The National Health Policy 2017: Through the Accountability Lens (Concluding Part)

V. Private Sector Engagement

One section of the policy deals with the engagement of private sector for critical gap filling towards achieving national goals. The engagement proposed has two aspects. One is collaboration and second is the encouragement (incentive based and non-incentive based).

Collaboration is proposed for primary care services and domain based specialized human resources and organizational experience. Encouragement of private providers through creating opportunities for skill up-gradation, participation in surveillance and disease notification and sharing in high-value services such as high-tech labs are proposed as the key strategies. The policy supports volunteerism from recognized health care professionals on a pro-bono basis. The CSR initiatives in preventive and primary care are seen towards contributing to the public good.

To encourage private finance and investments, the NHP 2017 proposes the basic principle of adequate returns on commercial terms that will be assured through contracting and strategic purchasing. The mechanisms of incentivizing private sector would include reimbursements, preferential treatment in empanelment for government health insurance schemes, non-financial incentives such as recognition, and preferences in procurements.

The more relevant point for this section of the policy is that within a profit-maximizing framework, corporate responsibility for healthcare from private sector is always contingent and provisional. Pro bono contributions require an eco-system, and autonomy at the institutional level. The outcomes of pro bono system are not always sustainable but speculative and situational. Any action that may be withdrawn whenever economic conditions change, the system is not based on responsibility but speculation.

Over the years, India has adopted a health care financing system that provides financial protection to a targeted segment of BPL population. A significant part of the population, particularly above poverty line groups, continues to lack access to minimally adequate health services. Health care financing policies in India have tended to widen rather than reducing the gulf between privileged and underprivileged and between rural and urban populations.

The policies over the years have created a significant dependence on the unregulated private sector. Indian health care utilization patterns reflect major influences and preference towards private healthcare sector. The interaction and engagement with the private sector if implemented will happen through a decentralized administration separated at various levels and that too through a highly fragmented responsibility system. It is possible that the evolution of health care financing mechanisms in India will follow, for better or worse, the general experience of the countries having a high dependence on private sector along with the policy dilemmas imposed by aspects of Indian geography, socio-economic situation, and the political economy. Some of the predictable implications are the critical moral hazard from both provider side and no relief from high OOP expenditures. So the policy dilemma we face is what should be the structure of institutional mechanism and administrative processes that should be instituted to strengthen the private sector engagement.

India adopts a sort of free-market system in health care. We have minimum regulations in the health care promoting the concept of medical specialization rather than creating a network of primary care physicians linked through referral system to higher levels of care. Primary care in the process has taken the back seat. Given this, there does not exist appropriate mechanisms for ensuring early detection of health risks. We allow health risks to aggravate and then it fills the demand for specialists. There are no appropriate referrals because of the kind of incentives we have developed in the health sector. The professional barriers have been huge by not allowing alternative forms of health care provision. It is always challenge to break the existing shackles and move forward.

The most parameters of health infrastructure such as doctor-population ratio, hospital beds to population ratio, etc. remain quite unfavorable. What should be the appropriate policies that help in improving the supply of medical infrastructure, promote the development of medical resources in the right areas, change health care delivery methods? Inequitable distribution of services will hamper achieving the health goal.

India should find the real foundation of rationalization of policy, particularly engaging with the private sector. India has far lesser health resources than many other nations, and we face a real risk of India becoming a place of unnecessary procedures, waste, costs and mal-distribution of medical care provision. The consequences of this may be severe, particularly when unmet needs of a large segment of the population remain high.

The argument that through the engagement of private sector, we will be able to reduce the market failure and promote harmony automatically is misplaced. It is recognized that such policies consist of inherently conflicting interest and in the absence of appropriate institutional processes it will be difficult to address this. The private sector is so fragmented, representing diverse groups who do not operate on a level playing field which will create its own problems.

The NHP 2017 provides us an opportunity to initiate an in-depth examination of anticipated implications of market-based health care financing approaches. The way health care financing mechanisms are approached, with a significant absence of the role of institutions in their implementation and increasingly over-engagement with the private sector and the design of health care provisioning with a weak and fragmented government control, we need to look into challenges seriously. However, following any particular approach is always consequential, but never more so than in the case of examining options in India today.

Accountability Towards Implementation

There is urgency to implement what has been said and also thinking through issues raised here. The policies evolve, and we have an opportunity to contribute to its development further.

The existing state of health in the country is in so much of need that any attempt to improve the present position must necessarily involve measures of enormous magnitude. The action has to follow, and promises have to be fulfilled which definitely are out of all proportions to what has been conceived and articulated.

The release of the policy document should not be seen an end in itself and treat this as one of the milestones towards its announcement. On the responsibility to implement the national health policy, Bhore Committee had stated:

It is not for us to apportion responsibility for the somber realities, which face us today. It is with the future that we are concerned and, if the picture is to be substantially altered for the better with the least possible delay, a nation-wide interest must be aroused, and the irresistible forces of an awakened public opinion essayed in the war against disease. Only a vivid realization of the grievous handicap, which is today retarding the country's progress, can help to mobilize an all-out effort in this campaign and infuse into it a driving force, which will gather and not lose momentum as time goes on. If it were possible to evaluate the loss, which this country annually suffers through the avoidable waste of valuable human material and the lowering of human efficiency through malnutrition and preventable morbidity, we feel that the result would be so startling that the whole country would be aroused and would not rest until a radical change had been brought about.

If the health care is a matter of the broad public interest, then policies must reflect defined accountability as well as the commitment of assigned resources, on which the NHP 2017 deserves to evolve further.

The National Health Policy 2017: Through the Accountability Lens (Part 4)

IV. Health Finance

In the absence of a real resource commitment to implement the policy, any strategy is a statement of dreams.  Asking pointed and relevant questions on the resource envelope and how the proposed activities are going to be financed can help discerning the real intent of the policy.

The NHP 2017 sets three targets for health finance: (a) increase health expenditure by Government as a percentage of GDP from the existing 1.15% to 2.5 % by 2025, (b) increase State sector health spending to > 8% of their budget by 2020 and (c) decrease in proportion of households facing catastrophic health expenditure from the current levels by 25%, by 2025.

Our budget allocations go through an elaborate process of vetting and approvals by the Niti Aaayog and the Ministry of Finance. The complexity of this resource allocation is well known. Health is a state subject and gradual phasing of centrally sponsored programmes, the success of any strategy hinges on the contributions made by states to the overall resource envelope. Given the fiscal position of several states, there would be a huge challenge for the states to prioritize the health, even though they now receive higher untied allocations from the centre. NHP 2017 is silent of this dynamics.

