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Mumbai: Plans to help reach healthcare to nearly half of India’s population over the next four years could be a greater success if private healthcare service providers are incentivized by linking their reimbursement tariffs to the quality of services they provide, says a new report by consultancy firm Ernst and Young Llp (EY).

Most government-sponsored health insurance schemes invite hospitals to participate in the so-called L1 bids (lowest bidder wins) to fix provider-reimbursement rates, but this method assumes that all providers are equal in terms of the quality of care they provide, said the EY report.

“Though there are mechanisms to assure quality like empanelment of providers with basic eligibility criteria, there is negligible monitoring of quality standards post empanelment," added the EY report, titled Universal Health Cover for India.

Prepared in partnership with industry lobby Federation of Indian Chambers of Commerce and Industries (Ficci), the report was released last week.

The roll-out of universal health coverage, recommended by the Planning Commission in its 12th Five-Year plan (2012-2017), is likely to increase total government expenditure on health to at least 3.7% of the gross domestic product (GDP) from the current 1%, according to a concept paper by EY in 2012.

According to the new EY report, between 2004 and 2010, the number of people covered by different government-sponsored health insurance schemes has increased from 37 million to 234 million. This implies that by 2015, the government’s purchase of healthcare services could be in the range of 38,000 crore to 40,000 crore, it added.

Active collaboration between the government and the private sector is a non-negotiable imperative for achieving universal health cover, the report said, adding that all these plans will be impacted if private players are not incentivized well enough.

“Determination of reimbursement rate is crucial as it has to critically balance multiple and possibly contrary objectives of patients’ safety, the economic sustainability of payers, and the commercial interest of private players," said Muralidharan M. Nair, a partner at EY who led the team that prepared the report.

He pointed out that most countries are moving toward a DRG-based (diagnosis related groups) payment system, which assigns cost weights to DRGs in relation to the intensity of resources used in the treatment. DRGs classify human diseases according to the affected organ, diagnosis and other characteristics of patients such as age, gender, complications and procedure performed. “This essentially means that a hospital which has invested in superior facilities—including treatment method, quality of services and technology and doctors to improve the outcome—should be reimbursed as per the quality of care," said Nair.

While private entities need to keep in mind that government-sponsored health insurance schemes contribute significantly to market expansion, the reimbursement mechanism has to ensure that participation is value-accretive and not loss-making for the private sector, said the EY report.

“At present, it takes some of the government medical insurance schemes as long as three years for making the reimbursement," said Nair.

According to the EY report, it is also important to define the provisions for adequate and timely revision of the tariffs and suggests the creation of a national administrative body for governance and oversight of reimbursement mechanisms. One of the key objectives of this body would be to provide reference rates for all government-sponsored schemes, irrespective of whether they are state or centre driven.

The value of the Indian healthcare industry, as estimated by consultancy firms EY and McKinsey and Co. in 2008, was around $35 billion (around 1.72 trillion then) and is projected to rise to about $150 billion by 2017.

The new EY report said with the universal health cover, the government’s role is seen to be shifting from a provider of healthcare services to a payer and purchaser of such services for citizens. “This trend will gain further strength in times to come due to political, resource constraints and due to consumer preference for private healthcare," said Nair.

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