Health
care system, in general, is an imperfect world. We face notorious difficulties
in measuring health care inputs and their associated outcomes at all levels of
health care. Drawing conclusions about the interventions, their use and whether
the healthcare inputs and outcomes give value for money is a major challenge. The
recent NPPA order ((F.No. 19(837)/2016/Div.II/DP/NPPA, dated 02 Feb 2017) of
fixing a ceiling on stent prices based on the contention that margins were
exorbitant and irrational, an act of vulgar profiteering at various levels
including the hospitals and cardiology clinics, raise a variety of economic and
ethical arguments in the health financing sphere. Interestingly the order
further states that the levels of margins indicate a “failed market system”
where asymmetry of information has resulted in unethical practices. We are, may
be, seeing one of the first crisis to be followed by much more such situations
in future.
The
hospital associations have contended that the margins charged are justified at
their end as they are required to invest in capital assets to ensure a smooth
running of operations. There are apprehensions that this will not work, and
also put the consumers at a lot of inconveniences. The NPPA has argued that
since hospitals are not doing any value addition, they must not be allowed to
put any top-up margins and disassociate themselves from such practices. The
NPPA order brings one of the central rallying cries in the health sector to a
center stage. It brings forth, the debate about the influence of “business” on
health care and the question of medical ethics. At most times, such discussions
can become frustrating and controversial. But the positive side of this
discussion being stated in clear terms is to give an explicit recognition to
the fact that medicine and business are now connected, and there is something
wrong. Asserting these linkages are inescapable because they are more visible
now and at times turn to be uncomfortable to many stakeholders in the health
system. The economic and ethical dilemmas are so pervasive; we cannot remain on
sidelines any longer. I think this discussion will pave the way to argue about
what kind of system we want in future.
Within the
overall system, hospital market has its challenges, and it is important to
understand the characteristic of this market in the background of debate on the
cap on pricing. 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. Hospital care markets are not perfectly contestable as
there are huge sunk costs creating huge barriers for exit and entry. It is
difficult to find a suitable buyer of assets of hospitals once it is discovered
the hospital is not doing well. Compounded with this is the fact that decision
to use a particular input is decided by the doctor and not the patient leading
to a situation of information asymmetry between doctors and patients leading to
a situation of supplier-induced demand. Many of unpredictable implications of
hospital practices may be traced to these problems. For example, hospital
practices are replete with assertions that fee for service increases 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 hospital
pricing policies give dominance to business interests over health care. We have
yet to experience the prescription of generic drugs, rather than the
prescription of prescribing of expensive branded ones, with no significant
benefit in patient outcomes. The response from regulators is inevitable in such
situations. One of the typical responses from the regulatory toolbox is being
following the dictum of “illegalization of dubious pricing” policies of
providers.
However,
one also needs to understand that here we are dealing with a situation where we
have no data based on which one can make informed choices. Our costing systems
are not good enough to help understand the relationship between inputs,
activities/processes, and outcomes, in treatment pathways. There is no cost
data available on such pathways. When hospital associations make a point that cardiac
stents need a delivery mechanism to be implanted within the body and that the delivery
mechanism and its ecosystem require capital investments, one wonders why these
costs should be clubbed with the cost of stents. The detailed activity-based
costing of hospitals is not in place, and one has no idea how much does an
intervention costs. The cost information we have is related to functions such
as salary, rent, etc., but it is not possible to find opportunity cost, for
example, of an episode of hospitalization. Making this argument that stent
prices are in fact within a bundled price of procedure and components weakens
the argument. It reflects poorly on highly reputed hospitals as not having an
appropriate costing system in place. It is high time for these institutions to
invest in some basic infrastructure of financial management and understand
their costs and present their arguments cogently. In recent times, most of the
private and corporate hospitals have invested in hospital management
information systems (HIMS) to manage patient care, finance, billing, medical
records, and insurance clients. It is surprising that amidst such an IT
infrastructure these hospitals fail to implement data collection mechanisms for
calculating costs of treatment.
Some have
argued that insurance companies pay for these procedures and the insurance
providers routinely produce price data. It is important to understand that the
price data produced by insurance companies are negotiated prices and may have
little bearing on the real costs. The insurance prices data are many times
bundled prices, and one does not know the cost of various components of the
service. We confront another challenge
of not knowing the real outcome of various procedures, and there is no effort in
place to capture this data. Often the outcomes are proxied with the process and
the kind of stents used. This is certainly not the correct approach. The
outcomes measurements should be based on the enhancement in duration and
quality of patient's life or methods propagated by Prof Michael Porter on
outcome measurement. In the private hospitals, there are huge gaps in capturing
this information. Even if one captures some basic information such as
readmission rates, it measures an important component of quality. The other
point, which we also need to be confronted, is the high variation in costs and
clinical activities across facilities in the country. Those working in the
health sector recognize this fact, and there is little consensus on what is the
best practice. In many situations, doctors do have good insights into the
input-outcome relationships, particularly what is desirable and what is not
desirable; however, they tend to ignore such knowledge because of perverse
incentives. Doctors in many hospitals work based on “revenue target” approach,
due to organizational pressures or third party paying system, thus creating
moral hazard situations. Hospitals also work in highly fragmented markets and
the same is true with their procurement side. This fragmentation increases
costs, as one does not get an advantage of economies of scale.
The
current debate also raise a wide variety of ethical arguments about health care
financing; chiefly (a) what is the role of health and its distribution in
society in advancing universal health coverage? (b) what is the role of access
to or utilization of health care in maintaining or improving the desired level
and distribution of health among members of society? and (c) what is the role
of public and private financing in ensuring ethically justified access to and
utilization of health care by members of society? The health care financing
experience around the globe may have something to contribute to the development
of the ethical foundations of health care system. For example, it is important
that our policy deliberates on instituting systems that focus on ensuring
“just” distribution of health care resources and strengthening the effort
through good economic analysis of health care financing issues, health care
provider incentives, health insurance markets and deliberating on the role of
public and private financing in health care.
Indian health system needs to be
ready to solve many crises to overcome in trying to create a healthy society
for its inhabitants. As some say that the first crisis is always the crisis of
not having a vision.
Ramesh Bhat
23 February 2017
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