It may be noted that the policies and government pronouncements in the past had strongly advocated for an increase in public expenditure on health. The important question in NHP 2017 context is what is the government plan to make this happen and whether there would be a way to institute accountability on states to draw the resource envelope in a desired manner. The NHP is not explicit on this and the promises made in the past.

The policy advocates allocating major proportion of the resource envelope (up to two-thirds or more) of resources to primary care. The existing budgets are too committed to grant any scope and flexibility for the reallocation of resources. So this would be possible only if new additional untied resources are generated, and, therefore contingent upon the resource generation strategy about which the policy takes a perfunctory view without defining appropriate responsibilities.

With the baggage of huge neglect of primary care and too much dependence on hospitals, the health system has gradually drifted towards emphasizing expensive, overspecialized care making resource envelope too rigid. The lack of investments in primary care and also on public health precludes a referral system and addressing health risks at an early stage. The coordination between primary care and government health insurance schemes focusing on only hospitalization remains weak as the institutions and administrations in government handling the GHIS and primary health remain administratively separated. Further, the lack of coordination between and within programmes compounds the issues. The policy has not immersed deep to take an integrated view on this and how the system needs to be set right.

It is well established that the application of Cost-Effectiveness Analysis (CEA) methodology provides justification for making appropriate choices for the health sector. At present its use is limited in the health decision making. In fact we have compromised on the introduction of new and expensive technologies as many medical interventions have been introduced over the years without doing appropriate and contextual CEA. As a result, we have adopted practices responsible for passing on an increasing proportion of costs to patients leading to the high OOP expenditures on health. 
The recent example of cardiovascular stents is an example.

The NHP 2017 takes a clear view on inclusion and prioritization on the basis of cost-benefit and cost-effectiveness analysis in programme design and evaluation. This would contribute significantly to increasing efficiency of public and private expenditure. 

However, we will need adequate resources and attention for putting the appropriate institutional structure, capacities and processes in place. The focused efforts among other things should also address issues of standardization of methods, addressing various biases that may creep in such analysis and keeping the reviews objective and free from different vested interests. Along with the capacity building, the strategy would also need developing collaborative linkages across various institutions and making the participation of health economists and other disciplines possible, away from medico-centric approach, in such initiatives. Engagement with stakeholders such as IRDA and insurers who have a vital interest in this area must contribute to this effort and institute framing guidelines for making the CEA of interventions a mandatory requirement for all health interventions.

The policy proposes that a robust National Health Accounts System would be operationalized to improve public sector efficiency in resource allocation/payments. The state-level health accounts methodology and studies based on this have served the purpose of informing the policy makers about the seriousness of OOP expenditures on health. Improving efficiency of the public sector is much more complex and multi-dimensional and needs strategies beyond health accounts methodology.

The NHP 2017 has outlined reforms in financing for public facilities. The proposal is to bifurcate the costs in two buckets - operational costs and establishment costs. The later will continue to flow as it is, but the former will be now on reimbursement based. In the absence of budgetary control system and performance based evaluation, it is not clear how this system of bifurcation will work in real practice. The health establishments across the board will remain contended to receive fixed component (such as salary) and not raise any concerns for not receiving resources for operations. What will be the game changer here? The system does not ensure that the existing inefficiencies embedded in the system today will not be carried forward. In the absence of autonomy and appropriate performance accountability system linked to illness burden and public health responsibilities, the mere tinkering of costs have little reform potential. A comprehensive view of public facility autonomy and accountability of which cost classification could have been an integral part of the scheme of things to implement.

Overall, the health care financing approaches in India have remained lopsided focusing on demand side interventions and high dependence on the private sector for both inpatient and outpatient illnesses. The key policy dilemmas are: (a) how healthcare financing mechanisms can address the issue of supply side, (b) what institutional and administrative mechanisms should be instituted to strengthen the private sector engagement and (c) what should be the healthcare financing mechanisms to address primary care challenge.

These policy dilemmas need to be addressed as our national health policy evolves.

The National Health Policy 2017: Through the Accountability Lens (Part 3)

III. Strategic Purchasing 

The NHP 2017 advocates for the strategic purchasing. Its effects can be significant as it  helps in aggregating the demand for health care, unbundling and outsourcing some components within the health production process. Governments get in better position to restructure the supply-side of the market by responding to the needs of the population and strengthen developing mechanisms of greater integration of primary and hospital care.

However, it is not clear how the government will realize these benefits from strategic purchasing through existing Government financed health insurance schemes (GHISs).

The policy states that GHISs shall be aligned to cover selected benefit package of secondary and tertiary care services purchased from public, not-for-profit and the private sector in the same order of preference, subject to availability of quality services on time as per defined norms. 

This view does not reflect the fact that insurance companies already deal with a highly fragmented private health service providers and has its own problems in aggregating the demand.

There is general belief that some of the services such as diagnostic and various investigative procedures can be produced efficiently by the private sector and governments can buy these services and make them available to people in need. It is important to understand the context and characteristic of health markets in the background of policy option of strategic purchasing. One of the features on which the markets are typified is whether they are contestable. Contestable markets are one that has no exit/entry barriers. If in that market prices increase much beyond the average price level (and generate excess profits), potential rivals will enter the market to exploit this situation. The existing players will respond by bringing down the prices appropriate to yield normal profits. The perfect contestability will make it sure that even a single player can exhibit competitive behavior.

The way the medical markets have grown in India with no control on the need (domain and geographic specific), this market is not perfectly contestable as there are huge sunk costs creating huge barriers to exit and entry. It may be hard to find a suitable buyer of assets once it is discovered the entity is not doing well. 

Compounded with this is the fact that most decisions to use a particular procedure is decided by the doctor and not by the patients leading to a situation of information asymmetry between doctors and patients. Given perverse incentives, this leads to a situation of supplier-induced demand. With these imperfections, it is well known that insurers are not in position to address this problem. For example, the fee for service system, which increases the discretion and unnecessary clinical interventions, adversely affects insurance. In private health care settings, in particular, the ability to pay takes precedence over the need, and pricing policies give dominance to business interests over health care. The recent cardiovascular stents pricing illustrate this point leading to strong regulations.

Some countries have made reforms towards improving the contestability in the health markets by separating the role of purchaser and provider. This is done through formalizing relationships between buyers and sellers in the form of contracts, which articulate the volume, price and quality characteristics of transactions aimed at improving contestability in health markets*. This is the reform UK embarked on through the creation of quasi-markets when District Health Authorities were assigned the role to assess local health care needs and purchase "cost-effective" treatments to meet these needs within available budget**.

NHP 2017 proposes to step in areas of strategic purchasing without examining the contours of reforms critical for its successful implementation. 

