric information just as in the case of a second-hand car. The individual knows what the body condition is like while the insurer can never get to know the actual state despite all tests that are normally made mandatory. This is why insurance premium is very high which is topped by the government imposing a GST of 18%. Finally, the market is completed distorted due to the practices pursued by hospitals. There are never any objections raised by patients because all of them feel that they escaped death or trauma due to the doctor who is considered to be a panacea for all ailments.

People take cover for a certain amount and take into account the fine print of the sub-limits that are covered. While some policies fix it as a percent of the amount insured, others permit a single air-conditioned accommodation. Experience in all hospitals show that when a distressed patient enters the precincts of facility, the ‘admission’ counter invariably offers vacancy in the lowest category and those above the mid-point after gauging the status of the individual. Often marketing targets are given to these personnel and their bonuses are based on ensuring highest capacity utilisation or occupancy in the higher grades of rooms as this is where profit is made across the board by all stakeholders.

Normally the patient’s kin accept it as there is distress where there is no choice. Or there can be the comfort of insurance cover especially if it is cash-less where the hospital can further charge a premium. For the affluent the cost anyway does not matter. The result is that insurance companies often end up making losses on almost 50% of claims. The business survives and remains profitable only because there is a large section of youngsters who take insurance and normally would never use the same. As age advances, so do the claims, which in turn affects the frequency of claims. It is because of these asymmetric payoffs that there are very few reputed private hospitals that have enrolled with the government for the Ayushman scheme.

There is clearly need for the government to get into this rather murky business of pricing by hospitals as this has come in the way of coverage and cost of health insurance. There is little transparency in this business which has affected its affordability. As conditions in state run hospitals are abysmal even the lower middle class opt for these private facilities which can hurt their finances substantially.

To begin with there has to be a transparent price list put up by all hospitals which go with all the charges for a procedure. Second, the price escalation based on cost of the room accommodation should be fixed based on rationality. In the example provide above, the rate list for the deposits given are just not acceptable. Third, setting targets for hospital staff as well as doctors in several hospitals should be a cognisable offence. How often do you have doctors directing patients to a specific higher end hospital even though they perform operations in more reasonable hospitals too? Fourth, there has to be an online availability chart in all private hospitals linked to patients currently in the facility to ensure that patients are not forced to take higher end rooms. This has to be linked with an audit trail. Fifth, revelation of the accounts of the hospital should be made mandatory so that there can be audit of flow of funds.

The problem really is for the middle class. If one is financially challenged there are in existence some norms for reserving rooms for this class. The rich do not really get affected as money does not matter. It is the middle class which actually ends up paying the most for both insurance as well as treatment and hence at the receiving end. This needs to change.

The author is Chief Economist, Bank of Baroda and author of ‘Corporate Quirks: The Darker Side of the Sun’. Views are personal