I have spent a large part of my life in intensive care units where families arrive frightened and exhausted. Nobody negotiates in that state. When a doctor hands you a slip and points you to a counter, you do not wonder whether that medicine costs less somewhere else. You pay, because your child or parent is all you are thinking about.
That asymmetry between an institution that knows everything and a family that knows almost nothing could be the backdrop to the Maharashtra Food and Drug Administration’s order last month telling hospitals and their affiliated pharmacies to stop forcing patients to buy medicines from in-house counters.
Prescriptions must be handed to patients, and every hospital must display a sign in plain Marathi and English that says one is free to buy medicines from any licensed pharmacy.
There should be no issue with that. In-house pharmacies, for the most part, were not set up in bad faith. For an admitted patient on a complicated regimen, an accountable pharmacy within the building that is open at odd hours and has the exact molecules needed (and properly stored) is safer than nervous relatives going out looking for the right drugs.
Continuity of care is a real clinical good. So is knowing where a medicine came from. It does not help the debate if we pretend that these things are fiction.
The trouble is what happened next. In too many places, a clinical convenience hardened into a captive market. Prescriptions stopped being something owned by patients and became another channel for hospital revenues.
That is what the regulator has moved against. Not the in-house pharmacy itself, but the patient’s vanishing choice. When the Competition Commission of India examined similar conduct, it was careful and, to my mind, correct. A hospital isn’t a monopoly, but it can create a lock-in so complete that a patient’s consent becomes a formality.
Let me explain the part that investors usually keep to themselves. A margin that survives only because customers have no alternative is the weakest margin in healthcare. It is money obtained on trust, and trust behaves differently from a pharmacy mark-up. It builds on itself, slowly, over the years.
The best hospitals I know are quite relaxed about this order because they stopped leaning on captive rupees a long time ago. Their returns come from clinical outcomes and from being the place a patient would choose even with other options open to them, rather than operating as a place that monetizes the fears of patients and their families.
Here is the harder truth, one that deserves close attention. Freedom to choose alone will not do much to reduce what a family pays. Let us delve into the price of a medicine in India. A large slice of it is not the cost of the formulation at all, but trade margins stacked up along the way from the manufacturer to the stockist and then retailer.
The National Pharmaceutical Pricing Authority understood this. In 2019, instead of only capping prices, it went after trade margins. For 42 non-scheduled anti-cancer drugs, it held trade margins at 30% of the retail price; the maximum retail price of hundreds of brands fell, in some cases by as much as 90%. The point was hard to miss. The real distortion lies in the opaque chain behind the counter.
So, a patient who is free to walk out of the hospital gate may suffer the same inflated maximum retail price at a shop across the road. Same molecule, same margin, a different bill. We would have moved the transaction point without fixing the economics behind it.
Let Maharashtra’s order be a beginning then rather than a conclusion. Three things must move together.
There is choice, which Maharashtra has now secured, and which other states ought to copy. There is price, which needs wider trade-margin reform and honest itemized billing, so a family can see what it is paying for. And there is quality, because a cheaper pharmacy is no bargain if it hands you a medicine that was either badly made or stored, a danger revealed in cruel ways by recent tragedies.
It is important to uphold the idea that a prescription belongs to the patient. As for hospitals, the institutions that endure will be those that treat this belief as an asset rather than a nuisance.
A hospital that no longer needs a captive pharmacy need not worry about its revenue streams, as it would earn the one thing in medicine nobody can mark up, which is the trust of those who walked in afraid and left knowing they were never being charged for their own helplessness.
These are the author’s personal views.
The author is co-founder and managing partner of Quadria Capital, and a critical care physician.