The pace and consequences with which the process of strategic purchasing unfolds in the system are always unpredictable. There are several reasons for optimism for these strategies, but at the same time, some well known grounds for caution need to be addressed.

How does one instill accountability and responsibility of clinicians recommending the purchase of services without having sound budget culture? In a large system clear identification of roles and rules is a challenge and on top of it ensuring (a) what is being purchased, (b) for whom it is purchased and (c) of what quality requires sophisticated responsibility/accountability systems in place. How does the system protect from market price manipulations and inflation in costs? Just stating that multi-stakeholder trusts or registered societies with institutional autonomy will be created is an over simplification of the strategic purchasing challenge.

The policy makes a suggestion for creating a robust independent mechanism to ensure adherence to standard treatment protocols. The mandatory disclosure of treatment in a transparent manner and compliance to right of patients to access information should be an integral part of the system reform. But they should not be seen just in the context of strategic purchasing only.

Given we have limited knowledge of cost-effectiveness of various technologies available, the problems of measurability and contestability associated with expensive, complex and concentrated procedures may require a stronger regulatory environment and skilled contracting mechanisms before governments can rely on obtaining these services from the private sector*. 

The accountability framework for strategic purchasing strategy needs to evolve.

* Alexander S. Preker, April Harding, and Phyllida Travis (2000) ‘‘Make or buy’’ decisions in the production of health care goods and services: new insights from institutional economics and organizational theory. Bulletin of the World Health Organization, 2000, 78 (6) 779-790.

** Alan Maynard (1991) Developing the Health Care Market. The Economic Journal, 101:1277-1286.

The National Health Policy 2017: Through the Accountability Lens (Part 2)

II. National Health Insurance Scheme (NHIS)

One finds it perplexing that there is no discussion on national health insurance scheme (NHIS) of the Government of India in the NHP 2017.  The 28-page NHP 2017 document makes one passing reference to NHIS in context of covering selected benefits through strategic purchasing by the government.

Various state governments during the last decade have responded to OOP expenditure on health challenge by implementing demand side financing options. For example, the implementation of targeted health insurance options such as RSBY and RSBY+ by pooling the risks and providing protection from catastrophic expenditures started by the Ministry of Labour and later shifted to Ministry of Health and Family Welfare has been one major health financing reform.

As per the IRDA annual report of 2015-16, about 273 million persons are covered through various government-sponsored health insurance schemes currently in India. The annual spending by government, having contributions from both centre and state, on these schemes is about Rs 2,500 crore per annum of which the central assistance is to the tune of Rs 1500 crore. 

The announcement of new health protection scheme by the Finance Minster during 2016-17 budget speech also proposed an incremental health reform for RSBY by promising to increase the health cover to Rs 1 lakh from Rs 30,000 per family per annum. An additional top-up package of Rs 30,000 for senior citizens was also approved and implemented with effect from 1 April 2016.

The implementation of NHIS has been projected an important foundation for the national framework for the universal health care (UHC).

The situational analysis report presented as part of NHP 2017 identifies a number of challenges with NHIS. However, The NHP 2017 does not give any indication how the government would like to take this important demand side intervention forward and how are they going to address various challenges in implementing this insurance scheme.

One was expecting some discussion and deliberation on the NHIS. For example as can be seen from figures presented below, that in 12 states the targets of family coverage are below 60 percent and in significantly a large number of states the utilization of the scheme remains at very low levels (source RSBY Programme website http://www.rsby.gov.in/Statewise.aspx?state=16 accessed on 20 March 2017).

We have lost an opportunity to discuss an important issue on the role of insurance in national health protection and inclusiveness of population coverage (targeted to universal).

Among other things issues such as inclusiveness and comprehensiveness of benefits and coverage including integration with primary care were critical at this juncture of making health protection strategy effective. 

The policy could have laid the foundation for articulating strategies to strengthen the NHIS focusing on the 

• administration and institutional framework to ensure standards for service providers, 
• incentives for efficiency in the use of medical resources, 
• reimbursement of providers, and 
• delivery and resources. 

All these have a significant bearing on the impact on the efficiency of resource use. The policy has missed an opportunity to reflect on the national health protection programmes and pathways of balance the system of reforms on (a) population coverage (who benefits and basis of subsidizing their needs), (b) programme benefits (and incentives for efficiency in the use of medical resources) and (c) financing (equity issues in financing) with implementation feasibility. 

None of these find a reference in NHP 2017.

The National Health Policy 2017: Through the Accountability Lens (Part 1)

Background

The health policy broadly defines the key strategies of the government contouring its role and the proposition of engagement with the principal stakeholders towards achieving health goals. There are two reasons why the government’s role is pivotal in the health sector. One is because of severe market failure, which among other things include problems of imperfect and asymmetric information, and failure of markets because of significant externalities. The health policy must ensure that government strategies are aimed at correcting or compensating for these failures. Second is the doctrine of beneficence suggesting moral obligation of the government to act for the benefit of its citizens, often by preventing or removing possible harms. Within the backdrop of SDGs, the NHP 2017 approved by the Government recently sets its goal as:

Attainment of the highest possible level of health and well-being for all at all ages, through a preventive and promotive health care orientation in all developmental policies, and universal access to good quality health care services without anyone having to face financial hardship as a consequence. This would be achieved through increasing access, improving quality and lowering the cost of healthcare delivery.

I. Collectivists View of Health Financing and Delivery

Nearly seven decades ago in 1946 Bhore Committee had put forth the collectivist view arguing that health services would be available to all citizens, irrespective of their ability to pay. This view was construed at a time when globally there was the belief that willingness to pay and ability to pay can guide the allocation of health care resources in any country and the development of the strategies can be designed based on these two principles. A few decades later this collectivist view was rearticulated in Thatcherism era in the UK in the eighties as follows:

Adequate health care should be provided for all, regardless of their ability to pay, must be the foundation of any arrangement for financing the health services.

The NHP 2017 reiterates this view of the provision of universal access to good quality health care services without anyone having to face financial hardship as a consequence. The NHP 2017 echo’s the Bhore Committee view, which among other things had suggested that:

There should be provision for every patient, if his condition requires it, to secure the consultant, laboratory and other special services, which may be necessary for diagnosis and treatment. There should also be provision for the periodical medical examination of every person, sick or healthy, so as to ensure that his physical condition is appraised from time to time and that suitable advice and medical aid, wherever necessary, are given in order to enable him to maintain his health at the highest possible level.

