The Supreme Court order on hospital charges isn’t good for anyone

The National Health Accounts Estimate released by Niti Aayog in April 2023 showed that in FY20, Indians spent 47.1% of their total health expenditure from their own pockets. Photo: HT_PRINT
The National Health Accounts Estimate released by Niti Aayog in April 2023 showed that in FY20, Indians spent 47.1% of their total health expenditure from their own pockets. Photo: HT_PRINT

Summary

  • It will hurt the bottom lines of healthcare companies while providing no relief to citizens, for whom the cost of treatment at private hospitals is a huge concern.

On Thursday the Supreme Court criticised the union government's apparent failure to specify a range of prices that private hospitals and clinical establishments can charge for their services. Although a rule on this issue was framed 12 years ago, the court noted that it had not been enforced.

It also directed the union health secretary to meet with his state counterparts within a month, with the next court hearing expected in another six weeks. The meeting is supposed to set a yardstick for standard rates, and the court has offered the example of the Central Government Health Services scheme as a possible one to deploy.

This is a breathless order that will hurt the bottom lines of healthcare companies while providing no relief to citizens, for whom treatment costs at private hospitals is a huge concern. One does not even have to conduct a dipstick survey to get a measure of this anguish.

The union government told the court that under the Clinical Establishments (Registration and Regulation) Act of 2010, and rules framed in 2012, all hospitals must display the rates charged for each type of service, which must be within those set by the union and state governments. This was an attempt to control prices across the country, but less than half the states came on board. The rules included setting up district-level bodies, state-level councils, and of course a National Council headed by a joint secretary.

Since price control was then the sole aim – as it seems to be again, following the Supreme Court order – there was no mention of how the quality of medical service would be measured, who would do it, or whether this was indeed a practical idea.

In no country does the government provide healthcare to the entire population, so private establishments fill the breach. But a huge disparity between demand and supply in India has led to gross overcharging and mistreatment.

To make this a good deal for everyone, there must be a regulator — preferably at the national and state levels. This is what the court should have asked for. The insurance sector, saddled with hugely inflated insurance claims for hospital stays, has already called for this.

Since the National Health Authority only manages public health schemes such as Ayushman Bharat, private hospitals (which are supposed to be managed by state governments) are outside its purview. As a result the National Health Accounts Estimate released by Niti Aayog in April 2023 showed that in FY20, Indians spent 47.1% of their total health expenditure from their own pockets.

The shortage has boosted the stocks of all hospitals and healthcare companies. Before Thursday’s correction, the earnings per share of the top 10 listed ones were well above the Nifty 100 average. Yet only one such institution – Apollo Hospitals – is on the list of the top 100 tax-paying companies.

This shows the sector has been living a charmed life. How? Finance ministry data sectors shows that the effective tax rate for “speciality and super-speciality hospitals" was 29.51% in FY22. This was a tad higher than the effective corporate tax rate of 27.81%. But the catch is in the number of entities that actually paid this rate. Just 1,880 did so in FY22. What about the rest? They took shelter under the guise of “charitable entities". A scheme to tax such entities, proposed by the Tax Administration Reform Commission under Dr Parthasarathi Shome, is gathering dust.

Why has this happened? Given the huge unmet need for healthcare among the population, successive governments have been ready to offer benefits to hospital chains that set up shop in their states. They should have asked for accountability in return, which would have required a regulator with effective powers. But there has been movement on this front.

The alternative we are faced with is a micromanaged regime of national price controls, which requires thousands of inspectors to enforce. This will only bring in more ills and no remedies. The court order will hurt healthcare companies and provide no relief to customers. A set of competitive prices, not government inspectors, could have helped reform healthcare in India.

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