Private healthcare in India is in the eye of a storm following a series of scandals. The latest is a well known private hospital handing over a dead infant who was thereafter discovered to be still alive. As is to be expected, States are raising the regulatory ante. West Bengal has instituted a regulatory commission and Karnataka has amended and strengthened its 2007 regulation. The union health ministry has written to all States asking them to adopt its 2010 framework, which many have not till now.

Private healthcare is fighting back. Doctors in Karnataka organised public protests and changes were made in the final legislation removing the provision for imprisonment as a punishment. Corporate hospitals are saying we don’t make all that much — 10 per cent return on capital employed, just enough to plough back something.

Private equity funds which were rushing in to invest in Indian healthcare are now having second thoughts. There is something wrong when costly private healthcare becomes the flavour of the season for investment in a poor country where public health service is totally inadequate.

Cuts that hurt

If leading corporate hospitals charging very high rates are making just about enough, where is the money going? A critical clue is provided by the income tax department which unearthed in Bengaluru a widespread practice of doctors and diagnostic laboratories in league to fleece patients. Reportedly, doctors get a referral fee of 35 per cent for MRI tests and 20 per cent for CT scans and other diagnostic tests.

A few months ago the National Pharmaceutical Pricing Authority imposed price ceilings on stents and knee replacements which brought down their costs to patients by over half.

Regulation of private healthcare, when it is the mainstay, is a must. But India is notorious for bureaucratic and rent-seeking regulation. Also, doctors must take critical judgement calls, sometimes at short notice. Even the best doctors with enormous experience make mistakes. The system can hardly work if they begin to play safe.

For regulation to work, it has to have a light touch, be quick with findings and give the benefit of doubt where due. The regulatory body has to be high-powered, politically independent and represent all sections of stakeholders, particularly patients and NGOs active in the field.

The regulator should insist on transparency — hospitals clearly publicising their rates for standard treatments and procedures. Also, there should be normative rates for different types of hospitals as not all private hospitals are posh or located in costly cities.

Health insurance companies, through third party administrators, have approved rates for procedures but the problem is patients invariably pay extra for expenses not approved by TPAs.

Hospitals should publicise standard packages and rationale for additional charges levied recorded. The regulator should get regular data on the percentage of deviation from standard packages. For example, hospital A can report that in December 15 per cent of the patients paid 10 per cent more than the cost of packages. The regulator can then investigate the outliers.

Check commissions

Doctors are the anchors of the healthcare system and most societies hold doctors in high esteem. Conversely, unethical practices cannot be widespread without the active participation of doctors. The foremost job of regulators is to ensure that doctors are not paid commissions for referring patients to diagnostic centres or bringing them to hospitals.

Many hospitals pay a commission to consultants on the bills run up by patients who are under their supervision. While inducements offered by pharma companies are easier to track and prevent, commissions paid by diagnostic centres and hospitals are more difficult to track. The code of ethics of the Medical Council of India for professionals disallows this but it seems a dead letter.

One way in which hospitals can avoid paying commission to consultants is not to have outside consultants, engage them full time and pay them a salary. Narayana Health has only full time consultants. Its charges are at the lower end of the range for Bengaluru corporate hospitals and it sticks to the declared rates for standard treatments and procedures.

There is a sound economic logic for frowning upon the payment of commission to doctors. It creates adverse incentives. The more a doctor recommends diagnostic tests or that a patient should be kept longer in the ICU, the more he earns.

In fact, there is an inherent dilemma with for profit healthcare. It is legitimate for a private hospital to maximise revenue and profit but that implies having a system which seeks to maximise patient expenditure. That is why societies with well run public health services have more disciplined private healthcare providers.

Information asymmetry

But even then another dilemma remains: how to pick and choose between different private providers. In healthcare there is an asymmetry of information. The patient does not know which provider or procedure is good for him. Takshashila Institution suggests an independent Patient Protection Service with one of its officers posted in each hospital with 150-300 beds. Across the world religious and secular nonprofit hospitals carry a big healthcare load. They seek to function professionally, relying mostly on philanthropy to meet their deficits. But storm clouds are gathering over some of them in India.

The Catholic Health Association of India (CHAI), India’s largest non-government network with nearly 2,000 hospitals, is facing multiple challenges. Getting global funding is becoming difficult as the economy booms and India is no longer seen as very poor.

The central government’s policy on foreign funding for NGOs is another hurdle. Plus, retaining the unique pool of motivated doctors and nurses is getting difficult with corporate hospitals making better offers. The association feels it has to seek out social entrepreneurs who do not look for just profit.

“The healthcare scenario is changing” and it is important “for us to look at new ways of generating funds, look for the right investors,” says CHAI director general Mathew Abraham.

The writer is a senior journalist