The Committee at that time had laid down the basic foundation for the health delivery system in India suggesting that the most satisfactory method of solving this problem would be to provide a whole-time salaried service which will enable governments to ensure that doctors will be made available where their services are needed. Based on this strategy and following Alma Ata declaration India developed and implemented a comprehensive structure of primary, secondary and territory care system to ensure health for all. However, due to health transition and various emerging challenges, the performance of health system particularly in recent times has not met the expectations. India could not achieve all the MDGs. Today the health system is not in shape to address the NCDs, which now account for 60% of country’s illness burden. We are deficient on most critical health system parameters.

The significant reliance on the private sector has resulted in high OOP expenditures on health, and over 63 million persons are pushed into poverty every year due to this. The policy recognizes that public health delivery system is not responsive and fails to provide healthcare to all. The consequences of OPP expenditures on health care are serious affecting lives of a large section of the population. These and other challenges arose because of the public health sector, which assumed responsibility for producing and distributing the services, and it was not able to cope up with the demand or also turned out to be inefficient. The collectivist promise of previous policies, starting from Bhore and then in 1983 and last health policy of 2002 could not be delivered. The fact remains that the health system is not able to cover the entire spectrum of health care needs.

To meet these challenges, the NHP 2017 puts the fulcrum on the public health system in following words:

Reinforcing trust in public health care system by making it predictable, efficient, patient centric, affordable and effective with comprehensive package of services and products that meet immediate health care needs of most people.

Towards this the policy has set a target of increasing utilization of public health facilities by 50% from the current levels by 2025. However, the key strategy and the details of institutional reforms as a step towards the government plans to strengthen the public systems remain to be seen. The NHP 2017 falls short on this dimension of outlining the process of reforms except stating that the strategy of having periodic measurement and certification of the level of quality as a strategy to reform the public systems. One doubts whether these measures outlined in policy are going to deliver the results without considering and attending to the institutional, structural and incentive reforms and examining the responsibility structure in the health system. During this transition, the policy states that there would be many challenges and as an intermediate step the policy suggests:

Purchasing care after due diligence from non-Government hospitals as a short-term strategy till public systems are strengthened.

It remains to be discerned how states are going to participate in the reform process and initiating change process to strengthen and create trust in pubic facilities as most of them are within the state level jurisdictions.

New National Health Policy of 2017

The Government of India finally approved the new National Health Policy (NHP) 2017. Through this blog I am providing a brief synopsis of this policy.

Objective of the Policy

The main objective of the NHP 2017 is to achieve the highest possible level of good health and well-being, through a preventive and promotive health care orientation in all developmental policies, and to achieve universal access to good quality health care services without anyone having to face financial hardship as a consequence. 

The policy puts appropriate emphasis on prevention and promotion of good health. The NHP advocates allocating major proportion (two-thirds or more) of resources to primary care followed by secondary and tertiary care. I welcome this statement part as focus on primary care is critical to reducing future burden in the society. However, we need to have strong monitoring systems that health budgets are allocated keeping the focus on prevention.

The policy informs and prioritizes the role of the Government in shaping health systems on the following dimensions:

• investment in health (commitment to increase government health spending to 2.5% of GDP in time bound manner)

• organization and financing of healthcare services

• prevention of diseases and promotion of good health through cross-sectoral action

• access to technologies

• developing human resources

• encouraging medical pluralism

• building the knowledge base required for better health, financial protection strategies and 

• regulation and progressive assurance for health

The roadmap of the NHP 2017 is predicated on public spending and provisioning of a public healthcare system that is comprehensive, integrated and accessible to all. The Policy seeks to reach everyone in a comprehensive, integrated way to move towards wellness.  It aims at achieving universal health coverage and delivering quality health care services to all at an affordable cost.

The policy also looks at reforms in the existing regulatory systems both for easing manufacturing of drugs and devices, to promote Make in India, as also for reforming medical education.

The policy seeks to ensure improved access and affordability of quality secondary and tertiary care services through a combination of:

• public hospitals and strategic purchasing in healthcare deficit areas from accredited non-governmental healthcare providers, 

• achieve a significant reduction in out of pocket expenditure due to healthcare costs, 

• reinforce trust in the public healthcare system and 

• influence operation and growth of private healthcare industry as well as medical technologies in alignment with public health goals

The policy emphasizes reorienting and strengthening the Public Health Institutions across the country, so as to provide universal access to free drugs, diagnostics, and other essential healthcare. While the policy seeks to reorient and strengthen the public health systems, it suggests examining afresh at strategic purchasing from the private sector and leveraging their strengths to achieve national health goals. The policy looks forward to have a stronger partnership with the private sector.

The NHP, 2017 advocates a positive and proactive engagement with the private sector for critical gap filling towards achieving national goals.  It envisages private sector collaboration for strategic purchasing, capacity building, skill development programmes, awareness generation, developing sustainable networks for the community to strengthen mental health services, and disaster management. The policy also advocates financial and non-incentives for encouraging the private sector participation.

It also advocates extensive deployment of digital tools for improving the efficiency and outcome of the health care system and proposes the establishment of National Digital Health Authority (NDHA) to regulate, develop and deploy digital health across the continuum of care.

CSR Spending on Health: The Promise of Altruism

India's Companies Act 2013 mandates companies to spend about 2 percent of their profits on CSR. Crisil in their CSR Yearbook finds that 1505 companies were meeting conditions to have mandatory CSR spending requirement in fiscal 2016. Of these companies, 77% have reported their CSR spending. 

Overall the CSR spending has increased from Rs 6,841 crores to Rs 8,349 crores from 2015 to 2016 fiscal, showing an increase of 22 percent. The spending on health and sanitation has shown an impressive increase of Rs 739 crores (39 percent increase over last year) and the total CSR spending on health and sanitation is Rs 2,614 crores. The share of Health in CSR spending is about 31 percent. 

Most of these spendings have been routed through various NGOs.

 CSR Spending on Health 2016 (Rs Crores and %)

Source: Altruism Rising: The CRISIL CSR Yearbook, January 2017

Increase in CSR Spending Sector-wise in 2016 (Rs Crores)

Source: Altruism Rising: The CRISIL CSR Yearbook, January 2017

Of course, there is significant challenge of CSR spending on health. The cost-effectiveness of interventions needs to make an integral part of these investments. The CSR spending can not substitute state action, and in health, the collaboration with government will bring the scale make interventions cost-effective. Achieving health goals need a lot of behavioral changes at various levels, and these interventions are implemented through civil society. Ensuring that these interventions are effective will need flexible funding. Complimenting and collaboration are the routes to create maximum impact. 

Source: Altruism Rising: The CRISIL CSR Yearbook, January 2017

A Nuanced View of Gender Based Health Financing

In one of my courses on Health Insurance which I used to offer in the second year of PGP at IIM Ahmedabad, we used to discuss one interesting reading on "risk selection and risk adjustment" (see the reference below). The principal theme was using information about age, gender and health status to predict outcomes in health insurance and thereby pricing and approaches of predictive modeling.

