“One corporate hospital’s revenue was hit by about 3%—when stents that were being charged at up to Rs 2,00,000 ($3,041) were fixed at Rs 29,600 ($450)—and the easiest way to recover was to increase the price of medical procedure by 40-45% for patients who pay out-of-pocket. In the last seven months, hospitals have reached the same monthly revenues as before the price was ceiled,” he added while talking about large corporate hospital chains.
As is evident in the graph above. Prices of angioplasty procedures have risen significantly since these were negotiated with a public sector insurance company. (The January 2016 prices are sourced from an RTI application and the current prices are sourced from MediFee.)
The strategy was not very different, just the increase in the price of the procedure was less in hospitals whose primary aim was not profits, said a cardiologist with Christian Medical College (CMC) in Ludhiana. Everyone increased procedure costs, CMC increased it less than other hospitals, he said.
The drug regulator, National Pharmaceutical Pricing Authority, which fixed the ceiling price of stents, was right in shining a light on markups (as much as 650%) which were largely benefitting the hospital. But it was plainly wrong in assuming that hospitals were so blinded by greed that they’d forget to price angioplasty packages efficiently to attract patients.
Why are hospitals not settling for what should be a reasonable margin on stents?
“Don’t ask me how it came about. People would negotiate on procedure costs but once a US multinational manufactured stent came into the picture, no one negotiated. At some point, hospitals realised that it was one of the best ways to ensure profits,” said a senior executive of Narayana Hrudayalaya on the condition of anonymity.
The cardiologists are obligated to educate the patient on all their options, ranging from stents that cost Rs 10,000 ($152) to the ones that cost Rs 2,00,000 ($3,041). The rich make the obvious choice for high-end stents. “Consider buying shoes. The ones with purchasing power would want to buy the expensive one,” he added.
The winner takes it all
The unreasonable margin on stents, in turn, cross-subsidised the angioplasty procedure. It also gives hospitals some room to provide free treatment to emergency patients and poor patients, as obligated by some state governments. By curtailing margins on stents, hospitals now have no incentive to design operationally efficient standardised packages for angioplasty. Patients will have to pay the real cost of healthcare services, the senior executive explained with a sigh.
About 400,000 angioplasty procedures are conducted annually in India, a number that is consistently growing as demand is met by healthcare infrastructure being developed largely by private hospitals.
At Narayana, about 60% of nearly 2.1 million patients that it treated last year, pay cash. And they have no option but to pay the increased price and thus lose out on the benefit of price control of stents that the government had promised. The cash patient has already lost the battle for affordable angioplasty with increased procedure costs. The insurance patient is the winner for now. But is she really?
If Narayana succeeds in negotiating with insurers this month, the remaining patients would have lost the benefit of price-controlled stents, too. Because that’d mean Narayana increasing the angioplasty procedure costs for insurance-covered patients.
Will the insurers give in?
The former CEO of one of the largest private insurance companies explains that some insurance companies may be prepared, like Max Bupa, which tracks prices of four procedures (angioplasty, cataract, knee and gallbladder surgery) closely to have smart negotiations. “Major hospitals have the muscle to pull the negotiation in their favour, but not all of them would be able to,” he said.
Even if they do not succeed in negotiations to revise procedure costs, the hospitals have already started to play tricks with patients on other implants, says a General Manager, Health, of a public sector insurance company in New Delhi.