Pradeep Gaur/Mint
Pradeep Gaur/Mint

Mediclaim malfunction maladies

Differential pricing is the way any industry with high fixed costs behaves; but that does not seem fair in health care

Did you know that you get different rates for the same surgery if you go as an uninsured person, or if you go with your own cover or if you go with a group cover? Rates vary across insurance firms as well. I had heard of it, but had not got proof in my hand. Last week, I bumped into a neighbour who is scheduled for a minor surgery. He went to a big south Delhi corporate hospital chain and asked for an estimate. He presented his individual policy since he was not sure his group policy was valid as he was between jobs. He got an estimate of .16 lakh. Then he found out that his office policy was valid after all. Returned a day later to ask the same question on estimate, but this time presented his group policy. The estimate was 69,300. I have both the documents with me. The individual policy was from a private stand-alone health insurance company and the group policy from a public sector insurance firm.

I found two reasons for the differential rates. One, insurance firms with a large client base are able to negotiate down hospital costs and public sector insurance firms, being older of the two, have a much larger policyholder base. Two, public sector insurers got together a few years ago and formed an association known as General Insurers’ (Public Sector) Association of India (GIPSA) and began to bid down rates in response to arbitrary and high charges by hospitals. The combined might of the four public sector insurers enables them to bring hospital rates down, leading to differential pricing.

“Hospital costs reduce most when you buy insurance from companies that have large market share and muscle. So, the PSUs (public sector undertakings) negotiate hospital rates collectively; that’s why they are so low. Smaller private companies have less leverage," said Kapil Mehta, co-founder, SecureNow Insurance Broker Pvt. Ltd. “ECHS (Ex-servicemen Contributory Health Scheme) and CGHS (Central Government Health Scheme) rates are even lower than GIPSA (PSU) rates," he added.

Nachiket Mor, country director of the Bill and Melinda Gates Foundation, takes the argument a step ahead and says that just price is probably not the correct way to look at the problem. Differential pricing is the way any industry with high fixed costs behaves. Take airlines, for example. They have high fixed costs and the marginal cost of the last passenger on board just before he flies can be almost zero. The airline will then try and go for bulk bookings and volume to cover its fixed costs. Hence, the discounts on early booking and on group or corporate deals. Hospitals are similar, says Mor.

But that does not seem fair in health care—to charge the uninsured, the individual buyer more than the group or different rates depending on which company you have as your insurer for the same surgery. Given that the Indian public health care system is largely dysfunctional, what is the way ahead? “You need powerful customer-agents to bargain on their behalf with the powerful suppliers," says Mor. What about hospital ratings that inform the patient on prices, service, outcomes? Some preliminary work has begun on rating hospitals and disclosing costs online. ICICI Lombard runs a basic hospital rating at https://healthadvisor.icicilombard.com. It is a start but still fairly superficial and thin on things that really matter. What matters? Mor says data on hospital acquired infections in patients when they get admitted is important. How many falls a patient has due to negligence and re-admission rates —did the patient have to be re-admitted for the same medical issue—are also important.

But these data points are unavailable. More difficult issues centre around the moral hazard of the doctor prescribing a line of treatment that is profitable but may not really be needed. This is data that an average individual will not be able to access, or even understand. Mor sees a good market where an oligopoly sells to an oligopsony – large seller sells to a large buyer.

My neighbour’s story is a tiny symptom of the much larger health care crisis in India. It fails at many levels, from the corrupt education industry, to unregulated hospitals with no effective accountability of doctors, of moral hazard of doctors and hospitals seeking kickbacks from pharma companies and medical equipment firms. If public health care fails to deliver to the poor, those with the money are at the mercy of mercenary hospitals with no way to evaluate outcome or even prices. The government has scrapped the highly controversial Medical Council of India (MCI) and will replace it with the National Medical Commission (NMC). But as economist and urban theorist Sanjeev Sanyal argues in this piece: http://mintne.ws/2dDnNq6, NMC tries to solve the education problem and is not even looking at the malpractice and malfunction issues. Maybe Mor has the answer. We need to make it in the interest of the hospital and the insurer that people stay healthy. Meanwhile, we live with differential pricing and cashless systems that make us pay in cash. The cash in cashless story is for another time.

Monika Halan works in the area of consumer protection in finance. She is consulting editor Mint, consultant NIPFP, member of the Financial Redress Agency Task Force and on the board of FPSB India. She can be reached at monika.h@livemint.com.

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