In this particular reference, we had this great graph presenting actual spending by age and gender in the US context in 2009. Each point in the graph below presented one-year average health spending per capita as per age and gender. The spending in very early years (babies) are higher, and also women have higher medical expenses during their reproductive age group than males at the same reference age group. The per capita spending on health is more than double for females in age groups ranging between 25 and 35 years. This non-linear pattern can also be captured through modeling process.

Source: Ellis and Layton (2014)

The data and graph presented above also introduces us to understand why there is need for gender-based HCF policies in any economic system. In India HCF to a large extent has tried to address this issues and programmes such as NRHM, now NHM, allocated significant resources to meet reproductive and child health (RCH) challenges.

However, we are not sure whether the same is true for health insurance claims settlement. Though we do not have much information on gender based health insurance claim settlements, the data provided by RG Jeevandayee Arogya Yojana in Maharashtra provide some insights in gender based claim settlement for populations belonging to lower income groups. Here the gender disparity in claims looks quite obvious. The number of claims for females is 28% less than that of males and in terms of the amount of claims, it is 39% less. This difference is not explained by sex-ratio which is 929 females per 1000 males in Maharashtra. The RGJAY insurance scheme is also enrolled on family basis in 35 districts of the state and therefore has no enrollment bias towards males. There are 491 hospitals in the network.

The study of Insurance Information Bureau of India (IIBI) also indicate that for the year 2013-14, the data received from all insurers indicate that amount of claims paid to males is 72% and that to females is 28%.

Gender Disparity of Claims in

RG Jeevandayee Arogya Yojana (RGJAY)

Source: https://www.jeevandayee.gov.in/RGJAY/FrontServlet?requestType=

CommonRH&actionVal=HomepageStats&pageName=5 (accessed on 9 March 2017)

As gender has significant influence on how people will respond in a complex and context-specific situations, gender should be at the core of health financing policies. Some important learnings from this are:

• health finance is not gender neutral and therefore health care financing (HCF) policies need to be considerate of this fact,
• gender can be a key to stratification to assess risks and therefore developing gender-based health financing policies,
• gender affects how we live, work and relate to each other at all levels, including in relation to the health finance,
• household decision-making and health seeking behaviour and health financing policies around gender will be critical as it affects access to and utilization of health services.

As a first step to make policy makers and other stakeholders aware of gender impact, data and information must first be disaggregated by gender and make it an integral part of gender analysis into health financing research and analysis. Disaggregating data by gender is critical as aggregated datasets can mask many critical differences affecting policies in a unfavourable way. It would be useful to have gender-wise and age-wise data of settlement of claims and its analysis. Agencies such as IRDA and other government agencies engaged in presenting and analyzing the insurance data need to provide the information to monitor the gender based health care financing trends.

Ellis R P and T J Layton (2014). Risk Selection and Risk Adjustment, in Encyclopedia of Health Economics, ed. A J Culyer, Volume 3 pp. 289-297, Elsevier Inc. 

Government Health Insurance: Need to Navigate Equity Objective

Developing targeted health insurance options by pooling the risks and providing protection from catastrophic expenditures to population belonging to lower income groups has been one important HCF policy response in many countries. The central ministry and various state governments in India have developed and implemented RSBY, and other government supported health insurance (GSHI) programme targeted at BPL and other populations. 

As per the IRDA annual report of 2015-16, about 273 million persons are covered by various GSHI schemes in India. This may be considered as one of the major intervention globally bringing a vast pool together in a targeted manner to address health finance challenge. The total annual spending on these schemes is about Rs 2,500 crores per annum for which the contribution comes from both central and state governments. The net incurred claim ratio of these schemes for the year 2015-16 has been around 109 percent.

One of the objectives of this intervention is to ensure equity in health care financing. The performance of these schemes across states is, therefore, of interest from equity viewpoint. The gross premiums collected indicate that 56% of these premiums are accounted for by four states which are Maharashtra, Tamil Nadu, Karnataka, and Gujarat. The rest of India accounts for 44% of the total premium. These four states which have 56% of premium share roughly account for 25% of the total population of the country. Maharashtra which has 9% of the population, has 31% share in premiums. IRDA annual report does not provide detailed data for all states in India, and therefore the analysis here is restricted in some sense.

Premium of GHIS, 2015-16 (Rs in crores)

Percent Premium and Percent Population of Selected States 2015-16

The above graphs raise some interesting research questions. The performance across states in implementing GSHI schemes is not uniform, and therefore one is not sure whether the equity objective of HCF is being fulfilled. Since the RSBY and GSHI schemes have resource sharing arrangement between the centre and the states, the fiscal position of some states may contribute to this variation in experience. Also, the state level priorities of health, institutional arrangements developed at the state level and administrative efficiency to implement this scheme may also contribute to this variation.  If there are clusters of states which share common structural characteristics such as administrative efficiency or institutional developments favoring the RSBY policy, then government needs to consider a differentiated approach to make sure other states implement the programme effectively. 

The preference of insurance companies to work in certain regions for the reasons of either supply-side constraints (not having adequate health infrastructure) or inadequate demand of private voluntary insurance (PVI). The data suggest that Maharashtra accounts for 32% of PVI insurance and 31% of GSHI schemes premium. States having a high penetration of health insurance may indicate a well-developed network of private providers.

Also, the issues such as what is the exact coverage and take-up of target population and premiums paid under GSHI schemes across various states in India, what is the claim settlement experience across states in India, is low take-up in certain states because of lack of awareness or supply side health issues in health, is there a case of cream-skimming at macro level, insurance companies focusing on better states.

At a time when policy makers, scholars, and thought leaders are concerned about high OOP expenditures on health, what is restraining the system to ensure equitable distribution of coverage? What does this mean for the health of people on margins and how are they struggling with this experience?

Health Budgets: Beyond the Piecemeal Approach

The report published in the Indian Express today is an interesting read. The Ministry of Finance (MoF) has asked the MoHFW to have a relook at the National Health Mission (NHM) budget of 2017-18 which has planned a renewal of the Mission. The NHM had asked for a little over Rs 33,500 crore for next year and a little over Rs 1,37,000 crore for the next five years. The news report suggests that Expenditure Finance Committee (EFC) of the MoF has raised the questions about the way programme has been implemented and asked the MoHFW to revised the proposal. The intervention of MoF is a welcome step.

The year 2016-17 was the last year of most of the national programmes which also happened to be the last year of the twelfth five-year plan. The programmes include the NHM, the NACP, RNTCP, etc. The annual plans for most of the national programmes are generally part of the strategic plans of the programme for next phase starting in April 2017.

There are three developments worth noting that changed since the preparation of last phase strategic plans of various programmes.

First, the NITI Ayog had proposed to come with 15-year vision plan and through this vision document work towards the social objective mission of UNDP's 2030 sustainable goals which has16 goals with 169 sub-goals. These goals provide a much larger focus on the development. So various strategic plans of programmes need to articulate a vision or plan to guide how these goals will be achieved and how much resources will be required to achieve this.

Second, 14th Finance Commission envisaged giving more untied funds to States with greater fiscal responsibility in implementing centrally-sponsored schemes, and as part of the financial devolution strategy, FC increased the states’ share in central taxes from 32 percent to 42 percent. The new strategic plans for next phases were expected to integrate the developments of larger finance devolution as recommended by the Finance Commission to states. Several programmes had also planned to implement the integration and convergence strategy.

Third, the budget speech of Finance Minister in 2015-16 had mentioned that the government would abandon the plan and non-plan distinction from 2017-18. The budgets of 2017-18 were expected to have new and better rationale for justifying the budgets.

The strategic planning exercise of various programmes is generally expected to start one year in advance. For example, NACO started the exercise of developing a strategic plan by publishing a Mid-term Appraisal of NACP IV by NACO in August 2016. The findings and conclusions of this review were supposed to be integrated into the next phase strategic plan. However, we have not seen this strategic planning exercise moving any further. In the same manner, RNTCP strategic planning exercise started in September 2016, and final draft of the RNTCP programme have been shared with key stakeholders for comments during last week of February.

The new strategic plan of various programmes in the changed focused effort needed to ensure:

• consider all the three developments pointed out above
• cost-effectiveness of interventions
• a clear statement on state-level contribution to funding
• integration and convergence strategies leading to economies
• focus on prevention to ensure it reduces the future health burden
• district-level and state-level plans to ensure there is flexibility at district levels and whether the overall is well integrated and need-based

I am not sure whether various strategic plans meet these expectations, certainly not whether the interventions proposed are cost-effective or not.

* NHM’s health in doubt as Ministry told to revise cost, Indian Express, 9 March 2017

Why the Strategic Purchasing of Health Services by the Government?

For many years there was the belief that willingness to pay and ability to pay can guide the allocation of health care resources in any country. Development of the health care financing options was guided by these two principles. However, the collectivist view as articulated in Thatcherism era in the UK in the eighties articulated the principal that (1):

Adequate health care should be provided for all, regardless of their ability to pay, must be the foundation of any arrangement for financing the health services.

This collectivist view also gained prominence as the government systems failed to provide healthcare to all and the consequences of OPP expenditures on health care started affecting lives of a large section of the population. The challenges arose as the public health sector, which assumed responsibility for producing and distributing the services started crippling as they were not able to cope up with the demand or turned out to be inefficient.  The result was that people resorted to buying the services from the private sector which resulted in high OOP expenditures. The governments in such situation explore health financing options in the following ways:

1. Developing targeted health insurance options by pooling the risks and providing protection from catastrophic expenditures. The government in India and various states developed and implemented RSBY insurance programme targeted at BPL population group. As per the IRDA annual report of 2015-16, about 273 million persons are covered through various government-sponsored insurance schemes. This may be considered as one of the major policy reforms by bringing a very large pool together in a targeted manner to address health finance challenge. The annual spending by government on these schemes is about Rs 2,500 crores per annum.
   
2. Price controls by regulating the prices of selected drugs and interventions ensuring that such measures result in lower financing burdens and private providers do not take advantage of market imperfections. Healthcare access in India is affected with 70:70 paradox; 70 per cent of healthcare expenses are incurred by people from their pockets, of which 70 per cent is spent on medicines alone, leading to impoverishment and indebtedness (2). Since the spending on drugs and medicines is a significant part of total OOP expenditure on health, regulation of the price of essential medicines has been another policy option government has implemented. National Pharmaceutical Pricing Authority (NPPA) is responsible for fixing and revising prices of controlled bulk drugs and formulations and to enforce prices and availability of the medicines in the country. The NPPA also monitors the prices of decontrolled drugs. The annual turnover of the Indian pharmaceutical industry is estimated to be about 165,200 crores during the year 2014-15 of which the share of export is Rs. 78,792 crores. Nearly 680 formulations, spread over 27 therapeutic categories including HIV, diabetes, heart diseases, cancer are under price control.
   
3. Developing option of strategic buying by the government and providing these services to the people in need either at subsidized prices or no cost.  There is general belief that some of the services such as diagnostic and various investigative procedures can be produced efficiently by the private sector and governments can buy these services and make them available to people in need. These are not under price controls.

The initiatives of the Delhi state government provide several reasons for the optimism if the reforms of strategic purchasing of health services they have embarked on go well.  The option of strategic buying may also turn out to be preferable option to health insurance option.

Diagnostic and investigative procedures (DIP) market has its challenges, and it is important to understand the characteristic of this market in the background of policy option of strategic purchasing. One of the characteristics on which the markets are typified is whether they are contestable. Contestable markets are one that has no exist/entry barriers. If in that market prices increase much beyond the average price level (and generate excess profits), potential rivals will enter the market to exploit this situation. The existing players will respond by bringing down the prices appropriate to yield normal profits. The perfect contestability will make it sure that even a single player can exhibit competitive behavior.  The way the DIP markets have grown in India with no control on the certificate of need (domain and geographic specific), this market is not perfectly contestable as there are huge sunk costs creating huge barriers to exit and entry. It is difficult to find a suitable buyer of assets once it is discovered the entity is not doing well. Compounded with this is the fact that most decisions to use a particular procedure is decided by the doctor and not by the patient leading to a situation of information asymmetry between doctors and patients. Given perverse incentives, this may lead to a situation of supplier-induced demand. It has been shown that given these imperfections, insurers are not able to solve this problem. For example, insurance gets seriously affected by fee for service system which increases the discretion and unnecessary clinical interventions. Given the contestability issues even having a large number of players, the competition will not necessarily lead to efficiencies and good practices. In private health care settings, in particular, the ability to pay takes precedence over the need, and DIP pricing policies give dominance to business interests over health care. 

How does one improve the contestability in the DIP market? The reforms that separate the role of purchaser and provider by formalizing relationships between buyers and sellers in the form of contracts which articulate the volume, price and quality characteristics of transactions helps in improving contestability in health markets (1). This is the reform UK embarked on through the creation of quasi-markets when District Health Authorities were assigned the role to assess local health care needs and purchase "cost-effective" treatments to meet these needs within available budget. Under the system, the larger primary care practices could also elect to hold budgets for the purchase of diagnostics, outpatient care, and non-emergency inpatient treatments. When government intervenes through the process of creating quasi-markets, they become aggregators of demand in some sense. The insurance system is not able to deal with the fragmented providers and have to be negotiate with them individually either through TPA or insurer themselves. The aggregation of demand provides an advantage of bargaining volume based prices increasing efficiency with which government resources are used. 

The pace and consequences with which the process of strategic purchasing unfolds in the system are always unpredictable. But its effects can, however, be significant as the strategic purchasing helps in aggregating the demand for health care, unbundling and outsourcing some components within the health production process, governments get in better  position to restructure the supply-side of the market by responding to needs of the population and strengthen developing mechanisms of greater integration of primary and hospital care. Any system is fraught with some challenges.There are several reasons for optimism for these reforms, but at the same time, some reasons for caution are well-known.

How does one instill accountability and responsibility of clinicians recommending the purchase of services? Are there clear identification of roles and rules that ensure (a) what is being purchased, (b) for whom it is purchased and (c) of what quality? How does the system protect from market price manipulations and inflation in costs? Given we have limited knowledge of cost-effectiveness analysis of various technologies available, the problems of measurability and contestability associated with expensive, complex and concentrated procedures may require a stronger regulatory environment and skilled contracting mechanisms before governments can rely on obtaining these services from the private sector (1). 

1. Alan Maynard (1991) Developing the Health Care Market. The Economic Journal, 101:1277-1286.
2. Golechha M (2015) Healthcare agenda for the Indian government. Indian J Med Res 141:151-153.

Making Cost Effectiveness Analysis of Health Policy Choices Mandatory

The application of Cost Effectiveness Analysis (CEA) methodology helps in making appropriate choices in health. At present, CEA has a marginal role in health policy making in India. Many health care interventions have been introduced in the country without doing appropriate and contextual CEA. Introduction of various interventions, drugs, and procedures have used CEA methodology in a very limited manner. We have not paid attention to developing adequate capacities in this area and as a result, capacity in this domain remains scarce. Indian health policies have not made it a point to include CEA as a necessary requirement of introducing new technologies and interventions. Over the years India has compromised introduction of new and expensive technologies without doing contextual CEA, and as a result, we have adopted practices which are responsible for passing on an increasing proportion of costs to patients and in the absence of insurance protection to a large section of population, this has led to high OOP expenditures on health.

The recent example of cardiac stents and drugs which were brought under the purview of price control signal that payers may now question the transparency and force providers in making choices more apparent. This indicates an important role and need for CEA. We are now at tipping point. Indian Medical Association (IMA) report of the core-committee for revision of the national list of essential medicines (NLEM) in November 2015 had some interesting observations on this, and I hope they will be taken to their logical end. Among other things, the report suggested:

When more than one medicine are available from the same therapeutic class, preferably one prototype/medically best suited medicine of that class to be included after due deliberation and careful evaluation of their relative safety, efficacy, cost effectiveness.

The observations of the report also suggest that the price of total treatment be considered and not the unit price of medicine. This will require a massive effort of developing system of ascertaining cost of "care cycle" and not just some components of the treatment. This is an important and all stakeholders need complete understanding on this. Fixed Dose Combination (FDC) are not included unless the combination has unequivocally proven advantage over single compounds administered separately, in terms of increasing efficacy, reducing adverse effects and/or improving compliance. The medicine in NLEM will be based at primary, secondary and territory levels of health care according to treatment facilities and training, experience and availability of health care personnel at these levels. These are welcome observations from IMA. We need a strategic plan to ensure CEA capacities are created to achieve these goals.

The CEA analysis is an important instrument to inform various value-based decisions and by using the evidence produced by the CEA helps in giving access to critical medical technologies and interventions. CEA is a well-discussed approach that helps in quantifying the relative value of competing treatments by estimating the additional cost of generating an addition unit of health outcome. And based on this, CEA provides information that allows policy makers to judge whether the incremental benefit is worth the incremental cost. Of course, if we have to start integrating CEA, we have a repository of a lot of global experience in this area and initiating the process can be leveraged on this experience.

Indian Council of Medical Research (ICMR) recently took the lead in organizing a two-day workshop on March 3-4, 2017 for their senior scientists to apprise them about the CEA methodology. In the absence of a centralized agency responsible for conducting CEA, ICMR can play a pivotal role in taking this initiative forward and preparing the vision for next five years by describing areas where CEA could be initiated. Apart from having many advantages of this effort, the tasks would include standardization of methods, addressing various biases that may creep in such analysis, keeping the analysis objective and free from various vested interests, organization structure, and processes. Along with the capacity building, the strategy would also need developing collaborative linkages across various institutions and make the participation of health economists possible in this initiative.

The other stakeholders also have a vital role in the system. For example, private insurance market and IRDA must also contribute to this effort and institute framing guidelines for making CEA of interventions a mandatory requirement for all health interventions. People who buy voluntary insurance spend about Rs 22,000 crore in 2015-16 on covering their hospitalization risks. Government sponsored insurance schemes contribute about Rs 2,500 crores.  Both these put together cover about 36 crores of the population. For both these segments, insurance companies have settled claims to the tune of Rs 21,760 crores in 2015-16. The payers and those who pay premium have right to know whether their contributions are being spent on correct and cost effective medical procedures and interventions. In a system where insurance is growing at CAGR of 17 percent, CEA provides information which payers would need to judge the relative value of competing interventions and opportunity cost of these interventions. Insurers must insist on CEA information to inform their critical decisions.

What is wrong with Group Health Insurance Business?

Health insurance market in India regarding the gross premium collected during the year 2015-16 stood at Rs 24399 crore ($3.6 billion). The government sponsored insurance programme contributed about 10 percent of this premium, and 90 percent was the voluntary group and individual health insurance plans.

The number of people covered during the same year has been 35.90 crores of which 27.33 crores are covered by government insurance schemes which include RSBY and other state government run insurance schemes. Private voluntary insurance covers about 8.57 crore individuals.

The average unit premium of three broad classes of insurance presents an interesting picture. The per capita insurance premium is highest in individual voluntary schemes at Rs 3607 and group premium is about 60 percent of the individual premium. The differential between government sponsored insurance, and private individual voluntary schemes is to the extent of 40 times (see Figure below for comparison). The membership differential between these two schemes is about ten times.

Per Capita Insurance Premium (INR) 

Data Source: IRDA Annual Report 2015-16

At the theoretical level, the dynamics of health insurance markets is well known. The insurers operate in situations where demand-supply conditions do not adequately reflect the real preferences, and because of information asymmetry, the market will always be in flux. The two key risks viz., adverse selection and moral hazard problems influence the pricing and performance of insurance schemes. Insurer's design of plans include conditionality to protect themselves from such hazards. The co-payment, deductibles, and exclusion clauses are some of the instruments used by the insurer.

Among other measures, the group insurance schemes are expected to have significant economies of scale and writing such policies may reduce the adverse selection problem by improving the risk pooling. One of the measures to monitor the sustainability of insurance pool is the incurred claim ratio, which is measured by dividing the net incurred claims by net premium collected. This ratio across the three segments of insurance present an interesting read.

Claim Ratio Across Different Health Insurance Segments for 2015-16

Data Source: IRDA Annual Report 2015-16

The claim ratio of group plans across all three types of insurers are higher. For public sector insurer the claim ration is 123 percent, where as for private and standalone insurers it is 98 percent and 87 percent respectively. The expected claims in group plan should have been lowest. This raises some interesting research questions:

• Do we lack appropriate risk rating in group health insurance plans?
• Are market failures in group-plans more severe than individual markets?
• Do good corporates retain employee health risk and do not buy insurance?
• Is there an overselling of group plans to meet the revenue target of the insurer as the reason and insurers take more risks?
• Are the group plans more liberal in using the preferred provider and receive less scrutiny of claim authorization and claim processing?

Number of Cardiac Stents Implanted in India

Data collected from various sources and estimation made for 2016 on cardiac stents implanted in India over the years is presented below.

We observe a spike in implantation data in 2010 and 2014, the two years where the increase has been significantly high. What was significant about these two years? The general discussion on this issue suggest that not all implantations are necessary. Knowing the fact that there is serious supplier-induced demand problem in general in health care, it may be worth examining how much of this implantation are necessary and how much fall in the category of really "not-needed"?  On financing side, it may be interesting to find how many patients paid the cost "out-of-pocket" and how many were insured? It is estimated that about 60 percent of these stents are imported. It may interesting to examine the political economy of stents. 

When it comes to health, we are really in a data starved situation and can not argue effectively on many policy issue. Some speculations are, however, inevitable. Indian medical system predominantly works on fee-for-service based payment method. In this context understanding, the impact of the price cap on stents would be an interesting area to research. Prediction of a few consequences include: (a) the price control will weed out unnecessary implantations because of removal of perverse incentives and thereby resulting in lower implantations - a desirable outcome, (b) hospitals will reallocate resources affecting lower volume of implantations because treatment of patients becomes less remunerative as compared to relative activities - called substitution effect, not desirable from overall societal viewpoint, (c) hospitals modulating and strategizing the service configuration and increasing prices of other services - price effect, non-desirable, (d) hospitals increasing the volume of implantations to compensate for loss of revenue - revenue effect, desirable and (e) the formation of cartels by companies to weaken the price control. On the last one there is an interesting study published on mitigating regulatory impact: the case of partial price controls on Metformin in India, Health Policy and Planning 2017. The study found that firms coordinated to increase the price of the regulated formulation in the period before regulation, which led to a higher ceiling price and this coordination was stronger among larger firms and for time-release formulations. The study presents anecdotal evidence to suggest that pharmaceutical trade associations facilitated coordination among firms, and conclude that partial price control of Metformin in India is, at best, a modest improvement over no regulation. 

Which effects will play out in actual practice are hard to predict. Some studies from insurance based markets in US suggest when the reimbursements in insurance are reduced, a 1% reduction lead to 0.40% increase in treatment volume. This is will happen when hospitals follow target revenue approach. What will be the effect of the price caps on practice is an important area of research. One also wonders that why Indian healthcare providers  have not been able to do what Aravind did in manufacturing of intraocular lenses at an affordable cost.

Price-Cap is after all Just a New-Price

Healthcare financing systems world over are grappling with a complex set of economic and ethical challenges. The introduction of penalties, fines, and price caps has become standard policy tools to address some of these difficulties. The assumption is that creating such deterrence around decisions will modulate the behaviour of various players in the desired manner. The aspect of modulating the behaviour of key agents in an economic system towards desired directions has been the point of some analysis. The fundamental hypothesis is that when the regulators impose penalties or negative consequences on a particular way of doing the things, there would be an immediate effect on that individual behaviour and actors will strictly follow the pronouncement. The actual behaviours, in fact, observed suggest that imposing adverse consequences or limiting the behaviours may not last long and in fact, their impact will be temporary.  Keeping rest of the eco-system unchanged around these decisions, such interventions lead to actions and decisions that may not conform to the desired behaviour.

Non-compliance of National Pharmaceuticals Pricing Authority (NPPA) order on pricing cap of cardiac stents suggest that any manufacturer or institution or person not complying with the ceiling price shall be liable to deposit the overcharged amount along with interest thereon under the provisions of the Drugs (Prices Control) Order, 2013 read with Essential Commodities Act, 1955. The ceiling price fixed as specified in the order shall be maintained for a period of one year from the date of this notification unless revised by another gazette notification. The severity of the fine and its behavioural implications are debatable.

Any analysis and implications of any economic regulations will need a detailed and complete specification of market forces. In the marketplace, there are demand and supply forces at work, and several agents engage in making decisions. Price-cap, after all, will be just a new price in the marketplace. Each such intervention needs an ecosystem to establish its enduring impact, as there are several drivers at work. Of course, the severity of punishment, which creates the fear factor, would be crucial, but besides a fear factor, the effectiveness of measure also depends on several of these forces at play. 

The promulgated regulation is more associated with profiteering behaviour than creating a stimulus for ethical practices. The introduction of price caps alters the perception of people regarding the environment in which they operate. The penalty imposed in the order may alter the perception in the following way: (a) Provider side perception: The hospitals were charging for the cost of operation in a particular way, and in future, they will do that activity in the same manner. For providers, the deviation may have a cost (regarding reduced image and goodwill).  Maintaining their image has a price, and they do not mind paying this price. (b) Patients side perception: The way the information about the stents have been played and the tag that higher priced stents are better, patients’ perception may suggest that what is provided is justified. This social interaction of provider-patient and norms surrounding their relations may have limitations on bringing down the overall costs.

There is a need to address the fundamental problem – the problem of defining the output and creating a stimulus for appropriate pathways and protocols. Since the aspects of care and its delivery remain loosely defined, these can be molded in any manner at various levels. There is no guilt or shame (depending on the degree of internalization of the social norm) that can be attached to the act of buying a service at will. Since various parameters of the decision remain unchanged; its effectiveness will be debatable. The price cap affects just one parameter in the whole process of decision making. And just to reduce their preferred level of deviation in this regard, one would be free to change other parameters of the game.